Construction Law - BIF ACT SERIES - CHAPTER 3 PROGRESS PAYMENTS - BACK TO BASICS ADJUDICATION - #1

Unfortunately, disputes are becomingmore and more common in the building and construction industry for all mannerof reasons. Excessive time constraints, mass development, poor workmanship orcontract administration, oppressive contractual terms, overregulation andfinancial pressures, to name a few.

Last year saw enormous changes toconstruction regulation in Queensland with the repeal of the Building and Construction Industry PaymentsAct 2004 (Qld) (“BCIPA”) and the Subcontractors’ Charges Act 1974 (Qld) and the roll out of Chapters2, 3 and 4 of the Building IndustryFairness (Security of Payment) Act 2017 (“BIF Act”). If you missedit, 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 newlegislation is to help peopleworking 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 bankaccounts for particular building contracts;
• Chapter 3, providing a statutory right toprogress 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 statutorycharge in favour of subcontractors for payment of the work they do.

Chapter 2 is only partly operationalat this stage and it will be the subject of future articles, as will Chapter 4.

Chapter 3 of the BIF Act continueswhere the BCIPA left off. It grants an entitlement to a progress payment evenwhen you don’t have a written contract and a system of rapid interim resolutionof payment disputes so parties do not have to engage in lengthy and expensivecourt proceedings to resolve their dispute if they don’t want to.

On the face of it, the system isrelatively simple. You do the work, claim for payment, if full payment is notreceived you apply for adjudication and an adjudicator decides how much youshould be paid and when. That decision is enforceable and can be recovered likea judgment debt.

Adjudication under Chapter 3 of theBIF Act is a very useful process of swiftly resolving payment disputes.However, it can be a minefield of misadventure and frustration for theunwitting or inexperienced.

Active Law’s construction law team arevery experienced in the adjudication process having acted for countless numbersof claimants and respondents over the years since security of paymentlegislation was introduced in Queensland and other States and Territories. Overa series of articles we will discuss the basics of the adjudication process andhighlight some common pitfalls and mistakes made by claimants and respondentsusing the BIF Act (and formerly the BCIPA) procedures. The words that appearin italics in these articles have special meaning. In most cases they will bewords 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 businessdays 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 claimantmay apply to the Adjudication Registrarthrough the Queensland Building andConstruction 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 useChapter 3. However, the good news is that constructioncontract is a defined term in the BIF Act with a simple, yet very widemeaning. It is defined as “a contract, agreement or other arrangementunder which 1 party undertakes to carry out construction work for, or to supplyrelated goods and services to, another party”.

The terms “construction work” and “relatedgoods and services” are also defined terms and the meanings of those terms areset out in sections 65 and 66 respectively. Those definitions are very wide and,subject to some exclusions related to mining of resources, cover virtuallyevery aspect of construction of a project on land in Queensland.

An important point to remember is thatthe construction contract does nothave to be a written document. A wholly or partly verbal agreement and othermore 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 avery good chance that there is a constructioncontract.

As with seemingly everything, thereare exceptions however, if you are in any doubt about whether something you aredoing or supplying falls within the definitions of “construction work” and “relatedgoods and services”, contact us to discuss it.

Back to Basics: What is a payment claim?

Simply put, it is an invoice; a claim forpayment for construction workundertaken or related goods and servicessupplied to the respondent. However,there are some specific requirements you need to be clear about. A payment claim must be valid and properlyserved on the respondent, or you willwaste your time and money on the adjudicationapplication. Some key points to remember with a payment claim are that it must:

• only claim for construction workor related goods and services whichhas been carried out or supplied up to the relevant reference date. The term referencedate is defined in the BIF Act. We will discuss it separately in a laterarticle because there are quite a few pitfalls with identifying and properlyusing the correct reference date;
• be the only payment claimserved for the reference date. Subsequent paymentclaims served for the same reference date are void;
• identify the constructionwork or related goods and servicesfor which you are claiming payment. This means a reasonable description of whatwas done and/or supplied. Provide some detailed itemisation so it can beunderstood, measured and valued by reference to the claimed amount. It can sometimes help to attach supportingdocuments like variation claims and approvals, time sheets and supplierinvoices;
• state the claimed amount. That seems obvious,but it needs to be the value of the constructionwork or related goods and serviceswhich is being claimed. It helps if the amount being claimed is itemised tosome extent. For example, x number of hours labour at $x/hr. It is also a taxinvoice so make sure GST is identified;
• request payment of the claimedamount (the BIF Act provides that the word ‘invoice’ will satisfy thisrequirement);
• includes other information prescribed by regulation (currently theregulation 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 trueidentity of the person they are contracting with, whether they are a naturalperson, company, partnership, incorporated association or trustee of a trust;
• be properly served upon the respondent.Checkthe construction contract and ways inwhich you are entitled to serve a document. Also, be conscious of your pastconduct. If the construction contractdoes not specifically allow service of documents via email, but the partieshave 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 mostcases that will be within six (6) months of when you last carried out work butit can depend on the terms of the construction contract and it is different fora final claim.

Backto Basics: What is a payment schedule?

A paymentschedule is only required if you dispute any part of the payment claim and do not intend to payall of the claimed amount.

On receiving a payment claim you have two options, either pay the claimed amount in full, or respond tothe payment claim by serving a payment schedule within 15 business days of the date you wereserved with the payment claim, or earlier(if an earlier period is stated in the constructioncontract). If you do not serve your paymentschedule within that time frame, you will not be permitted to respond to anadjudication application made by the claimant which will greatly increase thechances 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 youare 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 payingless and provide your reasons for withholding payment. Here you need to takesome care. You have to state all of your reasons for not paying the wholeamount. If you don’t include a reason in the payment schedule and then try to include it later on in an adjudication response, the adjudicatorcannot consider it. With your reasons, be as detailed as you can although thatis not as critical. You don’t have to provide evidence or make arguments whyyou are correct. Just the information the claimantwould reasonably need to understand the reason. For example, if you arewithholding an amount because there a defects in the work. State what thedefects are and the amount you are withholding for each of the defects.
• must be served within that 15 businessday or earlier period discussed above. This is critical. Valid servicewithin that period must occur. It is no point you posting the payment schedule on the 15^th business day because service would occurafter the end of the period and your paymentschedule would be invalid.

Until Next Time - KeyTakeaways

1. Make sure your contractadministration and accounts staff are aware of the processes involved and theimportance of the timeframes under the BIF Act.
2. Check mail,facsimile’s and emails regularly. A document can be served without yourealising and valuable response time can be lost.
3. Every invoice is a paymentclaim and must be dealtwith within the time frames required by the BIF Act. You can be fined if you donot either pay the invoice or provide a paymentschedule within the required time.
4. Understand yourrights and obligations under the contracts you enter, ensuring you administerthose contracts properly and having quality specialist legal advice readilyavailable in the event of any doubt can greatly assist the  preparation of a payment claim andadjudication application or a payment schedule and adjudication response andthe achievement of a successful outcome.
5. Make your calendaryour bible. Put reminders in your calendar to ensure you do not miss a date forserving a  payment claim or paymentschedule or filing your adjudication application or response. Timeframes aremandatory and cannot be extended.
6. Get legal advicebefore offering or signing a contract. Poorly drafted or unfavourable contractscan greatly affect your chance of a successful outcome in adjudication.

There is much more to come sostay 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.