BIF ACT SERIES CHAPTER 3 PROGRESS PAYMENTS – BACK TO BASICS ADJUDICATION – #3

Welcome to the third installment in our series of articles discussing the basics of adjudication under the Building Industry Fairness (Security of Payment) Act 2017 (“BIF Act”). In this series we attempt to strip back what we know is a complex and somewhat dry (although we don’t think so) area of law in an attempt to better prepare you for the bumpy ride of adjudication. As Alexander Graham Bell once said, “before anything else, preparation is the key to success” and who are we to argue with Mr Bell. Therefore, as exciting as it may be, we are not regaling you with the intricacies of the latest case on something or other. We are going back to basics on the adjudication process to help you shape your business practices and improve your prospects of successfully making or defending a claim for payment under the BIF Act.

So far, we have covered the following:

  1. What is a construction contract;

  2. What is a payment claim;

  3. What is a payment schedule;

  4. What is a business day; and

  5. What is effective service of documents?

If you missed either of our previous instalments, or any of our articles for that matter, you can catch up here. As always, those words that appear in italics in these articles have special meaning. In most cases they will be words or phrases that are specifically defined in the BIF Act.

What is a reference date?

The starting premise is really section 67 of the BIF Act which states that from each reference date under a construction contract, a person is entitled to a progress payment if the person has carried out construction work, or supplied related goods and services, under the contract.

Whilst there must be a construction contract, the right to a progress payment under the BIF Act is a statutory right that grants an entitlement to a progress payment even if the particular contract does not.

The existence of a reference date is integral to the right to claim and receive a progress payment under the BIF Act. A reference date is defined in section 67 of the BIF Act as:

67 Meaning of reference date

  1. A reference date, for a construction contract, means—

    1. a date stated in, or worked out under, the contract as the date on which a claim for a progress payment may be made for construction work carried out, or related goods and services supplied, under the contract; or

    2. if the contract does not provide for the matter—

      1. the last day of the month in which the construction work was first carried out, or the related goods and services were first supplied, under the contract; and

      2. the last day of each later month.

  2. However, if a construction contract is terminated and the contract does not provide for, or purports to prevent, a reference date surviving beyond termination, the final reference date for the contract is the date the contract is terminated.

So what does all that mean? It means that if you are entitled to a progress claim under section 70, that statutory right allows you to make one (1) payment claim each time the contract provides that a progress claim may be claimed. If the contract does not state when progress claims may be claimed, then you can claim one on the last day of the month when you first carried out the construction work or supplied related goods and services and then again at the end of each month after that.

By virtue of Schedule 1 in the Acts Interpretation Act 1954, the word “month” means a calendar month (i.e. one of the 12 months named January through to December).

How do I know when I have a reference date?

The first thing to check is your contract. Does it stipulate when a progress claim can be claimed?

Unfortunately, some contracts are less than clear in their drafting. Again, you need to understand your contract. The language used in contracts often varies depending on the drafter. Some will use the term  payment claim, others will say progress claim, or other such variants. That really doesn’t matter if the meaning is clear that it is establishing either a milestone or a point in time when a progress claim can be claimed.

Some contracts stipulate that a progress claim can be made upon the works reaching specific milestones. For example, common in residential construction are milestones such as completion of the frame stage or lock up stage. Other contracts allow a progress claim to be made on a specific day of each month claiming the value of work carried out for that month.

Sometimes a contract will be drafted in a way that has a contracted party jumping through hoops of pre-conditions before they can claim a progress claim. Those latter provisions can often be found to be void under section 200 of the BIF Act which we discuss further below.

A significant change since the now repealed Building and Construction Industry Payments Act 2004 is that in the BIF Act, a reference date also arises in circumstances where a construction contract is terminated. The termination gives rise to one final reference date that a claimant can use to submit one final payment claim.

Before the BIF Act, some shrewd contracting parties (principals, head contractors or even subcontractors engaging subservient subcontractors) included provisions in their head contracts or subcontracts which expressly provided that no reference date could arise on or after termination of the contract. With no reference date, there can be no valid payment claim.

Where contracts included a termination for convenience clause (which is quite common in head contracts and subcontracts), this could lead to a particularly unjust outcome when a contracted party, having carried out substantial work, has their contract terminated by the contracting party using the termination for convenience clause, just before a reference date. The result being that the contracted party had no recourse through adjudication and had to resort to litigation to recover what they were owed. Now, the BIF Act prevents such injustice, giving the contracted party one final reference date to claim for any outstanding construction work performed or related goods and services supplied.

It is also important to note if your contract provides for security (bank guarantees or retention) to be held under the contract, it is common a final reference date will arise on the last day of the defects liability period, which will include the release of the remaining security. It is important you accurately record in your calendar when these dates arise to ensure you are following up on any security held under the contract. Remember, retention is your money. Even though recent amendments to the Queensland Building and Construction Commission Act 1991 now mandate that where a retention amount is held under a building contract, the contracting party must give notice to the contracted party, this does not apply to all contracts. We cannot stress enough how important it is to keep good records of all projects you are engaged in. For more detail on retention, you can view our recent article here.

Only one (1) payment claim can be served on or after each reference date

As discussed above, your right to make a payment claim under the BIF Act is dependent upon establishing that a reference date exists. However, that reference date you wish to rely upon must have arisen and must not have already been used.

You cannot serve a payment claim before the reference date arises, no matter what your contract says. Quite simply, if you serve a payment claim before the reference date arises, the payment claim is invalid. You can serve a payment claim after the reference date has arisen, anytime up to 6 months after you last carried out construction work or supplied related goods and services (unless the payment claim is a final claim, then it is within 28 days of the end of the defects liability period).

