BUILDING INDUSTRY FAIRNESS (SECURITY OF PAYMENT) ACT 2017
AN EARLY CHRISTMAS PRESENT TO THE CONSTRUCTION INDUSTRY
If you’re a principal, developer, builder or a subcontractor who engages subcontractors or suppliers, strap yourself in and pay attention, it’s going to be a bumpy ride (and not just because this is a long article).
On 8 November 2018, the Government set 17 December 2018 as the date for the next phase of the Building Industry Fairness (Security of Payment) Act 2017 (“BIF Act”) to roll out in Queensland. This means that, amongst other changes, on 17 December 2018:
- Chapter 3 of the BIF Act will replace the Building and Construction Industry Payments Act 2003 (Qld) (“BCIPA”); and
- Chapter 4 of the BIF Act will replace the Subcontractors’ Charges Act 1974 (Qld).
The second phase of the Project Bank Accounts contemplated under the BIF Act is excluded from commencement on 17 December 2018 and is expected to commence by proclamation in April 2019.
The Government hopes the BIF Act will ensure that persons who carry out construction work or supply related goods and services receive progress payments in a timely manner. But what does this mean for you?
Under the BIF Act, the previous requirements for a payment claim under the BCIPA have been changed so it will be enough if the payment claim is a written document that:
- identifies the construction work or related goods and services to which the progress payment relates:
- states the claimed amount;
- requests payment of the claimed amount (the BIF Act provides that the word ‘invoice’ will satisfy this requirement); and
- includes other information prescribed by regulation (currently the regulation does not prescribe any other requirements).
Previously, if a claimant intended to make a claim, we would see the infamous words ‘this claim is made under the Building and Construction Industry Payments Act 2004’. After 17 December 2018, there will be no requirement for a payment claim to state it is made under the BIF Act. This means any invoice or claim for payment will potentially be a payment claim under the BIF Act and should be treated as such. This also means you must ensure that you regularly check all possible locations at which payment claims may be served to avoid missing the date for issuing a payment schedule in response. The registered office, director’s address, principal place of business, PO Box, email address, fax machine or any particular methods of service stated in the contract. Also remember, just because you haven’t collected the mail does not mean it has not been received. There are rules about when a document is deemed to be served and getting that date wrong can be catastrophic.
It is critical that when you receive a payment claim you:
- identify the date of receipt. This is critically important. The date stated on a payment claim often differs from the date you receive it. The date a payment claim is served is the date from when the clock starts ticking on the time limit to deliver a response and/or pay the claim;
- identify the reference date to which the payment claim relates. That is, the date when the subcontractor or supplier became entitled to claim the progress payment claimed in the payment claim. The reference date will be determined by the terms of the contract or by the BIF Act if the contract does not deal with it. Any payment claim served earlier than the reference date or served where there is no available reference date, is void and you will not be required to issue a payment schedule or pay the claim, providing the payment claim doesn’t relate to the previous months’ reference date;
- identify when the payment claim is due to be paid. This may be stipulated by the contract, by the BIF Act, or the Queensland Building and Construction Commission Act 1991 (“QBCC Act”). This is critical because the time to respond to a payment claim and the time to pay a payment claim are often different;
- decide whether you are going to pay the whole amount of the payment claim, a lesser amount, or none at all. If you are going to pay anything less than the whole amount of a payment claim, you must respond with a payment schedule within 15 business days of the date the payment claim was served on you.
If you are unsure whether you need to respond to a payment claim, please get in contact with us, and quickly, you have only 15 business days to respond (or less if the contract provides a lesser period).
No second chance for a payment schedule
In our previous article, we revealed the most significant amendment to the BIF Act which is the reduction in time for giving a payment schedule in response to a payment claim from 25 business days to 15 business days. You can access the full article here. However, at 15 business days, the time for responding to a payment claim with a payment schedule is still 5 business days more than the time frame currently allowed under the BCIPA.
