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Issuing valid invoices under the Building and Construction Industry Security of Payments Act; when does an entitlement to the invoiced amount arise and consequences of invalid invoices

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The Building and Construction Industry Security of Payment Act 2002 (Vic) (the Act) serves to act as an alternative to traditional litigation for the recovery of unpaid invoices and payments claims in the construction industry, with the benefit of being a quicker method of resolution. However, as a trade-off for such speed efficiency is the requirement to adhere to strict requirements when issuing invoices and payment claims under the Act.

 

Valid Invoice or Payment Claim under the Act

The legislation states that in order for a payment claim to be valid and entitled to the faster processes under the Act, they must contain the following:

  1. In any form prescribed by the construction contract;
  2. Contain specific information requested by the construction contract;
  3. Identify the construction work or related goods and services which the payment claim claims for;
  4. Identify the amount of the payment to be made under the payment claim; and
  5. Must state that it is made under the Act.

As noted by points 1 and 2 above, a building contract may specify certain things to be included in a payment claim. Therefore, it is always recommended to carefully review your building contract to ensure that these particulars are understood and captured.

Entitlement to Payment

Under the Act, the timing of when a particular payment claim or invoice becomes due and owing will be dependent on the circumstances as follows:

  1. If the building contract specifies a due date for payment of payment claims and invoices, that due date; or
  2. If the building contract does not specify a clear due date, then 10 business days after the payment claim or invoice is made.

For accounting purposes, once the due date for payment of an payment claim or invoice passes, the issuer will usually be entitled to claim interest on the late payments. The rate of interest will be the greater of  the following two rates:

  1. The rate at the time fixed under section 2 of the Penalty Interest Rates Act 1983 (Vic); or
  2. The rate specified under the building contract.

Consequences of Invalid Invoice

The consequences of submitting an invalid invoice or payment claim pursuant to the above does not necessarily mean that the claim itself is invalid, but may then likely bar any enforcement or action on the invoice, including interest and other such calculations, on the payment claim or invoice pursuant to the Act, and it is likely that the payment claim or invoice will then need to be treated as a general commercial payment claim or invoice.

As such, it is clearly beneficial for construction companies and their finance/accounting teams to be aware of the entitlements, rights and obligations surrounding Security of Payment Act payment claims and invoices, particularly where cash-flow is an issue and claim disputes require speedy resolutions.

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