BIF ACT SERIES – CHAPTER 3 PROGRESS PAYMENTS – BACK TO BASICS ADJUDICATION – #4
As the saying goes, time and tide wait for no one. The service of a payment claim sets the adjudication train in motion and if you are not ready to jump on at your stop, it will leave you behind…or run you over. Welcome to round four in our series of articles discussing the basics of adjudication under the Building Industry Fairness (Security of Payment) Act 2017 (“BIF Act”). This week we discuss the key time frames in the adjudication process.
The policy objectives of the BIF Act included “improving the relevant provisions in the progress payment claim legislation to further protect the interests of subcontractors” and “increase ease of access to security of payment legislation”. In part this is achieved by a more simplified process and longer time frames for the various steps, than what existed under the now repealed Building and Construction Industry Payments Act 2004 (“BCIPA”). For example, under the BCIPA, a respondent had only 10 business days to serve a payment schedule after receiving a payment claim. However, if the respondent failed to do so, they received another chance to serve a payment schedule because, before applying for adjudication of a payment claim, the claimant was required to give the respondent a notice stating the claimant’s intention to apply for adjudication and allowing the respondent another 5 business days to serve a payment schedule. The time frames for serving that “notice of intention” were often quite difficult to calculate because it required the due date for payment to be determined. The BCIPA allowed only a very specific window of time to serve that notice, which began on the business day immediately after the due date for payment. Failure to serve the notice within that window rendered the adjudication application invalid. The BIF Act extended the time to serve a payment schedule but abolished the requirement for a “notice of intention” and along with it, the respondent’s second chance to serve a payment schedule.
So yes, that has simplified part of the adjudication process however, there are still some complexities with the time frames, and they are still as unforgiving as ever. For both claimant and respondent, failure to strictly comply with those time frames can result in a significant loss of rights with serious consequences to your prospects of success in the adjudication.
You may be thinking, round four, what have I missed? Have no fear, if you have missed any of our previous articles you can catch up here.
So far, we have covered the following:
- What is a construction contract;
- What is a payment claim;
- What is a payment schedule;
- What is a business day;
- What is effective service of documents; and
- What is a reference date?
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.
The Four Pillars of the Adjudication Process
Despite the lament of many an unsuccessful respondent, the adjudication process is not a subcontractor’s ATM. It is a process of rapid, interim, determination of payment disputes between contracting parties under construction contracts. Most of you will be familiar with the concept of the contractual chain. For example, head contract – subcontract – secondary subcontract. The adjudication process is intended to rapidly resolve disputes about progress payments under such contracts/subcontracts so the money can trickle down the contractual chain as quickly as possible. That is to say, payment claims are made up the contractual chain so payment can flow down. The BIF Act does not allow counterclaims. No money can flow up the contractual chain. However, that does not mean the claimant gets what they claim. Both claimant and respondent have their opportunity to be heard provided they follow the procedures which includes strict compliance with the time frames for the four pillars of the adjudication process:
- payment claim;
- adjudication application;
- payment schedule; and
- adjudication response.
Pre-Adjudication Application Time Frames – The Payment Claim and Payment Schedule
In order for a valid claim under the BIF Act, the claimant must serve a payment claim on a person (the respondent) for construction work carried out or related goods or services supplied under the relevant construction contract. Seems simple right? Unfortunately, there are a myriad of errors we have seen over the years, some even as simple as giving a document a day early, or even a minute late.
We have already discussed in our previous articles that a claimant is entitled to serve one (1) payment claim per reference date and the relevant time limitations that apply. We won’t repeat ourselves here but if you want a refresher on payment claims and reference dates, you can access our previous articles here.
Although we touched on the time frames for serving a payment schedule briefly here, we revisit the time frames for payment schedules in more detail now.
Pursuant to s76 of the BIF Act, once a valid payment claim is received, the respondent must either:
- pay the claimed amount in full before the due date for payment; or
- serve a payment schedule within 15 business days of the date the payment claim was served (or earlier if the contract provides for an earlier period).
We will discuss the due date for payment in a later article. For now, we are only concerned with the second option. That is, if the respondent intends to withhold some or all of the claimed amount.
