BIF ACT SERIES – CHAPTER 3 PROGRESS PAYMENTS – BACK TO BASICS ADJUDICATION – #6

The hierarchical nature of construction contracts makes contracted parties extremely vulnerable to the whims and solvency of the contracting parties. Each contractor/subcontractor down the contractual chain will have had to expend substantial resources to carry work out before they are entitled to be paid. A slow paying or insolvent principal or head contractor can be financially devastating for the head contractor or subcontractor respectively. The problem was well summarised by the Cole Royal Commission into the Building and Construction Industry in the early 2000’s, where it was said that security of payment was seen as:

an issue that critically affects the ability of participants in the industry to make a living, and to be rewarded for work that they have performed…hardship [is] caused to subcontractors by builders who are unable or unwilling to pay for work from which they have benefited. The subcontractors who experience payment problems are often small companies or partnerships. Frequently they do not have the expertise or resources to enforce their legal rights, because enforcement would require protracted litigation against much better resourced and more sophisticated companies. Consequently, subcontractors that have operated profitably and well for many years can be forced into liquidation through no fault of their own, often with devastating consequences for the owners of these businesses, their families, their employees and the creditors”.

Although that commentary focusses upon subcontractors, the same can be said for head contractors in the context of their relationship with principals/owners and sub-subcontractors in the context of their relationship with subcontractors immediately above them in the contractual chain. The political impetus to protect subcontractors through modern security of payment legislation first appeared in New South Wales in 1999 with the State Government enacting the Building and Construction Industry Security of Payment Act 1999, which was based upon legislation enacted in the United Kingdom in 1996. Within 10 years after the New South Wales legislation began, every State in Australia as well as Singapore and New Zealand had enacted legislation with the same purposes, although there emerged some significant differences between the legislation enacted in some of the States and Territories. The importance of the system and the desire for more consistency between the States and Territories was highlighted in what has become known as the “Murray Report” which is the result of a review of security of payment laws in Australia undertaken by Mr John Murray AM at the behest of the Federal Government.

No matter what you think of it, security of payment legislation is designed to facilitate cash flow in the construction industry, down the contractual chain for contractors, subcontractors and suppliers and it has become the primary alternative (payment) dispute resolution mechanism.

Statistics show the majority of claimants succeed in their adjudication applications, at least to some extent. However, there is no presumption in favour of claimants. It is up to the claimant to prove their case to the adjudicator. Even if the respondent has failed to provide a payment schedule in response to the payment claim, or an adjudication response there is still no presupposition that the amount is owing. Put simply, the onus is no less on the claimant to prove their claim to the adjudicator than it is on the respondent to prove their reasons for not paying it.

Welcome to round 6 in our series of articles discussing the basics of adjudication under the Building Industry Fairness (Security of Payment) Act 2017 (“BIF Act”). This instalment discusses the adjudication application. There is a great deal to discuss about adjudication applications so this topic will extend over a couple of instalments.

So far, the articles in our ‘Back to Basics’ series have covered the following:

  • #1 – What is a construction contract, what is a payment claim and what is a payment schedule;

  • #2 – What is a business day, what is effective service of documents;

  • #3 – What is a reference date;

  • #4 – Key timeframes under the BIF Act for an adjudication application and adjudication response; and

  • #5 – What is the due date for payment.

If you have missed any of the above, or are interested in any of the other current changes facing the construction industry, you can view our recent articles 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.

Adjudication Application

Section 79 of the BIF Act prescribes the statutory requirements for a valid adjudication application namely:

  1. An Adjudication application
    1. must be in the approved form; and

    2. must be made within —

      1. for an application relating to a failure to give a payment schedule and pay the full amount stated in the payment claim—30 business days after the later of the following days—

        1. the day of the due date for the progress payment to which the claim relates;

        2. the last day the respondent could have given the payment schedule under section 76; or

      1. for an application relating to a failure to pay the full amount stated in the payment schedule—20 business days after the due date for the progress payment to which the claim relates; or

    1. must identify the payment claim and the payment schedule, if any, to which it relates; and

    2. must be accompanied by the fee prescribed by regulation for the application; and

    3. may include the submissions relevant to the application the claimant chooses to include.

Looks like a foreign language? Don’t worry, we will translate it for you.

In order for an adjudication application to be valid, you must:

  1. Complete the Form S79 – Adjudication Application (“Application Form”) either on-line on the QBCC website (accessible here) or by downloading and completing a hard copy found on the QBCC website (accessible here).
    Ensure you complete all parts of the Application Form and identify the correct legal entity as both the claimant and respondent.

