BIF Act Series – Chapter 3 Progress Payments – Back to Basics Adjudication – #5
Welcome to round 5 in our series of articles discussing the basics of adjudication under the Building Industry Fairness (Security of Payment) Act 2017 (“BIF Act”). This week’s focus is on determining the due date for payment. Sounds simple right? In an ideal world you carry out construction work or supply related goods and services, give a payment claim for that work performed or goods and services supplied and a few weeks later (depending on the payment terms stipulated in your contract) the claimed amount magically appears in your bank account. Surprisingly, many claimants calculate this date incorrectly and end up relying upon an incorrect date as the due date for payment. Not only could an incorrect calculation leave you short for your own payments due that month, you may also find yourself out of time to apply for adjudication of a disputed payment claim.
Certain rights and obligations under the BIF Act are dependent upon knowing when the due date for payment will or has arisen. For example, for an adjudication application relating to a failure to pay the full amount stated in the payment schedule, you must lodge your adjudication application within 20 business days after the due date for payment to which the claim relates. We have said this before, and it needs repeating given the critical importance of the point. Time frames under the BIF Act are unforgiving. Getting them wrong can be devastating to your claim or your defence to a claim, as the case may be. Therefore, it is imperative you are able to calculate the due date for payment correctly.
So far, the articles in our ‘Back to Basics’ series 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;
- What is a reference date; and
- Key timeframes under the BIF Act for an adjudication application and adjudication response.
If you have missed any of the above, or are interested in any other articles we have written on challenges currently facing the construction industry, you can view our articles here. Don’t hesitate to subscribe (for those of you who haven’t), we only post fortnightly (at least we try to).
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 Starting Point
So, what is the starting point? The starting point is the construction contract. Section 73 of the BIF Act provides:
- A progress payment under a construction contract becomes payable—
- the contract provides for the matter—on the day on which the payment becomes payable under the contract; or
- A ‘pay when paid’ provision in a construction contract has no effect, see section 74.
- A provision in a construction management trade contract or subcontract providing for payment of a progress payment later than 25 business days is void, see the Queensland Building and Construction Commission Act 1991, section 67U.
- A provision in a commercial building contract providing for payment of a progress payment later than 15 business days is void, see the Queensland Building and Construction Commission Act 1991, section 67W.
- If the contract does not provide for the matter—on the day that is 10 business days after the day a payment claim for the progress payment is made under part 3.
- Each of the following construction contracts are taken to be a contract to which subsection (1)(b) applies—
- a construction contract that includes a ‘pay when paid’ provision;
- a construction management trade contract or subcontract mentioned in the Queensland Building and Construction Commission Act 1991, section 67U;
- a commercial building contract mentioned in the Queensland Building and Construction Commission Act 1991, section 67W.
Put simply, what that all means is, if the contract contains a provision from which the terms for payment of a progress claim can be worked out, the due date for payment will be worked out from that provision, unless those payment terms:
- amount to a pay when paid provision; or
- stipulate a time frame for payment that exceeds the time frames permitted by sections 67U or 67W of the Queensland Building and Constructions Commission Act (“QBCC Act”),
in which case, the provision will be void and have no effect on determining the due date for payment.
However, if the contract does not contain a provision from which the terms for payment of a progress claim can be worked out or it does contain a provision but that provision is void, section 73(1)(b) of the BIF Act will apply and the due date for payment will default to the last day of the 10 business days permitted by section 73(1)(b) of the BIF Act. That is, the date that is 10 business days after the date the payment claim was served on the respondent.
What if the Contract is not written
A construction contract does not have to be written. The same principles will apply even to an oral contract. However, it would be obviously more difficult to evidence an express term of an oral contract that stipulates payment terms, particularly if the claimant and respondent cannot or will not agree those terms existed. Nevertheless, that evidence must be considered carefully. Absent evidence that convinces the adjudicator about the terms of an oral contract stipulating the due date for payment, the default position under section 73(1)(b) of the BIF Act will likely be determined to prevail. That is, the date that is 10 business days after the date the payment claim was served on the respondent.
How do you know “If the contract provides for the matter”
Most written contracts contain a provision dealing with payment terms for progress claims from which a specific date for payment of a progress claim can be determined. Although sometimes these clauses might as well be written in ancient Sumerian for how much sense they make.
You will need to consider the particular wording of the particular clauses of the contract. The general principle is that express terms will be given their plain and ordinary meaning, unless doing so would result in manifest absurdity. Where the drafting of the clause is ambiguous or capable of more than one meaning, an interpretation that is businesslike and commercial is usually preferred. An adjudicator would likely proceed on the assumption that the parties intended to achieve a commercial result and look for an interpretation that avoids making a commercial nonsense. In such circumstances of ambiguity an adjudicator may also consider the circumstances surrounding the contract, including pre-contractual negotiations.
