Unfortunately, disputes are becoming more and more common in the building and construction industry for all manner of reasons. Excessive time constraints, mass development, poor workmanship or contract administration, oppressive contractual terms, overregulation and financial pressures, to name a few.
Last year saw enormous changes to construction regulation in Queensland with the repeal of the Building and Construction Industry Payments Act 2004 (Qld) (“BCIPA”) and the Subcontractors’ Charges Act 1974 (Qld) and the roll out of Chapters 2, 3 and 4 of the Building Industry Fairness (Security of Payment) Act 2017 (“BIF Act”). If you missed it, you can see our introduction to some of the changes here.
Pursuant to section 3 of the BIF Act, the main purpose of the shiny new legislation is to help people working in the building and construction industry get paid for the work they do. The BIF act seeks to achieve that purpose by:
- Chapter 2, requiring the use of project bank accounts for particular building contracts;
- Chapter 3, providing a statutory right to progress payments for construction work or related goods and services, along with a system of rapid adjudication of payment disputes; and
- Chapter 4, enabling the use of a statutory charge in favour of subcontractors for payment of the work they do.
Chapter 2 is only partly operational at this stage and it will be the subject of future articles, as will Chapter 4.
Chapter 3 of the BIF Act continues where the BCIPA left off. It grants an entitlement to a progress payment even when you don’t have a written contract and a system of rapid interim resolution of payment disputes so parties do not have to engage in lengthy and expensive court proceedings to resolve their dispute if they don’t want to.
On the face of it, the system is relatively simple. You do the work, claim for payment, if full payment is not received you apply for adjudication and an adjudicator decides how much you should be paid and when. That decision is enforceable and can be recovered like a judgment debt.
Adjudication under Chapter 3 of the BIF Act is a very useful process of swiftly resolving payment disputes. However, it can be a minefield of misadventure and frustration for the unwitting or inexperienced.
Active Law’s construction law team are very experienced in the adjudication process having acted for countless numbers of claimants and respondents over the years since security of payment legislation was introduced in Queensland and other States and Territories. Over a series of articles we will discuss the basics of the adjudication process and highlight some common pitfalls and mistakes made by claimants and respondents using the BIF Act (and formerly the BCIPA) procedures. The 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.
Back to Basics: Overview
To make a claim under the BIF Act, a person (or company, partnership, trust etc) entitled to a progress payment (the claimant) must serve a payment claim on the person (or company, partnership, trust etc) liable to pay for the construction work carried out or related goods or services supplied under the relevant construction contract (the respondent), claiming the amount the claimant says is payable (the claimed amount).
If the respondent intends to withhold or not pay some or all of the claimed amount, the respondent has to provide a written response to the payment claim (a payment schedule) within 15 business days or earlier (if an earlier period is stated in the construction contract).
If the respondent does not pay the whole of the claimed amount or the amount stated in the payment schedule is less than the claimed amount, the claimant may apply to the Adjudication Registrar through the Queensland Building and Construction Commission for adjudication of the payment claim.
Back to Basics: What is a construction contract?
A very important question! Without a construction contract, you can’t use Chapter 3. However, the good news is that construction contract is a defined term in the BIF Act with a simple, yet very wide meaning. It is defined as “a contract, agreement or other arrangement under which 1 party undertakes to carry out construction work for, or to supply related goods and services to, another party”.
The terms “construction work” and “related goods and services” are also defined terms and the meanings of those terms are set out in sections 65 and 66 respectively. Those definitions are very wide and, subject to some exclusions related to mining of resources, cover virtually every aspect of construction of a project on land in Queensland.
An important point to remember is that the construction contract does not have to be a written document. A wholly or partly verbal agreement and other more obscure arrangements can still meet the definition of construction contract. Simply put, if you have carried out construction work or supplied related goods and services, there is a very good chance that there is a construction contract.
As with seemingly everything, there are exceptions however, if you are in any doubt about whether something you are doing or supplying falls within the definitions of “construction work” and “related goods and services”, contact us to discuss it.
Back to Basics: What is a payment claim?
