Q&As and counting

July 2018

Security of payments - Set off - Payment schedule

July 2018


Our client has engaged a builder to undertake a office fit out. The three page contract provides that our client is entitled to liquidated damages if the fit out is not completed by a certain date - which was not achieved. The contract does not state that our client is able to set off the liquidated damages from the final payment due to the builder, however, it also does not state that our client cannot.

Is there an implied term allowing our client to offset the liquidated damages against the final payment claim by the builder?

Further, when the builder makes its final claim under the Security of Payments Act, is the builder required to include an offset for the the liquidated damages in the final payment or does the claim only relate to work undertaken by the builder?

Is our client entitled to respond to the payment claim stating that the amounts are not payable because of the offset of the liquidated damages our client is entitled to?

I don't want a situation where our client is required to pay the final payment at the same time that it has an offset for liquidated damages which it will then need to issue proceedings to obtain.


Thank you for the question,

The concept of ‘pay now argue later’ that underpins the legislative scheme generally excludes set off claims being made by a contractor in a payment claim - and liquidated damages are caught by the Act's ‘excluded amount’ provisions – see s 10B of the Act.

However, this exclusion does not apply to a respondent when completing a payment schedule, which must indicate the amount that the respondent intends to pay and the reasons for any difference from the amount on the payment claim. The payment schedule should include detailed reasons as to why the respondent intends withholding any amount, including how the quantum of the withheld amount has been calculated. A copy of the contract should be annexed to the payment schedule.