    Identifying the correct entity.

    Identifying the correct entity is critical. Where there is no written contract, it can be difficult to identify the parties to the contract, agreement or other arrangement as the BIF Act defines. In some examples we have seen, one or both of the parties don’t even understand or appreciate who they are contracting with. This can lead to serious consequences for the creditor when it comes to trying to recover payment. Where you have purchase/work orders, or transactions identifying an entity, it will presumedly be the name on that document. However, the most reliable source of information to properly identify a party is the ABN.
    Identifying the wrong entity can be fatal to your application and not only cost you time and money (including the adjudicator’s fees) but could also mean you lose your rights to pursue that claim under the BIF Act.
    Here are some common examples:

    • You do most of your dealings with John Builder but when John asked you to do the job, you received a purchase order or contract from John’s company, 123 Build Pty Ltd, which you accepted and then carried out the work. John Builder is the sole director of 123 Build Pty Ltd. Although John is the sole director of the company, a registered company has its own legal identity. Therefore, the correct entity to serve the payment claim and the adjudication application upon, is 123 Build Pty Ltd. To be sure, always check the ABN on the purchase order or the contract. There is a handy free service available here. If the purchase order or contract does not show the ABN of the person or company engaging you to carry out the work, demand that it be properly put on the purchase order or contract, before your do any work.

    • You enter into a contract with Jane Smith t/as ABC Constructions. ABC Constructions is a registered business name. A business name does not attract legal standing. Consequently, you must commence adjudication against Jane Smith t/as ABC Constructions and not ABC Constructions. Again, check the ABN.

    • You are a second-tier subcontractor in a major development. The developer is XYZ Developers Pty Ltd. The head contractor is 987 Builders Pty Ltd. You are engaged by Bob the Builder Pty Ltd, a subcontractor to 987 Builders Pty Ltd, to perform the window installation. You are aware 987 Builders Pty Ltd are not paying Bob the Builder Pty Ltd for the claimed portion of the window installation work performed, consequently, Bob the Builder Pty Ltd fails to give you a payment schedule and pay the claimed amount on time. Even though there are payment issues between 987 Builders Pty Ltd and Bob the Builder Pty Ltd, you must commence adjudication against your contracting party, Bob the Builder Pty Ltd.

    • You enter into a contract with Jeremiah Johnson, a person you know to be a developer, to construct a number of townhouses. When filling out the contract, Jeremiah says his company is Mountain Pty Ltd and gives you the ABN. You search the and find out it belongs to the Johnson Family Trust. It is important to know whether the organisation you are contracting with is Mountain Pty Ltd in its own right or in its capacity as the trustee of the Johnson Family Trust. This is one situation where searching the ABN details alone won’t necessarily help you. That link we provided above will only identify the name of the trust, not the trustee. A trust on its own is not capable of entering into contracts. It can only do that through a trustee. In this scenario, ask Jeremiah to provide evidence of the identity of the trustee of the Johnson Trust. Then you can be sure when you serve a payment claim and make an adjudication application that the party is correctly identified. For example, Mountain Pty Ltd as trustee for the Johnson Family Trust ABN 12 345 678 901.

    • If your claim is against a Queensland Government department, the respondent should be named as ‘The State of Queensland acting through the Department …………..’ (for example, ‘The State of Queensland acting through the Department of Main Roads and Transport’).
    Here are some tricks of the trade for respondents to look out for:

    • Ensure the claimant listed on the payment claim and the adjudication application are the same and is the person or organisation you entered into the construction contract with. If the claimant has incorrectly identified itself on the adjudication application this may be grounds to argue that the adjudicator should decide against the claimant on the adjudication application.

    • Although this goes without saying, ensure the person you have contracted with holds a QBCC licence to perform the construction work to which the contract relates. If the person does not hold the appropriate licence, they cannot use the adjudication process. You won’t find this edict in the BIF Act. It is a rule established by the Queensland Court of Appeal in 2006.
    Application Form
    The Application Form is broken up into 11 parts. Ensure you complete all 11 parts and fill out all details (especially those with an asterisk). If you, or the respondent, are represented by an agent or solicitor, ensure you complete part 2 and 4 of the Application Form.
    Ensure you include the:
    1. contract and project details;

