Is the Subcontractor’s ATM Back?

Critics of the Building and Construction Industry Payments Act 2004 (“BCIPA”) often referred to the original version of the BCIPA as the subcontractor’s ATM.

That criticism stemmed mostly from the claimant friendly procedures which allowed a claimant to prepare a detailed claim over time and then ‘ambush’ an unprepared respondent at the 11th hour. With very little time allowed for the respondent to prepare their adjudication response and the prohibition on including new reasons in an adjudication response, claimants were often successful in circumstances where they may not have been, had the respondent had greater opportunity to prepare a response.

With the amendments to BCIPA on 15 December 2014, amongst many other significant changes, ‘complex claims’ (defined as greater than $750,000) were carved out for special treatment that allowed respondents not only much more time to prepare an adjudication response but allowed them to include new reasons in their response that had not been included in the payment schedule. To a large extent, this eliminated large ‘ambush claims’ but instead allowed the respondent to ambush the claimant by including very few reasons for non-payment in the payment schedule but including many more and detailed reasons in the response, without prior notice to the claimant. The effect of this change was to make BCIPA, at least in respect to large claims, more respondent friendly.

On 1 July 2018, BCIPA will be repealed and replaced by Chapter 3 of the Building Industry Fairness (Security of Payment) Act 2017 (“BIFA”). The changes effected by Chapter 3 of BIFA are significant and arguably returns the ‘security of payment’ regime to the claimant friendly days of the original BCIPA, and then some.

The different (more respondent friendly) procedures for complex claims are gone. Although a longer period may be allowed under BIFA for submitting a payment schedule (up to 25 business days, depending on what the contract says), all respondents are again prohibited from including new reasons for non-payment in an adjudication response that were not stated in the payment schedule. Further, the so-called ‘second chance’ notice is gone. Under BCIPA, a respondent who failed to issue a payment schedule received another opportunity to do so. Under BIFA, there is no second chance to submit a payment schedule. If the respondent fails to serve a payment schedule in time, there is an immediate obligation to pay the claimant the amount claimed and a failure to do so means the claimant is entitled to either apply for adjudication or file a claim in a court to claim the amount as a debt due and payable!!!

There is another major change which makes the procedures more onerous for respondents. That is, removal of the endorsement under the Act. Under BCIPA it was necessary to endorse every payment claim as being a payment claim made under the BCIPA. BIFA removes that requirement. Now, every invoice received by a respondent is potentially a payment claim and a respondent will need to respond to each one with a payment schedule or be faced with the amount claimed becoming a debt due to the claimant!!!

Complying with BIFA will require significant changes to the business practices of principals, head contractors, subcontractors, suppliers and professional service providers to the construction industry as well as to the contracts they are using. Whatever your involvement in the construction industry, it is imperative to the efficient running of your business that you understand the rights and obligations that BIFA imposes. We can assist you in that process including updating your contracts, precedents and procedures or preparing your 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. He is a senior adjudicator under security of payment legislation in QLD, NSW, ACT and SA.

Contact Active Law for more information.