We have said it before, and we will say it again, if you as the respondent do not agree with the payment claim and do not intend to pay the claimed amount, you must serve a payment schedule. As we mentioned above, the BIF Act abolished the ‘second chance payment schedule’. If you don’t serve a payment schedule within the time frame, aside from the possibility of a fine and/or disciplinary action by the Queensland Building and Construction Commission (“QBCC”), the next thing you are likely to know is an adjudication application will be served and you will not be permitted to provide an adjudication response in reply.
The BIF Act expressly prohibits a respondent making any adjudication response if no payment schedule was served within the required time frame. If the decision of the adjudicator is based solely on the payment claim and adjudication application, there is a greater chance of the decision being in favour of the claimant and you may be required to pay the whole of the adjudicator’s fees, which can sometimes be substantial.
So what is the time frame?
Section 76 of the BIF Act requires the payment schedule to be served within the time frame stipulated in the construction contract or 15 business days, whichever is the earlier. So, the maximum time a respondent can have to serve a payment schedule is 15 business days from the date of service of the payment claim. Remember also what we have said about service of documents and when service may be deemed to have occurred. You can review that article here.
However, you cannot just rely on the time frame being 15 business days. If the construction contract provides a shorter period, that shorter period will apply. Determining whether a time frame for serving a payment schedule is stipulated in the contract will require a careful analysis of the relevant terms. Many contracts may be unclear in their terms in this respect. For example, some may provide for a superintendent to deliver a payment certificate in response to a progress claim. However, often those provisions are not in mandatory terms and are not easily referable to the requirements under s76 of the BIF Act. Further, some contracts have been drafted so as to dovetail with the BCIPA which allowed only 10 business days to serve a payment schedule.
There is no hard and fast rule to apply here. The terms of the contract must be considered and, in our view, if a provision of the contract could be interpreted as establishing a shorter time frame for serving a payment schedule than the 15 business days, as a matter of prudence a respondent should work off that shorter time frame.
One further note we would make here, take care not to confuse the time for payment stipulated in a contract with the time for responding to a progress claim. They are usually (but not always) different. The point is, a term that merely states when a progress claim is to be paid may be sufficient to establish the due date for payment but not the timeframe for serving a payment schedule.
Proceeding to Adjudication
There are four (4) potential outcomes that may arise from the serving of a payment claim:
- The respondent pays the claimed amount in full by the due date for payment (“Outcome 1”). Obviously, in this case there is nothing further to do.
- The respondent fails to give a payment schedule and fails to pay the whole claimed amount by the due date for payment (“Outcome 2”). In this case, the claimant may either apply for adjudication of the payment claim or commence proceedings in the court to recover the claimed amount as a debt owing to the claimant. Further, in addition to either of those options, the claimant may suspend carrying out the construction work or supplying related goods and services until payment is made.
- The respondent serves a payment schedule but fails to pay the amount proposed to be paid in the payment schedule (“Outcome 3”) In this case, the claimant may either apply for adjudication of the payment claim or commence proceedings in the court to recover the amount proposed to be paid in the payment schedule as a debt owing to the claimant. Further, in addition to either of those options, the claimant may suspend carrying out the construction work or supplying related goods and services until payment is made.
- The respondent serves a payment schedule and the amount proposed to be paid in the payment schedule is less than the claimed amount (“Outcome 4”). In this case, the claimant may apply for adjudication of the payment claim.
We will leave for a later article the procedures for recovering a debt owing in the court and suspension. For the purposes of this article, we assume the claimant wishes to apply for adjudication of the payment claim.
Adjudication Application Time Frames
The BIF Act establishes strict time frames for making an adjudication application. The time frames are mandatory and cannot be extended by any party, including the adjudicator, or even by consent of the parties. The good news for claimants is the BIF Act has substantially increased the time frames in which an adjudication application must be filed from the time frames previously allowed by the BCIPA.
Under the BCIPA, there was a small window in which a claimant had to apply for adjudication, either 10 or 20 business days, depending on the circumstances. For those dealing with particularly large claims, there was little time to adequately prepare an adjudication application with the relevant supporting evidence and submissions.
