BIF ACT Series Chapter 3 Progress Payments - Back to Basics Adjudication - #3

Welcome to the third installment in our series of articles discussing the basics of adjudication under the Building Industry Fairness (Security of Payment) Act 2017 (“BIF Act”). In this series we attempt to strip back what we know is a complex and somewhat dry (although we don’t think so) area of law in an attempt to better prepare you for the bumpy ride of adjudication. As Alexander Graham Bell once said, “before anything else, preparation is the key to success” and who are we to argue with Mr Bell. Therefore, as exciting as it may be, we are not regaling you with the intricacies of the latest case on something or other. We are going back to basics on the adjudication process to help you shape your business practices and improve your prospects of successfully making or defending a claim for payment under the BIF Act.

So far, we have covered the following:

1. What is a constructioncontract;
2. What is a paymentclaim;
3. What is a paymentschedule;
4. What is a businessday; and
5. What is effective service of documents?

If you missed either of our previousinstalments, or any of our articles for that matter, you can catch up here.As always, those words that appear in italics in these articles have specialmeaning. In most cases they will be words or phrases that are specificallydefined in the BIF Act.

What is a reference date?

The starting premise is reallysection 67 of the BIF Act whichstates that from each reference dateunder a construction contract, aperson is entitled to a progress payment if the person has carried out construction work, or supplied related goods and services, under thecontract.

Whilst there must be a construction contract, the right to aprogress payment under the BIF Act isa statutory right that grants an entitlement to a progress payment even if theparticular contract does not.

The existence of a reference date is integral to the rightto claim and receive a progress payment under the BIF Act. A reference dateis defined in section 67 of the BIF Actas:

67 Meaning of reference date

1. A reference date, for a construction contract, means—
   
   
2. a date stated in, or worked out under, the contract as the date on which a claim for a progress payment may be made for construction work carried out, or related goods and services supplied, under the contract; or
3. if the contract does not provide for the matter—
   
   
4. the last day of the month in which the construction work was first carried out, or the related goods and services were first supplied, under the contract; and
5. the last day of each later month.
6. However, if a construction contract is terminated and the contract does not provide for, or purports to prevent, a reference date surviving beyond termination, the final reference date for the contract is the date the contract is terminated.

So what does all that mean? It means that if you are entitled to a progress claim under section 70, that statutory right allows you to make one (1) payment claim each time the contract provides that a progress claim may be claimed. If the contract does not state when progress claims may be claimed, then you can claim one on the last day of the month when you first carried out the construction work or supplied related goods and services and then again at the end of each month after that.

By virtue of Schedule 1 in the Acts Interpretation Act 1954, the word“month” means a calendar month (i.e. one of the 12 months named January throughto December).

How do I know when I have a reference date?

The first thing to check is yourcontract. Does it stipulate when a progress claim can be claimed?

Unfortunately, some contracts areless than clear in their drafting. Again, you need to understand your contract.The language used in contracts often varies depending on the drafter. Some willuse the term  payment claim, others willsay progress claim, or other such variants. That really doesn’t matter if themeaning is clear that it is establishing either a milestone or a point in timewhen a progress claim can be claimed.

Some contracts stipulate that aprogress claim can be made upon the works reaching specific milestones. Forexample, common in residential construction are milestones such as completionof the frame stage or lock up stage. Other contracts allow a progress claim tobe made on a specific day of each month claiming the value of work carried outfor that month.

Sometimes a contract will bedrafted in a way that has a contracted party jumping through hoops ofpre-conditions before they can claim a progress claim. Those latter provisionscan often be found to be void under section 200 of the BIF Act which we discuss further below.

A significant change since thenow repealed Building and ConstructionIndustry Payments Act 2004 is that in the BIF Act, a reference datealso arises in circumstances where a constructioncontract is terminated. The termination gives rise to one final reference date that a claimant can use to submit one final payment claim.

