Qld Update: Next tranche of Building Industry Fairness reforms to commence on 17 December 2018

Dec 2018

Security of payment laws in Queensland will change again on 17 December 2018 with the commencement of Parts 3, 4 and 5 of the Building Industry Fairness (Security of Payment) Act 2017 (BIF Act).

Stage 1 of the reforms commenced on 1 March 2018 with the implementation of project bank accounts (PBAs) for building head contracts entered with the Queensland government1 with a contract price or value2 between $1 million and $10 million.

Stage 2 of the reforms commences operation on 17 December 2018 and will:

  • Repeal the Building and Construction Industry Payments Act 2004 (BCIPA);
  • Repeal the Subcontractors’ Charges Act 1974 (SCA);
  • Create one comprehensive source of security of payment law in Queensland;
  • Introduce changes to the payment claim and adjudication regime presently in force under the BCIPA; and
  • Substantially restate, in more modern and plain English terms, the existing SCA provisions.

Stage 3 of the reforms, which will not commence before 1 March 2019, will see PBAs introduced to private building contracts with a contract price or value exceeding $1 million.

An overview of the changes effective from 17 December 2018 is as follows.

Payment Claims

Transitional arrangements are addressed in detail below, however the new legislation will not generally apply to payment claims issued before 17 December 2018.

The present distinction between standard3 and complex4 payment claims will be retained under the BIF Act, however other fundamental aspects of the current regime will change:

  • The requirement that a payment claim be endorsed as a claim under the BCIPA has been removed.

Any written document will be regarded as a payment claim so long as it5:

- identifies the relevant construction work or related goods and services;
- states the claimed amount; and
- requests payment of the claimed amount.

The use of the word ‘invoice’ is deemed to constitute a sufficient request for payment.6

  • The time to serve a payment schedule, for either a standard or a complex payment claim, is now the earlier of:

- 15 business days after service of the payment claim; or
- any shorter period prescribed by the parties’ contract.

The BCIPA’s present time frame of 10 business days for standard payment claims has been removed.
  • The 'second chance' process required under s 20A of BCIPA has been removed.

Under the present law, a claimant cannot commence an adjudication application or apply for judgment against a respondent who fails to serve a payment schedule without first serving a notice under s 20A giving the respondent a further five business day opportunity to serve a payment schedule.

Once the BIF Act commences however, a failure by the respondent to serve a payment schedule within time will entitle the claimant without further notice7 to make an adjudication application based on the payment claim, in which the respondent will be precluded from submitting any adjudication response.8

The claimant in such circumstances may alternatively commence court proceedings to recover the claimed amount as a debt, although a ‘warning notice’ must first be served on the respondent at least five business days before court action is commenced.9 In those proceedings, the respondent is precluded (as at present under the BCIPA) from bringing any counterclaim or from raising any defence in relation to matters arising under the construction contract.10

Neither of those processes prescribed by the BIF Act provides a respondent with any later opportunity to serve a payment schedule once the primary time period has run.

  • Under the BIF Act, a respondent’s failure to serve a payment schedule within time will also:

- constitute an offence under the BIF Act, liable to punishment by fine of up to 100 penalty units (presently $13,055);11 and
- be grounds for taking disciplinary action against the respondent under the Queensland Building and Construction Commission Act 1991 (QBCC Act).

A payment schedule need not be served, and no offence will be committed, if the respondent pays the amount claimed by the payment claim in full by the due date.12

The time for payment obligations imposed by ss 67U and 67W of the Queensland Building and Construction Commission Act 1991 (QBCC Act) have not changed. As a result, for commercial head contracts,13 the default 15 business day deadline for serving a payment schedule will usually mean that payment is due on the same day as the payment schedule. For construction management trade contracts and subcontracts, the latest permissible time for payment remains 25 business days after submission of the payment claim.14

The accrual of reference dates in circumstances where the construction contract is terminated has been clarified. Where the contract does not provide for, or purports to prevent, a reference date surviving beyond termination, the BIF Act expressly provides15 that a final reference date for the contract accrues on the date of termination.

As from 17 December 2018, it will be crucial for both claimants and respondents to properly identify any written document that qualifies as a payment claim under the BIF Act. A claimant may otherwise inadvertently waste a reference date by issuing a document which was not intended to be a claim, and could instead see a subsequent, intended payment claim made void as a result. Even an email which identifies construction work and requests payment of a specific amount for that work could be regarded as a payment claim under the BIF Act.

