BIF Act Series - Chapter 3 Progress Payments - Back to Basics Adjudication - #5

Welcome to round 5 in our series ofarticles discussing the basics of adjudicationunder the Building Industry Fairness(Security of Payment) Act 2017 (“BIF Act”). This week’s focusis on determining the due date forpayment. Sounds simple right? In an ideal world you carry out construction work or supply related goods and services, givea payment claim for that work performedor goods and services supplied and a few weeks later (depending on the payment termsstipulated in your contract) the claimedamount magically appears in your bank account. Surprisingly, many claimants calculate this dateincorrectly and end up relying upon an incorrect date as the due date for payment. Not only could anincorrect calculation leave you short for your own payments due that month, youmay also find yourself out of time to apply for adjudication of a disputed paymentclaim.

Certain rights and obligations underthe BIF Act  are dependent upon knowing when the due date for payment will or has arisen.For example, for an adjudicationapplication relating to a failure to pay the full amount stated in the payment schedule, you must lodge your adjudication application within 20 business days after the due date for payment to which the claimrelates. We have said this before, and it needs repeating given the criticalimportance of the point. Time framesunder the BIF Act are unforgiving.Getting them wrong can be devastating to your claim or your defence to a claim,as the case may be. Therefore, it is imperative you are able to calculate the due date for payment correctly.

So far, the articles in our ‘Back to Basics’ series have coveredthe following:

• What is a constructioncontract;
• What is a paymentclaim;
• What is a paymentschedule;
• What is a businessday;
• What is effective service of documents;
• What is a referencedate; and
• Key timeframes under the BIF Act for an adjudicationapplication and adjudicationresponse.

If you have missed any of the above,or are interested in any other articles we have written on challenges currentlyfacing the construction industry, you can view our articles here. Don’t hesitateto subscribe (for those of you who haven’t), we only post fortnightly (at leastwe try to).

As always, those words that appear in italicsin these articles have special meaning. In most cases they will be words orphrases that are specifically defined in the BIF Act.

The Starting Point

So, what is the starting point? The starting point is the construction contract. Section 73 of theBIF Act provides:

1. A progress payment under a construction contract becomes payable—

1. the contract provides for the matter—on the day on which the payment becomes payable under the contract; or

Notes—

1. A ‘pay whenpaid’ provision in a construction contract has no effect, see section 74.
2. A provisionin a construction management trade contract or subcontract providing forpayment of a progress payment later than 25 business days is void, see theQueensland Building and Construction Commission Act 1991, section 67U.
3. A provisionin a commercial building contract providing for payment of a progress paymentlater than 15 business days is void, see the Queensland Building andConstruction Commission Act 1991, section 67W.

2. If the contract does not provide for the matter—on the day that is 10 business days after the day a payment claim for the progress payment is made under part 3.

…

4. Each of thefollowing construction contracts are taken to be a contract to which subsection(1)(b) applies—

1. aconstruction contract that includes a ‘pay when paid’ provision;
2. a constructionmanagement trade contract or subcontract mentioned in the Queensland Buildingand Construction Commission Act 1991, section 67U;
3. acommercial building contract mentioned in the Queensland Building andConstruction Commission Act 1991, section 67W.

Put simply, what that all means is, if the contract contains a provision from which the terms for payment of a progress claim can be worked out, the due date for payment will be worked out from that provision, unless those payment terms:

• amount to apay when paid provision; or
• stipulate a time frame for payment that exceedsthe time frames permitted by sections 67U or 67W of the Queensland Building and Constructions Commission Act (“QBCCAct”),

in which case, the provision willbe void and have no effect on determining the due date for payment.

However, if the contract does not contain a provision from which the terms for payment of a progress claim can be worked out or it does contain a provision but that provision is void, section 73(1)(b) of the BIF Act will apply and the due date for payment will default to the last day of the 10 business days permitted by section 73(1)(b) of the BIF Act.  That is, the date that is 10 business days after the date the payment claim was served on the respondent.