The BIF Act allows you to serve only one (1) payment claim per reference date. This very important. Over the years we have seen many contractors make a habit of issuing numerous invoices throughout a month in circumstances where there is only one reference date arising each month. For example, often, they would issue one or more invoices for variations and then later a further invoice claiming part of the original scope of works completed, even though another reference date had not arisen yet. Assuming all of those invoices met the criteria of a valid payment claim (see our previous discussion here), the first invoice issued on or after the reference date arises is the only valid payment claim.  Remember, you will only have a limited number of reference dates for each construction contract, so a mistake like that could result in you losing your right to recover amounts payable to you through the adjudication process.

This means that you need to ensure that all amounts you are claiming for construction work carried out and/or related goods and services supplied up to the reference date, including all variations, is included in one payment claim, served on or after the reference date.

Further, although only one payment claim may be issued per reference date, any amount claimed in a previous payment claim served for a previous reference date, can still be included in a payment claim served on or after the current or next reference date.

Examples

You enter into a construction contract on 1 March 2019 to carry out construction work. The construction contract stipulates a reference date will arise on the 15th of each calendar month.

Providing you carried out construction work between 1 March 2019 and 15 March 2019, the reference date for your first payment claim will arise on 15 March 2019 in which you can claim for all work carried out up to and including 15 March 2019. The next reference date will arise on 15 April 2019. Any amount outstanding from the March payment claim can be included in the payment claim for 15 April 2018 with your claim for the work carried out between 16 March 2019 and 15 April 2019, and so on.

What about if there was no reference date stipulated in the contract?

Pursuant to section 67(1)(b) of the BIF Act, a reference date will arise on the last day of the month. Accordingly, taking into account the above scenario, if you commenced carrying out construction work on 1 March 2019, the first reference date will arise on 31 March 2019 for work performed up to and including 31 March 2019. If you continue to carry out construction work in April 2019, the next reference date will arise 30 April 2019, for the work carried out between 1 April 2019 and 30 April 2019, and so on.

Preconditions to Reference Dates

As briefly discussed above, it is not uncommon for a construction contract to state that a payment claim must be accompanied by specified documents in order to be valid. The required documentation often includes a statutory declaration by the contracted party declaring such things as:

  • the works or related goods and services for which payment is claimed is complete and free of defects;

  • all amounts payable by the contractor to employees and subcontracts engaged in the performance of the works have been paid; and

  • insurance has been maintained for the works,

or other similar declarations.

However, whilst such a clause may operate as a precondition to a right to claim a progress claim under the contract, such clause will not operate to prevent a reference date arising under the BIF Act. Confusing? Well you just need to remember that you have a contractual right to a progress payment under the contract and also a statutory right to a progress payment under the BIF Act. The latter takes precedence over the contract and the Supreme Court in Queensland has held that any provision of a construction contract that purports to make the occurrence of a reference date conditional upon, for example, the provision of a statutory declaration, would be void unless it facilitates the purpose of the legislation. Those authorities establish that a provision requiring submission of a statutory declaration as a precondition to a reference date arising would likely be found to not facilitate the purpose of the BIF Act and the clause would likely be declared void under section 200.

This Week’s Takeaways:

  1. A reference date must exist in order to make a valid payment claim. If a payment claim is not in respect of a reference date, it will not be valid under the BIF Act. Similarly, where more than one payment claim is served in relation to the same reference date, only the first served will be valid. The remainder will be of no effect. Remember one payment claim per reference date.

  2. The contract you enter into is the first point of reference when it comes to determining when a reference date accrues. Therefore, it is important you are familiar with your contract. Remember, if your contract does not provide for reference dates, the reference date will be the last day of each month in which works were carried out.

  3. If you are a contracted party and the contract is not one that has been drafted for you by your solicitor, seek legal advice before entering into the contract. Careful drafting of a contract could restrict the number of reference dates available or possibly even include some pre-conditions on a reference date arising that may be enforceable if those pre-conditions facilitate the purpose of the BIF Act. You cannot assume that one contract is like another. They are very often drafted more in favour of one party than the other. If you are a contracting party, likewise, seek legal advice if the contract is not your own that has been specifically drafted for your use.

  4. If the contract clearly establishes specific reference dates, ensure that all works that can be claimed up to each reference date are included in the payment claim. Once the reference dates are used, you can no longer use the adjudication process under the BIF Act.

  5. Be careful relying on contractual preconditions to a reference date arising including requirements for a statutory declaration, the courts have deemed preconditions of this kind void.

We refer to these articles as being ‘back to basics’ and you may be thinking, ….seriously this is basic? The fact is, these articles only scratch the surface. The adjudication process can be complicated and for those contracted parties out there, whilst you don’t have to use it, it is the only game in town to rapidly resolve payment disputes and force payment of progress payments. The alternative is long winded and costly litigation. For the contracting parties, you don’t even get a choice. You need to assume that every invoice you receive from a contracted party is a payment claim and it is game on for the adjudication process.

There’s still more to come. Next up is time frames under the BIF Act. Stay tuned.

With more than 37 years’ experience in the construction industry and as an adjudicator in Queensland and other States and Territories for more than 13 years, Active Law’s Paul Hick is very familiar with the practical, financial and legal difficulties contractors face generally as well as with the adjudication procedures in the BIF Act. Paul regularly assists claimants and respondents with the adjudication process and indeed in many other matters requiring expertise in construction law.

Formerly employed by the QBCC, Emma Ward has invaluable insight into statutory regulation and can swiftly identify your rights and obligations to ensure you comply with your statutory and contractual obligations.

So, whether you require assistance with a payment claim and adjudication application, a payment schedule and adjudication response, or the drafting of your own contracts to better protect you, Active Law are well placed to help to achieve your best position possible, to make or defend a claim under the BIF Act, or for any matter requiring expertise in construction law.