Before the BIF Act, some shrewd contracting parties (principals, headcontractors or even subcontractors engaging subservient subcontractors) includedprovisions in their head contracts or subcontracts which expressly providedthat no reference date could arise onor after termination of the contract. With no reference date, there can be no valid payment claim.

Where contracts included atermination for convenience clause (which is quite common in head contracts andsubcontracts), this could lead to a particularly unjust outcome when acontracted party, having carried out substantial work, has their contractterminated by the contracting party using the termination for convenience clause,just before a reference date. Theresult being that the contracted party had no recourse through adjudication andhad to resort to litigation to recover what they were owed. Now, the BIF Act prevents such injustice, givingthe contracted party one final referencedate to claim for any outstanding constructionwork performed or related goods andservices supplied.

It is also important to note if your contract provides for security (bank guarantees or retention) to be held under the contract, it is common a final reference date will arise on the last day of the defects liability period, which will include the release of the remaining security. It is important you accurately record in your calendar when these dates arise to ensure you are following up on any security held under the contract. Remember, retention is your money. Even though recent amendments to the Queensland Building and Construction Commission Act 1991 now mandate that where a retention amount is held under a building contract, the contracting party must give notice to the contracted party, this does not apply to all contracts. We cannot stress enough how important it is to keep good records of all projects you are engaged in. For more detail on retention, you can view our recent article here.

Only one (1) payment claim can be served on or after each reference date

As discussed above, your right tomake a payment claim under the BIF Act is dependent upon establishingthat a reference date exists.However, that reference date you wishto rely upon must have arisen and must not have already been used.

You cannot serve a payment claim before the reference date arises, no matter whatyour contract says. Quite simply, if you serve a payment claim before the referencedate arises, the payment claim isinvalid. You can serve a payment claimafter the reference date has arisen,anytime up to 6 months after you last carried out construction work or supplied relatedgoods and services (unless the paymentclaim is a final claim, then it is within 28 days of the end of the defectsliability period).

The BIF Act allows you toserve only one (1) payment claim per reference date. This very important.Over the years we have seen many contractors make a habit of issuing numerousinvoices throughout a month in circumstances where there is only one reference date arising each month. Forexample, often, they would issue one or more invoices for variations and thenlater a further invoice claiming part of the original scope of works completed,even though another reference datehad not arisen yet. Assuming all of those invoices met the criteria of a valid payment claim (see our previous discussionhere),the first invoice issued on or after the referencedate arises is the only valid paymentclaim.  Remember, you will only havea limited number of reference datesfor each construction contract, so amistake like that could result in you losing your right to recover amountspayable to you through the adjudication process.

This means that you need to ensurethat all amounts you are claiming for constructionwork carried out and/or related goodsand services supplied up to the referencedate, including all variations, is included in one payment claim, served on or after the reference date.

Further, although only one payment claim may be issued per reference date, any amount claimed in aprevious payment claim served for aprevious reference date, can still beincluded in a payment claim served onor after the current or next referencedate.

Examples

You enter into a construction contract on 1 March 2019 tocarry out construction work. The construction contract stipulates a reference date will arise on the 15^thof each calendar month.

Providing you carried out construction work between 1 March 2019and 15 March 2019, the reference datefor your first payment claim willarise on 15 March 2019 in which you can claim for all work carried out up toand including 15 March 2019. The next referencedate will arise on 15 April 2019. Any amount outstanding from the March payment claim can be included in the payment claim for 15 April 2018 with yourclaim for the work carried out between 16 March 2019 and 15 April 2019, and soon.

What about if there was no reference date stipulated in thecontract?

Pursuant to section 67(1)(b) ofthe BIF Act, a reference date will arise on the last day of the month.Accordingly, taking into account the above scenario, if you commenced carryingout construction work on 1 March2019, the first reference date will ariseon 31 March 2019 for work performed up to and including 31 March 2019. If you continueto carry out construction work inApril 2019, the next reference datewill arise 30 April 2019, for the work carried out between 1 April 2019 and 30April 2019, and so on.