    2. payment claim details; and

    3. payment schedule details (if applicable).
    The Application Form must be served on the respondent. If you do not serve your adjudication application in accordance with your contract and/or the applicable law, your adjudication application may be invalid. For more information on service, you can view our previous article here.
    You will also be required to provide proof of service of the adjudication application on the respondent to the adjudicator. If you email a copy of the application to the respondent provide a copy of that email to the adjudicator (that is, if service by email is permitted). Alternatively, if you mail or personally give a copy of the adjudication application to the respondent, ensure you have documentation evidencing this.
  1. Make your adjudication application within the required time frame.
    Your adjudication application must be filed before 5:00pm on the last business day of the period permitted. If it is even a minute late, your application will be out of time. If you are attending a QBCC office to personally file the application, we suggest you attend with considerable time to spare.
    Notably, if you intend to deliver your adjudication application in person to a QBCC regional office (that is any office other than Brisbane), it is recommended you deliver your application no later than 4:00pm to allow it to be processed and acknowledged as received by the Registrar before 5:00pm on the same business day.
    Whatever you do, don’t send the adjudication application by post unless you have ample time left to spare in the time allowed. The post can be unreliable. We also recommend that you do not rely upon a courier. There are specialised process servers available to both lodge the adjudication application with the Registrar and serve a copy upon the respondent, if required.
    Also, don’t forget that you can, depending upon the size of the files, lodge the adjudication application on-line. We gave you the link to the on-line form above. Note that although you may be lodging the adjudication application on-line, it must still be received by the Registrar before 5pm on that last business day. When lodging on-line, you will receive an acknowledgment of the time and date when the upload was completed (i.e. the adjudication application lodged).
    See our previous article here for more detail on the required time frames.
  1. Accurately identify the payment claim and payment schedule (if any) to which the adjudication application relates.

    You must include a copy of those documents with your adjudication application.

    Ensure you include a copy of:

    1. The relevant construction contract (if any);

    2. The payment claim and all included annexures;

    3. The payment schedule and all included annexures; and

    4. Submissions proving your entitlement (to be the subject of our next article).
  1. Pay the correct fee.
    The Building Industry Fairness (Security of Payment) Regulation 2018 (“BIF Regulation”) prescribes the fees payable by the claimant for an adjudication application which range from $57.35 to $5,737.60 depending on the amount of the payment claim. For example, if your payment claim claims $150,000, the applicable fee is $401.65. This fee does not include the adjudicator’s fees which are payable upon notice from the adjudicator that the decision has been made. To find out what you will need to pay, details of the fees are found on page 7 of the Application Form or in Schedule 2 of the BIF Regulation; and
  1. Include submissions in support of your application for the adjudicator’s consideration, if you so wish (which we strongly suggest you should). We discuss the do’s and dont’s of submissions in our next article.

After the Adjudication Application is Filed

After a claimant files an adjudication application the registrar must, within four (4) business days after the application is received, refer the application to an eligible adjudicator. The adjudicator then has a further four (4) business days the accept or reject the referral.

Upon an adjudicator accepting the application, the claimant must provide the adjudicator with proof of service of the application on the respondent. Correspondence with the adjudicator should be done through the adjudicator’s nominated agent. The adjudicator will advise you of those details in the notice of acceptance. Further, it is recommended that any correspondence to the adjudicator is copied to the other party to ensure procedural fairness is afforded. After the adjudicator has accepted the application, it is not appropriate to correspond with the QBCC registry until after the decision is made.

An adjudication application may be withdrawn on two occasions:

  1. If the claimant has given written notice of discontinuation to the adjudicator and respondent; or

  2. If the respondent, before the adjudicator has decided the application, paid the claimant the amount stated in the payment claim the subject of the adjudication application. It is up to the claimant to notify the adjudicator as soon as practicable that the adjudication application has been withdrawn because of payment.

If an adjudication application is withdrawn, the adjudicator will still be entitled to be paid his/her fees for considering the application up until the date of withdrawal.

Key Takeaways:

  1. Carry out a search of the company name and the ABN number that appears on the contract. You can do a free business name details check in the ASIC business name register. You can also obtain company extracts and business name extracts for a fee. An ABN search on ABN lookup may also be helpful in determining the correct business entity. It should also determine whether there is a trust in place.

  2. It is vital that any application is served in accordance with legal requirements for proper service. That will depend on whether you are serving an individual, partnership or corporation. See our previous article for how to effect proper service. Note, you may need to allow yourself extra time to effect service if the other party is interstate.

  3. Time frames are vital.

  4. Complete all parts of the Application Form. An incomplete Application Form could result in your application being deemed invalid.

Stay tuned, coming up next is what to include (or not include) in your adjudication application.

Working as an adjudicator makes it easy to see where people go wrong. With more than 38 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, other forms of dispute resolution including litigation, 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, we are only a phone call away.