Is Security of Payment on the Nose? 

Loosely described as ‘security of payment’ legislation, these laws exist now in every State and Territory in Australia, although they have evolved to differ markedly from one jurisdiction to another.

In Queensland, the Building and Construction Industry Payments Act 2004 (“BCIPA”) has been around for 13 years and it has been almost 3 years since it was substantially amended in late 2014.

Statistics released by the Queensland Building and Construction Commission (“QBCC”) over the last 5 years indicates the number of adjudication applications lodged each year has remained reasonably static and the total value of claims has increased markedly. Yet notably, (since the amendment of the BCIPA in December 2014) the number of decisions released in proportion to the number of applications lodged has dramatically reduced such that, in the financial year ended June 2016, only approximately 50% of applications lodged were decided and released.

Annual Statistics for each Financial Year[1]
Year 2012 2013 2014 2015 2016
Applications Lodged 731 721 670 712 702
Decisions Released 553 531 471 406 363
Total Value of Claims $M 394 874 1416 2071 1186

 

The statistics represented in the table show there was relative consistency in the ratio of applications lodged/decisions released in the 3 years prior to the amendments to the BCIPA, with a substantial change after the amendments.

Whilst there could be a number of reasons for this large discrepancy between applications lodged and decisions released, including for example, parties negotiating settlement or not paying adjudicators fees (which can be a basis for decisions not being released), it is an increased number of invalid adjudication applications that we suggest has become a significant factor.

As to the increase in value, some of that data could be skewed by a number of large value complex claims however, it also indicates that the number of smaller value claims being lodged has reduced.

Wake Up

Okay, so waffle about statistics is enough to put anyone to sleep, and what do they really mean anyway? As Mark Twain said, there are lies, damned lies and statistics. But the point is, something is going on with the perception of BCIPA among those who it was intended to assist. Active Law have been working with clients in the construction industry for many years and our Paul Hick has been undertaking adjudications across a number of States and Territories in Australia including Queensland since 2005. From our interactions with clients and stakeholders in the construction industry, it appears to us there is a perception, particularly amongst smaller contractors and subcontractors that since the amendments in December 2014, the BCIPA has become respondent friendly, to the detriment of claimants. Of course, it is widely known that prior to the amendments, the perception was the BCIPA was overly claimant friendly and was sometimes referred to as “the subcontractor’s ATM”.

Perceptions are not fact

The problem with perceptions is that no matter how misguided they are, when held and disseminated for long enough they become reality to most people. The fact is, neither of the perceptions referred to above are correct. Particularly now, in the case of standard claims under the BCIPA (claims valued less than $750,000), the procedures for having payment disputes adjudicated are no more respondent friendly than they used to be.

So where has the perception come from? We suggest it is a combination of factors including a marked decrease in industry awareness about the BCIPA since the amendments. This may in part be due to the abolition of private authorised nominating authorities whom were responsible for a substantial amount of promotion and educational programs before the December 2014 amendments. However, we suggest a significant part of this negative perception has grown up from bad experiences that many, particularly smaller claimants, have had with the process. When we say bad experiences, we are speaking of a lack of success on their adjudication applications and the often serious and costly consequences of that. Without doubt, it can be frustrating (to say the least) to a claimant who is owed money but, for one reason or another, their adjudication application is found to be invalid.

If one reviews the published decisions, which are updated regularly by the QBCC, it is astounding how many released decisions reveal that the adjudicator did not have jurisdiction. What that usually means is, there is some step in the process under the BCIPA which was not followed by the claimant correctly. So when one looks at the ratio between applications lodged and the decisions released, and then considers a significant number of the decisions released are also invalid, the conclusion must be that a significant number of claimants are just not getting it right!!

If you don’t know, Get Help!

Now the harsh reality is, if your adjudication application fails because it is invalid, that is not the fault of the legislation. It is because you have not followed the procedures which are very strict on claimants, respondents and adjudicators.

The procedures can seem complex but if followed, they are effective.  Some of the simple but fatal errors we have seen are:

  • not identifying the correct parties to the contract (e.g. the claimant claims against individual when in fact they entered the contract for the work with a company);
  • claimant being unlicensed;
  • multiple payment claims issued for the same reference date;
  • no reference date;
  • work completed more than six months previously;
  • payment claim not complying with mandatory requirements;
  • strict time frames not complied with.

The above examples are merely a generalised snapshot of the types of avoidable errors which claimants make. The fact is, if claimants understood the BCIPA better or if they engaged an experienced solicitor to assist them with the process, the instances of invalid applications would be far less.

The BCIPA is an extremely useful tool for the interim resolution of payment disputes. That is, it has always been and it remains a cost-effective and rapid process of compelling payment of moneys owed for construction work or related goods and services.

At the risk of seeming blunt, the message is this:

  • like it or hate it, the BCIPA is here to stay and to those who use it properly, it works very well.
  • If you are contracting in the construction industry it is imperative that you take the time to educate yourself on the procedures under the BCIPA.
  • If you don’t know it well enough or don’t have time to become proficient in the procedures yourself, at least gain sufficient understanding so that you can either recognise when you may have some rights as a claimant or recognise when you have become a respondent and swiftly seek advice from a solicitor with experience in this area.
  • Unless you are absolutely confident of your knowledge of the procedures under the BCIPA and the body of law that has built up around it, seriously consider getting help from an experienced solicitor to prepare your payment claim and adjudication application or payment schedule and adjudication response, as the case may be. The costs of that assistance may well pale into insignificance when compared to the cost of an unsuccessful adjudication.

Active Law’s construction team are very experienced in all aspects of construction law including the procedures under the BCIPA. Active Law’s Paul Hick is a senior adjudicator under the BCIPA and has been involved in countless adjudications either as adjudicator or solicitor for the claimant or respondent. The construction law team at Active Law can swiftly identify your rights and obligations whether you are a claimant or a respondent and can ensure you make the best submission possible in your circumstances.

If you don’t know…ask. We are only a phone call away.

[1] Source QBCC Adjudication Statistics