How do you know if the payment terms in the contract have effect
If the terms of the contract can be interpreted to specify a time for payment of progress claims, those terms must be considered in light of clause 73(4) of the BIF Act, which we have extracted above. That is, the terms cannot:
- amount to a ‘pay when paid’ provision; or
- stipulate a time frame for payment that exceeds the time frames permitted by sections 67U or 67W of the Queensland Building and Construction Commission Act 1991 (“QBCC Act”).
Pay when paid provisions
The term ‘pay when paid’ provision is defined in section 74(2) of the BIF Act. Section 74 is as follows:74 Effect of ‘pay when paid’ provisions
- A ‘pay when paid’ provision of a construction contract has no effect in relation to any payment for construction work carried out, or related goods and services supplied, under the construction contract.
- In this section—
- amount owing, in relation to a construction contract, means an amount owing for construction work carried out, or related goods and services supplied, under the construction contract.
‘pay when paid’ provision, of a construction contract, means a provision of the contract—
- that makes the liability of 1 party (the first party) to pay an amount owing to another party (the second party) contingent on payment to the first party by someone else (the third party) of the whole or any part of that amount; or
- that makes the due date for payment of an amount owing by the first party to the second party dependent on the date on which payment of the whole or any part of that amount is made to the first party by the third party; or
- that otherwise makes the liability to pay an amount owing, or the due date for payment of an amount owing, contingent or dependent on the operation of another contract.
In simplified terms, a ‘pay when paid’ provision is a term of a construction contract that makes the respondent’s liability to pay the claimant contingent upon the respondent being paid by someone else, or upon the operation of another contract.
For example, a clause in a subcontract that provides that a head contractor is not obliged to pay a subcontractor unless or until the head contractor is paid by the principal under the head contract.
Another example (and this is one that has been somewhat controversial) is when a clause of a subcontract provides that the time for submitting a final progress claim under the subcontract is determined by the expiry of a defects liability period under the head contract.
Such clauses are ‘pay when paid’ provisions and have no effect. Consequently, the due date for payment in such circumstances would be the default position under section 73(1)(b) of the BIF Act. That is, the date that is 10 business days after the date the payment claim was served on the respondent.
Maximum time for payment
Section 73(4) of the BIF Act also sets a maximum time frame for payment of progress claims in relation to particular types of construction contracts.
Where the time for payment of a progress claim specified in the contract is longer than the maximum permissible payment period under section 67U and 67W of the QBCC Act, either 15 or 25 business days depending on the type of contract, the payment terms in the contract will not apply and the default position under section 73(1)(b) of the BIF Act applies. That is, the date that is 10 business days after the date the payment claim was served on the respondent.
Section 67U of the QBCC Act provides:
“A provision in a construction management trade contract or subcontract is void to the extent it provides for payment of a progress payment by a contracting party to a contracted party later than 25 business days after submission of a payment claim.”
Section 67W of the QBCC Act provides:
“A provision in a commercial building contract is void to the extent it provides for payment of a progress payment by a contracting party to a contracted party later than 15 business days after submission of a payment claim.”
So that means if your contract is a construction management trade contract or a subcontract (as defined in the Part 4A of the QBCC Act), your due date for payment cannot be later than 25 business days after you give your payment claim. If your contract is a commercial building contract (as defined in the Part 4A of the QBCC Act) your due date for payment cannot be later than 15 business days.
What type of contract do you have?
A commercial building contract means a building contract that is not a construction management trade contract or a subcontract.
We will start with the easy one first. A subcontract is a contract where both the contracting party and the contracted party for the contract are building contractors and the contracted party is a subcontractor for a contracting party. This is your typical arrangement where a subcontractor is engaged by a head contractor to perform a certain part of the scope of work in the head contract.
A construction management trade contract is usually used as an alternative to the common ‘principal – contractor – subcontractor’ building arrangement. Rather than the contractor being the point of reference for the works, a construction management trade contract usually has a construction manager acting as the principal’s agent who then employs subcontractors (also known as trade contractors) to perform the works. As an aside we note that importantly, if the contract is a construction management trade contract, there is an obligation under the QBCC Act to warn the contracting party in the prescribed form and must state the possible dangers for the contracted party entering into the contract as a construction management trade contract rather than a subcontract (see section 53 of the Queensland Building and Construction Commission Regulation 2018 for the prescribed wording).
Examples of Invalid Provisions
To assist, below are some invalid payment term examples we have seen in contracts.
You are a subcontractor engaged on a large-scale project. Your reference date is the 28th of each month in which work is carried out. You give a payment claim on 8 April 2019. Your subcontract stipulates:
“On the submission of a payment claim in accordance with the provisions of this clause we shall pay to you the total amount of the payment claim within 45 days following the submission of a payment claim.”
Pursuant to section 67U of the QBCC Act, this exceeds 25 business days and is therefore void. By default, the due date for payment is 10 business days. Therefore, the due date for payment will be 24 April 2019 (taking into account the Easter public holidays).