Under the BIF Act an adjudication application must now be filed with the registrar within the following time frames:
- In the circumstances of Outcome 2, within 30 business days after the due date for payment, or the last day the respondent could have served a payment schedule, whichever is the later;
- In the circumstances of Outcome 3, within 20 business days after the due date for payment; or
- In the circumstances of Outcome 4, within 30 business days after the respondent receives the payment schedule.
Scenario Background Facts
A claimant serves a payment claim on 1 March 2019 with a claimed amount of $100,000.00. The contract does not stipulate when a payment schedule must be served and consequently, a payment schedule must be served within 15 business days of the date the payment claim was served. That is, by 22 March 2019. The contract does not stipulate when a progress claim must be paid and consequently, the due date for payment is established by s73(b) of the BIF Act as 10 business days after the payment claim was served. That is, 15 March 2019.
The respondent does not serve a payment schedule and does not pay the claimed amount by 15 March 2019. The claimant must file the adjudication application with the registrar before 5PM on 9 May 2019 being 30 business days after 22 March 2019 when the payment schedule had to be served by.
The respondent serves a payment schedule on 19 March 2019 proposing to pay $60,000.00 but fails to pay the $60,000.00 by 15 March 2019. If the claimant only wants to claim the $60,000.00 in the adjudication, the claimant must file the adjudication application with the registrar before 5PM on 16 April 2019 being 20 business days after the due date for payment of 15 March 2019.
The respondent serves a payment schedule on 12 March 2019 proposing to pay $60,000.00. If the claimant wishes to seek adjudication for the claimed amount or an amount between the $60,000.00 proposed in the payment schedule and the claimed amount, the claimant must file the adjudication application with the registrar before 5PM on 26 April 2019 being 30 business days after 12 March 2019 when the payment schedule was served.
Adjudication Response Time Frames
Once an adjudication application is received by the QBCC, the registrar must refer the adjudication application to an eligible adjudicator. The adjudicator may then decide to accept or reject the referral.
If the adjudicator accepts the referral, the adjudicator will give the claimant and the respondent notice of the adjudicator’s acceptance of the adjudication application.
If the respondent has previously served a payment schedule in response to the payment claim within the required time frame, the respondent may give the adjudicator an adjudication response within the stipulated time frame, discussed below. As mentioned above, the respondent is not entitled to give an adjudication response if the respondent failed to give the claimant a payment schedule within the required time frames for doing so.
The time frame for giving an adjudication response will depend on whether the payment claim is a standard payment claim or a complex payment claim. A standard payment claim is a payment claim for a claimed amount of no more than $750,000.00 (excl. GST). A complex payment claim is a payment claim for a claimed amount more than $750,000.00 (excl. GST).
The time frame for giving an adjudication response when the payment claim is a standard payment claim is within the later of the following:
- 10 business days after a copy of the adjudication application is served upon the respondent; or
- 7 business days after the notice of the adjudicator’s acceptance of the adjudication application is served.
A copy of the adjudication response must be served upon the claimant within 2 business days of it being lodged with the adjudicator.
The time frame for giving an adjudication response when the payment claim is a complex payment claim is within the later of the following:
- 15 business days after receiving a copy of the adjudication application; or
- 12 business days after receiving notice of the adjudicator’s acceptance of the adjudication application .
A copy of the adjudication response must be served upon the claimant within 2 business days of it being lodged with the adjudicator.
Scenario – Standard Payment Claim
The payment claim is a standard payment claim. The claimant files an adjudication application with the QBCC on 9 May 2019 and serves a copy upon the respondent on 13 May 2019. The registrar refers the adjudication application to an adjudicator who subsequently accepts the adjudication application and serves a notice of acceptance upon the parties on 14 May 2019.
10 business days after the adjudication application was served upon the respondent is 27 May 2019. 7 business days after the adjudicator served the notice of acceptance upon the parties is 23 May 2019. Therefore, the respondent must give the adjudicator the adjudication response by 27 May 2019.
Scenario – Complex Payment Claim
The payment claim is a complex payment claim. The claimant files an adjudication application with the QBCC on 9 May 2019 and serves a copy upon the respondent on 13 May 2019. The registrar refers the adjudication application to an adjudicator who subsequently accepts the adjudication application and serves a notice of acceptance upon the parties on 14 May 2019.