Simply put, it is an invoice; a claim for payment for construction work undertaken or related goods and services supplied to the respondent. However, there are some specific requirements you need to be clear about. A payment claim must be valid and properly served on the respondent, or you will waste your time and money on the adjudication application. Some key points to remember with a payment claim are that it must:
- only claim for construction work or related goods and services which has been carried out or supplied up to the relevant reference date. The term reference date is defined in the BIF Act. We will discuss it separately in a later article because there are quite a few pitfalls with identifying and properly using the correct reference date;
- be the only payment claim served for the reference date. Subsequent payment claims served for the same reference date are void;
- identify the construction work or related goods and services for which you are claiming payment. This means a reasonable description of what was done and/or supplied. Provide some detailed itemisation so it can be understood, measured and valued by reference to the claimed amount. It can sometimes help to attach supporting documents like variation claims and approvals, time sheets and supplier invoices;
- state the claimed amount. That seems obvious, but it needs to be the value of the construction work or related goods and services which is being claimed. It helps if the amount being claimed is itemised to some extent. For example, x number of hours labour at $x/hr. It is also a tax invoice so make sure GST is identified;
- request payment of the claimed amount (the BIF Act provides that the word ‘invoice’ will satisfy this requirement);
- includes other information prescribed by regulation (currently the regulation does not prescribe any other requirements);
- be addressed to the respondent. It helps to include the respondent’s ABN. It is not unusual for a claimant to be confused over the true identity of the person they are contracting with, whether they are a natural person, company, partnership, incorporated association or trustee of a trust;
- be properly served upon the respondent. Check the construction contract and ways in which you are entitled to serve a document. Also, be conscious of your past conduct. If the construction contract does not specifically allow service of documents via email, but the parties have a history of accepting service via email, then sending the payment claim by email may be sufficient to be valid service; and
- be served within the time limitations stated in the BIF Act. In most cases that will be within six (6) months of when you last carried out work but it can depend on the terms of the construction contract and it is different for a final claim.
Back to Basics: What is a payment schedule?
A payment schedule is only required if you dispute any part of the payment claim and do not intend to pay all of the claimed amount.
On receiving a payment claim you have two options, either pay the claimed amount in full, or respond to the payment claim by serving a payment schedule within 15 business days of the date you were served with the payment claim, or earlier (if an earlier period is stated in the construction contract). If you do not serve your payment schedule within that time frame, you will not be permitted to respond to an adjudication application made by the claimant which will greatly increase the chances of an adjudicator ordering that you pay the full claimed amount and the adjudication fees.
Some key points to remember with a payment schedule are that it must:
- identify the payment claim you are responding to;
- state the amount of the payment, if any, that you are going to make;
- if the amount you are going to pay is less (including $0.00) than the claimed amount, state why you are paying less and provide your reasons for withholding payment. Here you need to take some care. You have to state all of your reasons for not paying the whole amount. If you don’t include a reason in the payment schedule and then try to include it later on in an adjudication response, the adjudicator cannot consider it. With your reasons, be as detailed as you can although that is not as critical. You don’t have to provide evidence or make arguments why you are correct. Just the information the claimant would reasonably need to understand the reason. For example, if you are withholding an amount because there a defects in the work. State what the defects are and the amount you are withholding for each of the defects.
- must be served within that 15 business day or earlier period discussed above. This is critical. Valid service within that period must occur. It is no point you posting the payment schedule on the 15th business day because service would occur after the end of the period and your payment schedule would be invalid.
Until Next Time – Key Takeaways
- Make sure your contract administration and accounts staff are aware of the processes involved and the importance of the timeframes under the BIF Act.
- Check mail, facsimile’s and emails regularly. A document can be served without you realising and valuable response time can be lost.
- Every invoice is a payment claim and must be dealt with within the time frames required by the BIF Act. You can be fined if you do not either pay the invoice or provide a payment schedule within the required time.
- Understand your rights and obligations under the contracts you enter, ensuring you administer those contracts properly and having quality specialist legal advice readily available in the event of any doubt can greatly assist the preparation of a payment claim and adjudication application or a payment schedule and adjudication response and the achievement of a successful outcome.
- 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 response. Timeframes are mandatory and cannot be extended.
- Get legal advice before offering or signing a contract. Poorly drafted or unfavourable contracts can greatly affect your chance of a successful outcome in adjudication.
There is much more to come so stay tuned for the next instalment.
Don’t wait until it’s too late. As a senior adjudicator in Queensland, Paul Hick is very familiar with the BIF Act and construction dispute resolution and can assist in preparing payment claims and adjudication applications, payment schedules and adjudication responses, as you may require to place you in the best position possible to make or defend a claim under the BIF Act. 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 obligations.
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.