What if the Contractis not written

A construction contract does not have to be written. The sameprinciples will apply even to an oral contract. However, it would be obviouslymore difficult to evidence an express term of an oral contract that stipulates paymentterms, particularly if the claimantand respondent cannot or will notagree those terms existed. Nevertheless, that evidence must be consideredcarefully. Absent evidence that convinces the adjudicator about the terms of an oral contract stipulating the due date for payment, the defaultposition under section 73(1)(b) of the BIFAct will likely be determined to prevail. That is, the date that is 10 businessdays after the date the payment claimwas served on the respondent.

How do you know “If the contract provides for the matter”

Most written contracts contain a provision dealing with payment terms for progress claims from which a specific date for payment of a progress claim can be determined. Although sometimes these clauses might as well be written in ancient Sumerian for how much sense they make.

You will need to consider the particular wording of the particular clauses of the contract. The general principle is that express terms will be given their plain and ordinary meaning, unless doing so would result in manifest absurdity.  Where the drafting of the clause is ambiguous or capable of more than one meaning, an interpretation that is businesslike and commercial is usually preferred.  An adjudicator would likely proceed on the assumption that the parties intended to achieve a commercial result and look for an interpretation that avoids making a commercial nonsense. In such circumstances of ambiguity an adjudicator may also consider the circumstances surrounding the contract, including pre-contractual negotiations.

How do you know if thepayment terms in the contract have effect

If the terms of the contract canbe interpreted to specify a time for payment of progress claims, those termsmust be considered in light of clause 73(4) of the BIF Act, which we have extracted above. That is, the terms cannot:

• amount to a‘pay when paid’ provision; or
• stipulate a time frame for payment that exceedsthe time frames permitted by sections 67U or 67W of the Queensland Building and Construction Commission Act 1991 (“QBCCAct”).

Pay when paid provisions

The term ‘pay when paid’ provision is defined in section 74(2) of the BIF Act. Section 74 is as follows:

74 Effect of‘pay when paid’ provisions

1.  A ‘pay when paid’ provision of a constructioncontract has no effect in relation to any payment for construction work carriedout, or related goods and services supplied, under the construction contract.
2. In thissection—

1. that makesthe liability of 1 party (the first party) to pay an amount owing toanother party (the second party) contingent on payment to the first partyby someone else (the thirdparty) of the whole or any part of that amount; or
2. that makesthe due date for payment of an amount owing by the first party to the secondparty dependent on the date on which payment of the whole or any part of thatamount is made to the first party by the third party; or
3. that otherwise makes the liability to pay an amountowing, or the due date for payment of an amount owing, contingent or dependenton the operation of another contract.

In simplified terms, a ‘pay when paid’ provision is a term of a construction contract that makes the respondent’s liability to pay the claimant contingent upon the respondent being paid by someone else,or upon the operation of another contract.

For example, a clause in asubcontract that provides that a head contractor is not obliged to pay a subcontractorunless or until the head contractor is paid by the principal under the headcontract.

Another example (and this is onethat has been somewhat controversial) is when a clause of a subcontractprovides that the time for submitting a final progress claim under thesubcontract is determined by the expiry of a defects liability period under thehead contract.

Such clauses are ‘pay when paid’ provisions and have noeffect. Consequently, the due date forpayment in such circumstances would be the default position under section73(1)(b) of the BIF Act.  That is, the date that is 10 business days after the date the payment claim was served on the respondent.

Maximum time for payment

Section 73(4) of the BIF Act also sets a maximum time frame for payment of progress claims in relation to particular types of construction contracts.

Where the time for payment of a progress claim specified in the contract is longer than the maximum permissible payment period under section 67U and 67W of the QBCC Act, either 15 or 25 business days depending on the type of contract, the payment terms in the contract will not apply and the default position under section 73(1)(b) of the BIF Act applies. That is, the date that is 10 business days after the date the payment claim was served on the respondent.

Section 67U of the QBCC Act provides:

“A provision in a construction management tradecontract or subcontract is void to the extent it provides for payment of aprogress payment by a contracting party to a contracted party later than 25business days after submission of a payment claim.”

