Australia: Security of payment amendments to commence on 1 July 2018 – What it means for the construction industry

In late 2017 the Queensland parliament passed the Building Industry Fairness (Security of Payments) Act 2017 (Qld) ("Amendment Act") which substantially alters Queensland's security of payment regime.In addition to the introduction of project bank accounts ("PBAs") i the Act:

  1. Significantly changes the payment claim procedure under the Building and Construction Industry Payments Act 2004 (Qld) ("BCIPA"); and
  2. Repeals the Subcontractors' Charges Act 1974 (Qld) ("Charges Act") and incorporates it within BCIPA.

The Queensland Building and Construction Commission recently announced that these amendments will commence on 1 July 2018. The changes will have a significant impact upon construction industry participants, no matter where they sit within the contractual chain. Close attention to the changes and diligent contract administration will be necessary to avoid the consequences of non-compliance.

SUBCONTRACTORS' CHARGES

Subcontractors' charges enable subcontractors ("Subcontractors") to leapfrog up the contractual chain and charge money owed to their employing contractor ("Contractor") by the developer/principal or the Contractor's employing contractor ("Principal").

In brief, they operate as follows:

  1. To create a charge, the Subcontractor must have performed work that is covered by the Charges Act (not all work is covered) and serve a compliant notice of claim of charge on its Contractor and the Principal;
  2. Within 14 days after the notice of claim of charge is received by the Contractor, it is required to serve a ("Contractor's Notice") upon the Subcontractor claiming the charge and on the Principal, in which it either accepts full liability, disputes the claim entirely or accepts part liability;
  3. If the claim is accepted, the Principal is to pay the claimed amount to the Subcontractor (but only if and to the extent that the Principal holds monies which would have otherwise been payable to the Contractor). If the claim is not accepted, the Principal must not pay the monies said to be charged to either the Contractor or the Subcontractor. Ifit does,the Principal may be liable to pay that amount again to the Subcontractor;
  4. If the Contractor denies liability for the claim (in whole or in part) the Subcontractor must commence proceedings against the Contractor if it wishes to preserve the charge. If it fails to commence proceedings within the requisite timeframe (being 1 month or 4 months depending on the circumstances), the charge will lapse (unless the relevant Subcontractor can rely upon proceedings commenced by another);
  5. Once proceedings are commenced, the Principal must either retain the charged amount until the court decides whether the charge is valid or pay the monies into court;
  6. If the total value of the charges served are more than the monies the Principal holds (and would have otherwise had to pay to the Contractor) those monies must be shared pro rata by the Subcontractors who serve valid charges; and
  7. Persons seeking payment within the construction industry cannot serve a subcontractors' charge and use the adjudication provisions of BCIPA at the same time. If a charge has been served and a Claimant later applies for adjudication of a payment claim, the charge is deemed to lapse.

WHAT HAS CHANGED?

The Charges Act will be repealed as of 1 July 2018. For the most part, the provisions of the Charges Act will be inserted into BCIPA. The operation of the regime will essentially remain the same, save for:

  1. The definition of "work", for which a charge can be claimed has been expanded;
    Previously the work the subject of a charge was required to have some connection with the land. The definition provided that work included "labour, whether skilled or unskilled, done or commenced upon the land where the contract or subcontract is being performed in connection with ..." (my emphasis).
    The amended definition removes the requirement for the work to be connected with the land and provides that work includes "labour, whether skilled or unskilled, carried out by a person in connection with ..." (my emphasis).
  2. It will now be an offence for a Contractor not to serve a Contractor's Notice in response to a Subcontractor's notice of claim of charge or to fail to respond to a Subcontractor's request for information regarding the Contractor's contract with its Principal (each with maximum penalty of $2,523);
  3. Charges will not attach to monies held in project bank accounts; and
  4. The provision which allowed inaccuracies within notices of claims of charge to be forgiven has, regrettably, not been replicated in the subcontractors' charges provisions in BCIPA. Section 5 of the Charges Act provided that:

    "a notice of claim of charge may be in the approved form, but the validity of the notice is not affected by any inaccuracy or want of form if the money sought to be charged and the amount of the claim can be ascertained with reasonable certainty from the notice".