The removal of the requirement for endorsement under the BCIPA is interesting given the legislation passed,16 but yet to commence, in New South Wales reinstating the parallel requirement in that state. Whereas the BCIPA endorsement was previously a clear signpost of a payment claim, its removal will force respondents to be vigilant to identify any written document which complies with the BIF Act requirements. A failure to do so will both deprive the respondent of the ability to contest the claim, and constitute an offence and potential QBCC disciplinary matter.

Claimants will need to be very careful in submitting draft payment claims for preliminary assessment or approval in accordance with their contract. Any such drafts should be submitted expressly on the basis that they do not constitute a request for payment, as the draft may otherwise inadvertently constitute a payment claim and use up the available reference date. Similarly, the word ‘invoice’ should not be used on drafts or preliminary submissions, so as to avoid the risk of the document being deemed a sufficient request for payment by operation of BIF Act s 68(3)17.

Respondents must identify in the payment schedule all potential grounds for withholding payment, as they will otherwise be restricted in the scope of submissions which will be permissible in their adjudication response. The ‘second chance’ presently afforded by BCIPA s 20 will disappear.

Adjudication process

The BIF Act makes significant amendments to the present BCIPA adjudication process:

  • All respondents will be limited in their adjudication response to reasons for withholding payment which were included in the payment schedule.18 The present right to raise new reasons in the adjudication of complex payment claims has been abolished.

  • The time for commencing adjudication applications has also changed:
     

Basis for application

BCIPA

BIF Act

No payment schedule 10 business days after expiry of s20A  notice period    

30 business days after the later of:

  • due date for payment; or
  •  the time for service of the payment schedule19

Failure to pay scheduled amount

20 business days after due date for payment

20 business days after due date for payment20

Scheduled amount is less than claimed amount

10 business days after payment schedule served

30 business days after payment schedule served21

 
  • Under the BIF Act, an adjudicated amount must be paid by the earlier of:

- Five business days after the respondent receives the adjudicator’s decision; or
- any later date decided by the adjudicator.22

A respondent’s failure to pay the adjudicated amount within time will:

- constitute an offence under the BIF Act, liable to punishment by fine of up to 200 penalty units (presently $26,110);23 and
- be grounds for taking disciplinary action against the respondent under the QBCC Act.

  • Under the BIF Act, the adjudicator is now specifically required24 to consider the conduct of each party in determining whether and how to apportion the adjudicator’s fees and expenses.
     
Parties to adjudication applications on payment claims up to $25,000 must be mindful of additional restrictions imposed by the BIF Act and the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Regulation 2018 (BIF Reg):
 
  • submissions must not exceed 10 pages, with margins of at least 2.54cm and font size not less than 10 point;25
     
  • accompanying documents are restricted to the following (which are not limited as to length or size):

- the construction contract and related documents;26
- the payment claim and attachments;
- the payment schedule and attachments;
- expert reports; and
- statutory declarations,

  • the adjudicator’s fees and expenses are capped:27

- payment claims up to $5,000                                      $620
- payment claims from $5,001 to $15,000                       $930
- payment claims from $15,001 to $20,000                     $1,860
- payment claims from $20,001 to $25,000                     $2,070

For claims up to $25,000, claimants and respondents would be well advised to include in their payment claims and schedules respectively, any relevant material which might otherwise be prohibited from separate inclusion in an adjudication submission. It may be that incorporation of documents by mere reference in a payment claim or payment schedule would avoid the strict content restrictions introduced by the BIF Act and BIF Reg.

Subcontractors’ Charges

The SCA was introduced in 1974 as a mechanism for subcontractors to secure payment by way of charge over monies due from the principal to the contractor.

The object of the Act is to secure payment due to subcontractors by placing the onus on the principal to retain money payable to the contractor until a court directs how the money is to be paid. A subcontractor may effectively transform its status, with respect to the amount it claims from its superior contractor, from unsecured to secured creditor. However, the SCA’s draftsmanship and undue technicality have been frequently criticised by the Courts, as being uncertain and difficult to interpret.

The BIF Act attempts to modernise and simplify the SCA’s language and provisions, while retaining the same overall processes.

BIF Act s128 enacts one particular change which imposes additional obligations on a contractor who receives from its subcontractor a copy of a notice of claim of charge:

  • the contractor must, within 10 business days, give a written response in the prescribed form to:

- the subcontractor; and
- the principal,28 and

  • the response must either:

- accept liability to pay the amount claimed; or
- accept liability to pay another stated amount (but otherwise dispute the claim); or
- dispute the claim,

  • failure to provide the written response is, in the absence of a reasonable excuse, an offence exposing the contractor to a penalty of 20 penalty units (presently $2,611).