Section 67W of the QBCC Act provides:

“A provision in a commercial building contractis void to the extent it provides for payment of a progress payment by acontracting party to a contracted party later than 15 business days aftersubmission of a payment claim.”

So that means if your contract isa construction management trade contractor a subcontract (as defined in thePart 4A of the QBCC Act), your due date for payment cannot be laterthan 25 business days after you giveyour payment claim. If your contractis a commercial building contract (asdefined in the Part 4A of the QBCC Act) yourdue date for payment cannot be laterthan 15 business days.

What type of contract do you have?

A commercial building contract means a building contract that is nota construction management trade contractor a subcontract.

We will start with the easy onefirst. A subcontract is a contract whereboth the contracting party and the contracted party for the contract arebuilding contractors and the contractedparty is a subcontractor for a contractingparty. This is your typical arrangement where a subcontractor is engaged bya head contractor to perform a certain part of the scope of work in the headcontract.

A construction management trade contract is usually used as analternative to the common ‘principal – contractor – subcontractor’ buildingarrangement. Rather than the contractor being the point of reference for theworks, a construction management tradecontract usually has a construction manager acting as the principal’s agentwho then employs subcontractors (also known as trade contractors) to performthe works. As an aside we note that importantly, if the contract is a construction management trade contract,there is an obligation under the QBCC Actto warn the contracting party inthe prescribed form and must state the possible dangers for the contracted party entering into thecontract as a construction managementtrade contract rather than asubcontract (see section 53 of the QueenslandBuilding and Construction Commission Regulation 2018 for the prescribedwording).

Examples of Invalid Provisions

To assist, below are some invalidpayment term examples we have seen in contracts.

Example 1

You are a subcontractor engagedon a large-scale project. Your referencedate is the 28^th of each month in which work is carried out. Yougive a payment claim on 8 April 2019.Your subcontract stipulates:

“On the submission of a payment claim inaccordance with the provisions of this clause we shall pay to you the totalamount of the payment claim within 45 days following the submission of apayment claim.”

Pursuant to section 67U of theQBCC Act, this exceeds 25 business days andis therefore void. By default, the duedate for payment is 10 business days.Therefore, the due date for paymentwill be 24 April 2019 (taking into account the Easter public holidays).

Example 2

You are a head contractor and havebeen engaged by a principal to construct a kindergarten. Your contract providesfor a reference date on the 28^thof each month in which work is carried out. You give a payment claim on 2 April2019. The payment clause in your contract stipulates (which you may note has beentaken from AS2124-1992):

“Within 14 days after receipt of aclaim for payment, the Superintendent shall issue to the Principal and to theContractor a payment certificate stating the amount of the payment which, inthe opinion of the Superintendent, is to be made by the Principal to theContractor or by the Contractor to the Principal.

…

Subject to the provisions of theContract, within 28 days after receipt by the Superintendent of a claim forpayment or within 14 days of issue by the Superintendent of theSuperintendent's payment certificate, whichever is the earlier, the Principalshall pay to the Contractor or the Contractor shall pay to the Principal, asthe case may be, an amount not less than the amount shown in the Certificate asdue to the Contractor or to the Principal as the case may be, or if no paymentcertificate has been issued, the Principal shall pay the amount of theContractor's claim.”

This clause establishes two (2) possibleperiods by which progress claims under the contract are required to be paid.The respondent has either:

1. 28 days from the date of receipt of the payment claim to make a payment; or
2. 14 days to issue a payment certificate,and 14 days to make payment of theamount.

Therefore, payment in both scenarioscould be up to 28 days after receipt of the paymentclaim.

Accordingly, both scenarios inthe above clause exceed 15 business daysand payment terms under the contract are therefore rendered void pursuant tosection 67W of the QBCC Act. Consequently,the default due date for payment is 10business days from the date thepayment claim is served. Therefore, the due date for payment is 16 April 2019.

What happens if you get the duedate for payment wrong?