Preconditions to Reference Dates

As briefly discussed above, it isnot uncommon for a construction contractto state that a payment claim must beaccompanied by specified documents in order to be valid. The requireddocumentation often includes a statutory declaration by the contracted partydeclaring such things as:

• the works or related goods and services forwhich payment is claimed is complete and free of defects;
• all amounts payable by the contractor toemployees and subcontracts engaged in the performance of the works have beenpaid; and
• insurance has been maintained for the works,

or other similar declarations.

However, whilst such a clause mayoperate as a precondition to a right to claim a progress claim under thecontract, such clause will not operate to prevent a reference date arising under the BIF Act. Confusing? Well you just need to remember that you have acontractual right to a progress payment under the contract and also a statutoryright to a progress payment under the BIFAct. The latter takes precedence over the contract and the Supreme Court inQueensland has held that any provision of a constructioncontract that purports to make the occurrence of a reference date conditional upon, for example, the provision of astatutory declaration, would be void unless it facilitates the purposeof the legislation. Those authorities establish that a provision requiringsubmission of a statutory declaration as a precondition to a reference date arising would likely befound to not facilitate the purpose of the BIFAct and the clause would likely be declared void under section 200.

This Week’s Takeaways:

1. A referencedate must exist in order to make a valid payment claim. If a paymentclaim is not in respect of a referencedate, it will not be valid under the BIF Act. Similarly, where more than one payment claim is served in relation to thesame reference date, only the first servedwill be valid. The remainder will be of no effect. Remember one payment claim perreference date.
2. The contract you enter into is the first pointof reference when it comes to determining when a reference date accrues. Therefore, it is important you are familiarwith your contract. Remember, if your contract does not provide for reference dates, the reference date will be the last day ofeach month in which works were carried out.
3. If you are a contracted party and the contract isnot one that has been drafted for you by your solicitor, seek legal advicebefore entering into the contract. Careful drafting of a contract couldrestrict the number of reference datesavailable or possibly even include some pre-conditions on a reference date arising that may beenforceable if those pre-conditions facilitate the purpose of the BIF Act. You cannot assume that onecontract is like another. They are very often drafted more in favour of oneparty than the other. If you are a contracting party, likewise, seek legaladvice if the contract is not your own that has been specifically drafted foryour use.
4. If the contract clearly establishes specificreference dates, ensure that all works that can be claimed up to each referencedate are included in the payment claim.Once the reference dates are used,you can no longer use the adjudication process under the BIF Act.
5. Be careful relying on contractual preconditionsto a reference date arising includingrequirements for a statutory declaration, the courts have deemed preconditionsof this kind void.

We refer to these articles asbeing ‘back to basics’ and you may be thinking, ….seriously this is basic? Thefact is, these articles only scratch the surface. The adjudication process canbe complicated and for those contracted parties out there, whilst you don’thave to use it, it is the only game in town to rapidly resolve payment disputesand force payment of progress payments. The alternative is long winded andcostly litigation. For the contracting parties, you don’t even get a choice.You need to assume that every invoice you receive from a contracted party is a payment claim and it is game on for theadjudication process.

There’s still more to come. Next up is time frames under the BIF Act. Stay tuned.

With more than 37 years’ experience in the construction industry and as an adjudicator in Queensland and other States and Territories for more than 13 years, Active Law’s Paul Hick is very familiar with the practical, financial and legal difficulties contractors face generally as well as with the adjudication procedures in the BIF Act. Paul regularly assists claimants and respondents with the adjudication process and indeed in many other matters requiring expertise in construction law.

Formerly employed by the QBCC, Emma Ward has invaluableinsight into statutory regulation and can swiftly identify your rights andobligations to ensure you comply with your statutory and contractual obligations.

So, whether you require assistance with a payment claim and adjudication application, a payment schedule and adjudication response, or the drafting of your own contracts to better protect you, Active Law are well placed to help to achieve your best position possible, to make or defend a claim under the BIF Act, or for any matter requiring expertise in construction law.

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.