Under the BIF Act there will be no second chance for issuing a payment schedule. If you do not serve a payment schedule within 15 business days of being served with a payment claim, the whole amount of the payment claim is due and payable. Further, the claimant is entitled to either apply for adjudication or file a claim in a court to recover the amount as a debt. The only way to avoid issuing a payment schedule is to pay the claimed amount in full on or before the due date for payment. If your contract is silent on the due date for a progress payment or contains a payment provision that is void under the BIF Act or the QBCC Act, payment is due 10 business days after the payment claim is served.
If you are not going to pay the whole amount claimed in the payment claim, you MUST serve a payment schedule within 15 business days, which identifies the payment claim, states how much you are going to pay and all of your reasons why you are paying less than the claimed amount or withholding payment. Under the BIF Act, respondents to an adjudication will be prohibited from including in an adjudication response any reasons for not paying a payment claim that were not stated in the payment schedule.
If you do not issue a payment schedule without a reasonable excuse (a ‘reasonable excuse’ is not defined in the BIF Act) not only will you be liable to pay the whole amount claimed, the BIF Act has introduced severe penalties whereby you may face disciplinary action under the QBCC Act or a fine up to (currently) $13,055.00 for an individual and up to $65,275.00 for a company.
The BIF Act also brings with it a statutory right for subcontractors and suppliers to give written notice to suspend carrying out the construction work or supplying the related goods and services under the contract, which may expose you to consequences such as liquidated damages or delay costs.
If a respondent fails to give a payment schedule and fails to pay the full amount stated in the payment claim, the claimant may commence an adjudication application within 30 business days after the day of the due date for the progress payment to which the claim relates, or the last day the respondent could have given a payment schedule, whichever is the later.
Where the claimant receives a payment schedule and the amount stated in the payment schedule is less than the amount stated in the payment claim, an adjudication application for the outstanding amount may be commenced within 30 business days of the date the payment schedule was served.
If a respondent issues a payment schedule but fails to pay the full amount stated in the payment schedule, an adjudication application may be commenced within 20 business days after the due date for the progress payment to which the claim relates.
As a result, potential respondents to adjudication applications must factor into their commercial operations the uncertainty of whether a claimant will make an adjudication application up to potentially six (6) weeks after the date a payment schedule was due. The amendments to the Building Industry Fairness (Security of Payment) Regulation 2018 also see a limitation to submissions and accompanying documents for particular adjudication applications.
The new regime will apply to all payment claims issued after commencement of the BIF Act on 17 December 2018. This means that all construction contracts whether entered into before or after this date are subject to the BIF Act.
It is also important to note that given the time of year these provisions are due to commence under the BIF Act, 22 December 2018 to 10 January 2019 are not included as a ‘business day’ and the time limits relating to actions, including service of documents and lodging applications and responses, during this period will be suspended from 22 December 2018 to 10 January 2019 (inclusive).
Whether you are a principal, head contractor or subcontractor, it is imperative to the efficient running and survival of your business that you understand the rights and obligations that the BIF Act brings with it on 17 December 2018. Complying with the BIF Act will require substantial changes to your business practices, as well as to the contracts being used. Active Law’s construction law team specialise in this area and can assist you in ensuring your business is equipped and ready for the changes and can assist in updating your contracts, precedents and procedures or preparing your, payment claims, payment schedules, adjudication applications or responses.
Active Law’s construction team are very experienced in all aspects of construction law including in the drafting, negotiation and administration of contracts, dispute resolution including litigation, arbitration and of course the procedures under security of payment legislation. Active Law’s Paul Hick has been involved in the construction industry for over 35 years and is a senior adjudicator under security of payment legislation in QLD, NSW, ACT and SA. Formerly employed by the QBCC, Emma Ward brings with her unique insight into Queensland’s construction watchdog and is well placed to assist you with statutory compliance and defence against prosecution. Don’t wait until it’s too late. Call Paul & Emma today.