For a claimant, the due date forpayment is the critical date from which the time allowed to submit an adjudication application under section79(2)(b)(i) and 79(2)(b)(ii) is calculated. The former is for circumstanceswhere no payment schedule was provided,and the full amount stated in the paymentclaim is not paid. The latter is for circumstances where a payment schedule was provided but thefull amount stated in the paymentschedule is not paid. Calculate the duedate for payment incorrectly and the adjudicationapplication may be lodged too late and be invalid.

For a respondent, the due date for paymentis the critical date by which the claimedamount in the payment claim mustbe paid (if the payment claim is notchallenged) or the amount stated in the paymentschedule must be paid (if the paymentschedule was served within time). If the respondent fails to pay the required amount by the due date for payment, the claimant may either:

• Recover the unpaid portion of the amount owed asa debt in a court of competent jurisdiction (a tale for another time); or
• Apply for adjudication.

Fun fact: There is no pointmailing a cheque for payment on the duedate for payment. The payment must be received by the due date for payment. We don’t know if you have used the postlately, but carrier pigeons are becoming quicker.

This Weeks Takeaways:

1. Certain critical rights and obligations arise from the due date for payment. Therefore, it is imperative you are able to calculate the due date for payment correctly.
2. If the payment terms in your contract are a pay when paid provision or exceed the maximum permissible payment period under section 67U and 67W of the QBCC Act (15 or 25 business days depending on the type of contract) the time for payment defaults to 10 business days from the date you receive the payment claim.
3. Understand your rights and obligations under the contracts you enter, ensuring you administer those contracts properly and particularly:

1. If you are a contracted party and the contract has not been specifically drafted for you by your solicitor, seek legal advice before entering into the contract. You cannot assume that one contract is like another. They are very often drafted more in favour of one party than the other.
2. If you are a contracting party, likewise, seek legal advice if the contract has not been specifically drafted for you by your solicitor. Also do not forget to give a payment schedule if you do not intend to pay the whole claimed amount. Without a valid payment schedule, you cannot provide an adjudication response if the payment claim becomes the subject of an adjudication.
3. Be vigilant for ‘pay when paid’ provisions, these provisions are void. Consider negotiating longer defect liability periods with subcontractors to potentially overcome void ‘pay when paid’ provisions.

4. As always, keep your calendar updated. If you are a claimant, make sure you put all dates in your diary including your reference date, the date you serve your payment claim, due date for payment and last date for serving your adjudication application so you don’t miss the date. If you are a respondent, do not miss the date for service of your payment schedule (15 business days). A well drafted payment schedule could save you thousands.

We know there has been an onslaught of changes to construction regulation over the last year. The QBCC’s website states they are taking an educational approach and recognise that these changes will require significant behavioural change in the industry. We are here to help, and we don’t bite. If you have any questions relating to any of our articles, or anything relating to industry changes, please contact us.

Our next article will look atwhat to include in an adjudicationapplication.

With more than 37 years’ experience in theconstruction industry and more than 13 years as an adjudicator in Queensland and other States and Territories, ActiveLaw’s Paul Hick is very familiar with the practical, financial and legaldifficulties contractors and subcontractors constantly face in the industry,and of course is very familiar with the adjudicationprocedures in the BIF Act. Paulregularly assists claimants and respondents with the adjudication process and indeed in manyother matters requiring expertise in construction law.

Formerly employed by the QBCC, Emma Ward hasinvaluable insight into statutory regulation and can swiftly identify yourrights and obligations to ensure you comply with your statutory and contractualobligations.

So, whether you require assistance with a payment claim and adjudication application, a payment schedule or adjudication response, advice oncontracts or subcontracts, or would like to have your own bespoke contracts orsubcontracts tailored to your needs, Active Law are well placed to help you achievethe best possible outcome. Call us today and see how we can help you protectyour business.  

NB: Give us a call and ask us about our up to date, BIF Act compliant bespoke commercial building contracts and subcontracts that we can tailor to your specific business model.

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.