BCIPA

BCIPA is designed to ensure that persons ("Claimants")who perform construction work or supply related goods or services pursuant to a contract or other arrangement to claim a progress payment from the contractor who employs them or, if they are the head contractor for the project, from the principal or developer ("Respondent"). BCIPA is intended to recognise that "cash is king" in the construction industry and that Respondents can be reluctant to allow money to flow down the contractual chain to subcontractors. If the flow of money down the chain is restricted, subcontractors often experience financial difficulties which can lead to financial collapse.

BCIPA was introduced in 2004 and created a statutory right for Claimants to claim and obtain progress payments by serving a payment claim.The legislation sets out a number of procedural requirements to be met in order to serve a valid payment claim, one of which is a requirement to endorse the payment claim to state that it is made pursuant to BCIPA. Once a valid payment claim is served (which is not, usually, overly difficult), the Respondent is required to respond by serving a payment schedule, being a document which sets out the sum the Respondent proposes to pay to the Claimant. If the Respondent proposes to pay nothing to the Claimant, or a sum less than that claimed by the Claimant, the Respondent must set out its reasons for doing so in the payment schedule.

If there is a dispute between the Claimant and Respondent as to how much the Claimant is entitled to be paid in respect of any progress payment, the Claimant can apply for adjudication. An adjudicator is then to decide how much the Claimant is entitled to be paid by the Respondent (if any) and the Claimant can enforce the adjudicator's decision as a judgment.

When first introduced in 2004, compliance with BCIPA by Respondents was encouraged by mechanisms which would allow the Claimant to apply for judgment or adjudication if the Respondent failed to serve a payment schedule or failed to pay a Claimant in accordance with a payment schedule. In either circumstance, the Respondent was not (save for any argument that the payment claim was invalid), entitled to raise a defence to the Claimant's application for judgment or adjudication.

2014 AMENDMENTS

In 2013 a review was undertaken of the effectiveness and operation of BCIPA.Various amendments were made by the Newman Government, which relevantly included:

  1. The introduction of two different categories of payment claim, being standard (claims of $750,000 or less) and complex payment claims (claims of more than $750,000), with the response period for complex claims being longer than for standard claims. Additionally, Respondents to complex claims are entitled to rely upon new reasons not included within its payment schedule should the Claimant's payment claim be referred to adjudication (which was not previously possible);
  2. The introduction of what has come to be known as a "Second Chance Notice". Where Respondents fail to serve a payment schedule, before Claimants can apply for judgment or adjudication, they are required to give Respondents a further opportunity to serve a payment schedule by serving a "Second Chance Notice". Only after Respondents fail to respond to a "Second Chance Notice" can Claimants apply for judgment or adjudication. This amendment was designed to avoid Claimants holding Respondents to ransom where a payment claim is overlooked for one reason or another.

2017 AMENDMENTS

By passing of the Amendment Act, the Palaszczuk Government will (as of 1 July 2018) reverse many of the Newman era amendments and make other substantial changes to the regime, including:

  1. The requirement that Claimants serve a "Second Chance Notice" in the event that no payment schedule is been received has been removed (while Claimants will be required to give notice of their intention to apply for judgment or adjudication, Respondents will not entitled to remedy the failure to serve a payment schedule but will be able to elect to pay the claimed amount and avoid an application being made);
  2. Respondents to complex claims will no longer be entitled to raise new reasons for non-payment at adjudication were those reasons not contained in the payment schedule;
  3. It will now be an offence to fail to serve a payment schedule (unless the Respondent pays the amount claimed in the payment claim in full by the due date for payment) which attracts a maximum penalty of $12,615; and
  4. For a payment claim to be valid, it will no longer need to state that it is made pursuant to BCIPA. This is a significant change and means that most invoices or claims for payment received from contractors and subcontractors will constitute a payment claim to which the provisions of BCIPA will apply (so long as the other requirements for payment claims stipulated in BCIPA are met).