Transitional Arrangements

Payment claims and adjudication

The BIF Act will apply to all construction contracts whether entered into before or after 17 December 2018, subject only to s205’s operation in respect of ‘unfinished matters’ as at that date.29

In essence, the BCIPA provisions will continue to apply where a valid payment claim was served prior to 17 December 2018. Payment schedules, adjudication and any suspension of works based on that payment claim must comply with the BCIPA.

Any payment claim issued on or after 17 December 2018, and any steps in respect of that payment claim, will be subject to the BIF Act.

Given the transitional arrangements, claimants may be expected to consider any tactical benefit in deferring service of a payment claim, based on a reference date which accrues prior to 17 December 2018, until after the commencement of the BIF Act.

The BIF Act does not change the definition of business days or the exclusion from that definition of the period between 22 December and 10 January annually. As a result, where a payment claim is served on say 17 December 2018, the payment schedule under BIF Act will be due30 on 25 January 2019.

Conversely, if a payment claim is served under the BCIPA on say 14 December 2018, the payment schedule will be due31:

  • for a standard payment claim – on 17 January 2019; and
  • for a complex payment claim – on 24 January 2019.

The transitional arrangements will also have a significant impact on when adjudication applications can be made, depending upon whether the payment claim is served before or after 17 December 2018.

Subcontractors’ charges

Where a valid notice of claim of charge was served under the SCA before 17 December 2018, the provisions of the SCA will continue to apply in respect of all unfinished matters consequential upon that notice.32

Where a subcontractor had, prior to 17 December 2018, become entitled to a charge under the SCA but had not served a notice of claim of charge, then:33

  • The entitlement to the charge continues under the BIF Act;
  • The contractor is entitled to serve a notice of claim of charge under the BIF Act; and
  • Further steps in respect of the charge will be subject to the BIF Act.

Conclusions

The changes introduced by the BIF Act are significant, and are likely to be felt more acutely by respondents. Respondents will commit offences, and be exposed to QBCC disciplinary action, by failing to serve a payment schedule or to pay an adjudicated amount within time.

The need to properly identify and respond to a payment claim within time will be crucial. Without the requirement that payment claims be endorsed, respondents must implement systems to ensure that all written claims are monitored, assessed and addressed. All relevant reasons for withholding payments must be included in the payment schedule, as the ‘second chance’ provisions of section 20A will no longer provide the back up which they presently do.

The extended time frames for a claimant to commence adjudication applications will also affect respondents, with the change from 10 to 30 business days (for disputes about a scheduled amount) likely to impose additional uncertainty, for a longer period, about the parties’ contractual entitlements.

Parties to claims for less than $25,000 will be able to take advantage of the new adjudicator fee caps and adjudication submission limits to see their disputes resolved more economically than before.

In general, however, the amendments introduced by the BIF Act merely reinforce the need for both claimants and respondents alike to prioritise good contract administration, record keeping and a comprehensive diary system to safeguard key deadlines, especially leading up to and immediately following the transition on 17 December 2018.

.....

1 Or with a Queensland State authority that has decided that a PBA be established for the contract – BIF Act s 14.
2 Inclusive of GST – BIF Act s 10.
3 A claim for an amount up to $750,000 exclusive of GST – BIF Act s 64.
4 A claim for an amount more than $750,000 exclusive of GST – BIF Act s 64.
5 BIF Act s 68.
BIF Act s 68(3).
7 BIF s 78(2).
8 BIF s 82(2); the respondent will presumably still be entitled to make submissions as to jurisdiction.

9 BIF s 99.
10 BIF s 100(3).

11 BIF Act s 76(1).
12 BIF Act s 76(2).
13 Not including construction management trade contracts or subcontracts.

14 QBCC Act s 67U.
15 s 67.
16 Building and Construction Industry Security of Payment Amendment Act 2018 (NSW).
17 BIF Act s 68(3).
18 BIF Act s 82(4).

19 BIF Act s 79(2).
20 
BIF Act s 79(2).
21 
BIF Act s 79(2).
22 
BIF Act s 90.
23 
BIF Act s 90.
24 
BIF Act s 96(2).
25 
BIF Act 201; BIF Reg, s 17.
26 e.g. variations, works programs.
27 BIF Act s 95; BIF Reg s 14.
28 Or other person served with the notice of claim of charge.
29 BIF Act s 61(1)(c).
30 Unless any earlier time is prescribed by the contract.

31 Again, in the absence of any earlier time prescribed by the contract.
32 BIF Act s 209.
33 BIF Act s 208.

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