You are a head contractor and have been engaged by a principal to construct a kindergarten. Your contract provides for a reference date on the 28th of each month in which work is carried out. You give a payment claim on 2 April 2019. The payment clause in your contract stipulates (which you may note has been taken from AS2124-1992):
“Within 14 days after receipt of a claim for payment, the Superintendent shall issue to the Principal and to the Contractor a payment certificate stating the amount of the payment which, in the opinion of the Superintendent, is to be made by the Principal to the Contractor or by the Contractor to the Principal.
Subject to the provisions of the Contract, within 28 days after receipt by the Superintendent of a claim for payment or within 14 days of issue by the Superintendent of the Superintendent’s payment certificate, whichever is the earlier, the Principal shall pay to the Contractor or the Contractor shall pay to the Principal, as the case may be, an amount not less than the amount shown in the Certificate as due to the Contractor or to the Principal as the case may be, or if no payment certificate has been issued, the Principal shall pay the amount of the Contractor’s claim.”
This clause establishes two (2) possible periods by which progress claims under the contract are required to be paid. The respondent has either:
- 28 days from the date of receipt of the payment claim to make a payment; or
- 14 days to issue a payment certificate,and 14 days to make payment of the amount.
Therefore, payment in both scenarios could be up to 28 days after receipt of the payment claim.
Accordingly, both scenarios in the above clause exceed 15 business days and payment terms under the contract are therefore rendered void pursuant to section 67W of the QBCC Act. Consequently, the default due date for payment is 10 business days from the date the payment claim is served. Therefore, the due date for payment is 16 April 2019.
What happens if you get the due date for payment wrong?
For a claimant, the due date for payment is the critical date from which the time allowed to submit an adjudication application under section 79(2)(b)(i) and 79(2)(b)(ii) is calculated. The former is for circumstances where no payment schedule was provided, and the full amount stated in the payment claim is not paid. The latter is for circumstances where a payment schedule was provided but the full amount stated in the payment schedule is not paid. Calculate the due date for payment incorrectly and the adjudication application may be lodged too late and be invalid.
For a respondent, the due date for payment is the critical date by which the claimed amount in the payment claim must be paid (if the payment claim is not challenged) or the amount stated in the payment schedule must be paid (if the payment schedule was served within time). If the respondent fails to pay the required amount by the due date for payment, the claimant may either:
- Recover the unpaid portion of the amount owed as a debt in a court of competent jurisdiction (a tale for another time); or
- Apply for adjudication.
Fun fact: There is no point mailing a cheque for payment on the due date for payment. The payment must be received by the due date for payment. We don’t know if you have used the post lately, but carrier pigeons are becoming quicker.
This Weeks Takeaways:
- Certain critical rights and obligations arise from the due date for payment. Therefore, it is imperative you are able to calculate the due date for payment correctly.
- If the payment terms in your contract are a pay when paid provision or exceed the maximum permissible payment period under section 67U and 67W of the QBCC Act (15 or 25 business days depending on the type of contract) the time for payment defaults to 10 business days from the date you receive the payment claim.
- Understand your rights and obligations under the contracts you enter, ensuring you administer those contracts properly and particularly:
- If you are a contracted party and the contract has not been specifically drafted for you by your solicitor, seek legal advice before entering into the contract. 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 has not been specifically drafted for you by your solicitor. Also do not forget to give a payment schedule if you do not intend to pay the whole claimed amount. Without a valid payment schedule, you cannot provide an adjudication response if the payment claim becomes the subject of an adjudication.
- Be vigilant for ‘pay when paid’ provisions, these provisions are void. Consider negotiating longer defect liability periods with subcontractors to potentially overcome void ‘pay when paid’ provisions.
- As always, keep your calendar updated. If you are a claimant, make sure you put all dates in your diary including your reference date, the date you serve your payment claim, due date for payment and last date for serving your adjudication application so you don’t miss the date. If you are a respondent, do not miss the date for service of your payment schedule (15 business days). A well drafted payment schedule could save you thousands.
We know there has been an onslaught of changes to construction regulation over the last year. The QBCC’s website states they are taking an educational approach and recognise that these changes will require significant behavioural change in the industry. We are here to help, and we don’t bite. If you have any questions relating to any of our articles, or anything relating to industry changes, please contact us.
Our next article will look at what to include in an adjudication application.
With more than 37 years’ experience in the construction industry and more than 13 years as an adjudicator in Queensland and other States and Territories, Active Law’s Paul Hick is very familiar with the practical, financial and legal difficulties contractors and subcontractors constantly face in the industry, and of course is very familiar 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 or adjudication response, advice on contracts or subcontracts, or would like to have your own bespoke contracts or subcontracts tailored to your needs, Active Law are well placed to help you achieve the best possible outcome. Call us today and see how we can help you protect your business.
NB: Give us a call and ask us about our up to date, BIF Act compliant bespoke commercial building contracts and subcontracts that we can tailor to your specific business model.
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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.