My client won’t pay – now what?

MASTER BUILDER, September – October 2016:
If you are a builder or subcontractor, you must be concerned about getting paid on time and in full. There have been plenty of recent stories in WA newspapers regarding builders and subcontractors suffering as a result of delayed or non-payment.
This article sets out the steps you can and should take to protect your position and get paid for the works you have completed. But if you are in doubt about how to protect and enforce your rights, seek legal advice at an early stage because certain rights to get paid quickly can expire, if you don’t use them.
Avoiding disputes
A failure to make a payment on time may have a simple explanation, such as a claim not being received, a cheque getting lost or an oversight on the part of the client. Try and obtain an explanation for any non-payment before taking further action.
Contractors can minimise the risk of non-payment by:
• Before starting works, make sure that the client has title to the land (that is, is the owner) and the capacity to pay the contract sum – see clauses 7 and 8 in the Master Builders’ Home Building Works Contract (HBW Contract).
• Following the contract strictly, including getting all variations in writing and signed and notifying in writing of claims for extensions of time.
• Completing the works on time and in accordance with the approved plans and specifications.
The client won’t pay – now what?
If the client fails or refuses to make payment of an amount claimed under the contract, there are a number of options available to a builder. The first step always is to check your contract to understand your rights. There are various ways in which to protect your position.
If works are ongoing – suspend works
If works are underway and the client refuses to pay, check the contract to see if you are entitled to suspend work. Clause 20 of the HBW Contract gives the builder the right to suspend the works if the client fails to pay a claim, provided that the builder tirst gives 10 working days’ written notice of the intention to suspend.
If the works are complete – hold the keys
Under clause 27 of the HBW Contract if the works have reached practical completion and payment is not made, then the client is not entitled to take possession or receive the keys until the builder has been paid all moneys due. While withholding the keys until payment is received is advisable, this option is not always effective as a client may sometimes simply take back possession and change the locks.
Lodge a caveat
If the client refuses to pay a payment claim, you should consider lodging a caveat against the land. Many building contracts contain a clause (such as clause 33 of the HBW contract) that specifically provides that the client “charges the land” as security for payment under the building contract – this creates a caveatable interest.
A caveat means the owner cannot sell or mortgage the property without the person who lodged the caveat first being given notice. You should seek legal advice prior to lodging a caveat to make sure that you are entitled to do so and that the caveat is in the correct form,
Dispute resolution options
Notlce of dispute
Most building contracts will have a dispute resolution clause. Certain clauses require various steps to be taken before further action. If you are using the HBW Contract, see clause 31:
• Either party may submit a written notice providing sufficient details and identifying the cause and nature of the dispute or difference and call on the other party to rectify the matters complained of or otherwise attempt to settle them.
• If the dispute cannot be resolved (within five working days of the notice) then you either can proceed to make a complaint to the Building Commission (regarding the breach of contract – that is, the failure by the owner to pay) or refer the matter to arbitration.
Apply to the Building Commission
The Building Commission can determine:
• Complaints about a “regulated building service” not being carried out In a proper and proficient manner” or being “faulty or unsatisfactory” (usually a complaint by an owner or other affected person’).
• Contractual complaints arising out of lump sum contracts for home building works of between $7500 and S500.000 (that is, a home building work contract),
Applying to the Building Commission can be a cost-effective way to resolve simple contractual disputes. However, there is a risk that a client may try and introduce allegations regarding workmanship, If so, or the matter is “complex” it is likely to be referred to the State Administrative Tribunal, In which case the process can become costly and take a long time to resolve.
If the contract price exceeds $500,000, it is not open to the builder to make an application to the Building Commission regarding a breach of contract and you must use one of the options explained below (or commence litigation which will be time consuming and costly).
Commence an arbitration
If you cannot resolve your dispute with the client, you can (assuming the contract provides for it or by agreement of the parties) refer the dispute to arbitration.
Under the HBW Contract the arbitrator is to be agreed by the parties or, failing that, be appointed by Master Builders.
Apply for adjudication
The Construction Contracts Act (WA) (CCA) provides a rapid adjudication process for prompt resolution of payment disputes arising from construction contracts. If you are faced with a difficult client who will not pay and you are reasonably confident in your entitlement to payment, you always should consider adjudication as an option at an early stage.
Adjudication is a fast and simple method of getting paid – but you must act quickly or you will be out-of-time. In order to make an application for adjudication under the CCA, you must:
• Make a claim for payment under the terms of your contract.
• Have a “payment dispute” – this occurs when a claim for an amount is due to be paid and is not paid in full, or when the claim is rejected (either in writing or orally).
• Apply for adjudication within 28 days by preparing and lodging an application for adjudication in respect of the particular “payment dispute”,
We know how frustrating it is to not get paid on time and to be unsure as to how to go about exercising your rights under the CCA. Those days will shortly be over.
This article was prepared by Jackson McDonald for the Master Builders Association.