15 business days after the adjudication application was served upon the respondent is 3 June 2019. 12 business days after the adjudicator served the notice of acceptance upon the parties is 30 May 2019. Therefore, the respondent must give the adjudicator the adjudication response by 3 June 2019.
Extensions of Time to Lodge Adjudication Response
Sometimes adjudication applications relating to complex payment claims can be quite voluminous. Prior to amendments to the BCIPA in December 2014 which allowed respondents to apply for extensions of time to lodge their adjudication responses, it was not uncommon for claimants to spend considerable time preparing a large adjudication application with the knowledge that the respondent would have only a few days to prepare an adjudication response. Colloquially referred to as ‘ambush claims’.
Ambush claims still occur and, in an attempt to level the playing field, the BIF Act enables the respondent to apply to the adjudicator for an extension of time of up to 15 additional business days for a response relating to a complex payment claim, if required. However, even here there is a time limitation. If a respondent wishes to apply for an extension of time to lodge the adjudication response, the respondent must make an application to the adjudicator within the later of the following:
- 5 business days after receiving a copy of the adjudication application; or
- 2 business days after receiving notice of the adjudicator’s acceptance of the adjudication application .
The application must also include the respondent’s reasons for requiring the extension of time.
Time Frames Deciding an Adjudication Application
Adjudication is promoted as being prompt and efficient. Giving effect to that, like the parties, the adjudicator must comply with strict time frames. The adjudicator is required to decide the adjudication application and any application by the respondent for an extension of time to lodge the adjudication response as quickly as possible. The BIF Act requires an adjudicator to decide an adjudication application no later than:
- For a standard payment claim – 10 business days after the response date; or
- For a complex payment claim – 15 business days after the response date.
The response date is either the date on which the adjudicator receives an adjudication response from the respondent, otherwise, the last day on which an adjudication response could have been given.
The BIF Act allows an adjudicator to have an extension of time to decide the adjudication application if the parties agree or, in the case of an adjudication application of a complex payment claim, an additional 5 business days even if the parties do not agree.
Paying an adjudicated amount
If an adjudicator’s decision on an adjudication application requires the respondent to pay an adjudicated amount, the respondent must pay the adjudicated amount to the claimant on or before:
- The day that is 5 business days after the day on which a copy of the adjudicator’s decision is given to the respondent; or
- A later date decided by the adjudicator.
Failing to pay an adjudicated amount within that time frame is an offence under the BIF Act and may attract disciplinary action by the QBCC and/or a maximum penalty of 200 penalty units. Currently, in Queensland one (1) penalty unit is $130.55, which equates to a fine of up to $26,110.00. Given the political impetus to improving security of payment for subcontractors in the construction industry, it would not be surprising to see offences of this nature pursued by the QBCC with some vigour.
- Make sure your staff are aware as to the processes involved and the importance of the time frames under the BIF Act.
- If you think a payment claim may be the subject of an adjudication application, seek legal advice early. Detailed payment schedules can help prevent you being found liable for disputed amounts.
- 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. Provisions in a contract which provide for payment certificates to be delivered in response to progress claims can cause confusion over the time frames for serving a payment schedule. You cannot assume that one contract is like another.
- Get legal advice before offering or signing a contract. Whilst there is never certainty at the outset of adjudication or litigation, the risk of ending with a poor result can be reduced in a number of ways. Most notably proper contract drafting is crucial to protecting your position. Further, by understanding your rights and obligations under the contracts you enter, ensuring you administer those contracts properly and having quality specialist legal advice readily available if you need it, can mean the difference between profit and loss or indeed in these turbulent times, the very survival of your business.
- As always, make your calendar your bible. Put reminders in your calendar to ensure you do not miss a date for serving a payment claim or payment schedule or filing your adjudication application or adjudication response. Time frames are mandatory and cannot be extended except in those very few instances for an adjudication response discussed above.
- You are not entitled to give an adjudication response if you failed to give the claimant a payment schedule. Therefore, unless you are going to pay the whole of the claimed amount, you must serve a payment schedule on time.
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.
Stay tuned, coming up next is due date for payment. That is, when a progress payment under a construction contract becomes payable.
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.
Disclaimer: Reliance on content.
The material distributed is general information only. The information supplied is not and is not intended to be, legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.