The Department of Housing and Public Works have explained the reasons for removing the requirement for the endorsement as follows:

"the removal of the need for endorsement of a claim under chapter 3 makes it open for this [BCIPA] jurisdiction to apply at an earlier time.... Feedback from consultation revealed it would be useful to have the provisions of the BCIPA apply from the start of the payment process. Currently, a party may submit an invoice, then await payment. When this does not eventuate, in part or in full, the party may then consider submitting a payment claim under the provisions of the BCIPA. Further, the claimant must wait for the time limits under that legislation in order to seek adjudication. In addition, feedback on consultation revealed that claimants are reluctant to include the words regarding the BCIPA claim on their invoices, to make them into payment claims, due to a stigma about using the BCIPA. Some subcontractors expressed a belief that they would be 'blacklisted' by head contractors for stating that their claim is a BCIPA claim, in that they would not be given work in the future."

The change follows the removal of the need for the endorsement in New South Wales, but there has been significant criticism of that decision. Those concerned by the removal of the endorsement in Queensland cite the New South Wales experience as telling a cautionary tale (being that removal of the endorsement did not improve matters, but rather caused confusion and unduly complicated the process). These concerns are genuine, especially given that an email can amount to a payment claim despite neither party intending it to be one.

IMPLICATIONS

The combined effect of these amendments will mean headaches for the industry, no matter where you sit in the contractual chain. For example:

  1. Principals and developers will face difficulties because they often engage external consultants to fulfill the roles of superintendent or principal's representative (i.e. "Contract Administrators"). While in most instances principals and developers will want progress certificates issued by Contract Administrators to constitute payment schedules under BCIPA, there will be circumstances where principals and developers disagree with the assessment made by their Contract Administrator. When this occurs, principals and developers will need to spend time and money preparing their own payment schedules because, if they do not pay the sum nominated by the Contracts Administrator in the progress certificate, the contractor will be at liberty to obtain judgment;
  2. Contracts Administrators will struggle because their clients will, on occasion, need to rely upon their progress certificates in adjudications commenced by the contractor. Given that Respondents will no longer be able to rely on new reasons in respect of complex claims, Contracts Administrators will need to ensure all reasons for withholding or refusing payment are included within their progress certificates, in circumstances where Contracts Administrators are not lawyers;
  3. Both Claimants and Respondents generally are likely to experience difficulties. Claimants may find themselves in circumstances where they lose the opportunity to make a payment claim or apply for adjudication. A Claimant can only make one payment claim per reference date and may unintentionally serve a payment claim. Additionally, where Respondents receive a document which it did not consider to be a payment claim (but the document in fact meets the legal test for a payment claim), it may overlook serving a payment schedule.This issue was explained in an example given during the public hearing regarding the Amendment Act:

    "What it means is that a subcontractor, an electrician or a plumber, if they are instructed to do some variation work and they send in a note to the contractor, their superior contracting party, saying that it cost $400 to change some piping, potentially they have just now issued a payment claim, because they have described the work, they have said how much the money was. That falls within those broad parameters. 'Not requiring an endorsement' now means two possible things. Firstly, the person who receives it will now have to provide a payment schedule or they face the consequences of potentially 100 penalty units, which would seem grossly unfair. Secondly, for the claimant, they will have used an available reference date so they will not be able to claim again until the next entire payment cycle goes through, which is probably going to be another month even though they were only claiming for a few hundred dollars' worth of work, but intended to claim for $30,000 at the end of the month."

CONCLUSION

The amendments to the BCIPA procedure will make it imperative for industry participants to exercise increased diligence in administering their contracts. Even then, mistakes will happen. In the case of Respondents, that mistake could mean a judgment against them or the unintentional commission of an offence. In the case of Claimants, it could mean being unable to make a claim for a progress payment at all because of the unintentional service of a payment claim.

Ultimately, will the changes achieve the intended objective of improving the timely flow of money to Claimants? Possibly, but the system is not perfect and will cause a lot of headaches along the way.

Footnote

i which commenced in respect of certain Queensland government projects on 1 March 2018. For further information on the operation of project bank accounts, you can read my article about them here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions