New Security of Payment provisions finally come into effect – but next stage of Project Bank Accounts pushed back
The Queensland government has announced that the Security of Payment provisions of the Building Industry Fairness (Security of Payment) Act (BIFA) will commence on 17 December 2018.
This will mean significant change for those in the building and construction industry.
As you may recall, this legislation was originally passed in 2017. Whilst some parts of it came into force earlier this year, the parts relating to this Security of Payment and Subcontractors Charges have been delayed.
The changes will apply to any payment claim or subcontractors charge issued after midnight on 17 December 2018.
Below is a summary of the more important changes.
Payment Schedules are mandatory unless payment in full is made on time
A person who receives a Payment Claim always has to deliver a Payment Schedule within the time period provided for in the contract or 15 business days of receiving the payment claim, whichever is the longer. If you get it wrong and do not deliver a Payment Schedule within time, you are likely to have to pay the full amount claimed even if you object. And, you could be fined and face QBCC disciplinary proceedings!
Most invoices and progress claims will be capable of being Payment Claims
An invoice or progress claim no longer has to be endorsed with the “magic words” to make it a Payment Claim. Consequently, many invoices and progress claims which would not be Payment Claims under the Building and Construction Industry Payments Act (BCIPA), may be Payment Claims under the BIFA. Many of the requirements for a Payment Claim under BCIPA are unchanged; for example, a Payment Claim must relate to a particular “reference date”. There is one minor change. We note that a Payment Claim under BIFA needs to be a request for payment, however this can be satisfied simply by calling it an invoice (which is deemed to be a request for payment) or having on it a statement such as, “Please attend to payment by [insert date]”. The subjective intent of the sender is likely to be irrelevant to determining whether something is or is not a Payment Claim. You will not be able to say, “I didn’t mean for it to be a Payment Claim”. If it matches the statutory criteria, then it will be a Payment Claim, with the relevant consequences flowing from it (including the potential to unwittingly “burn” reference dates).
You have to give Payment Schedules just like your clients – including to suppliers
Likewise, invoices from your suppliers and subcontractors which would not be Payment Claims under BCIPA could be Payment Claims under BIFA if they met the statutory criteria. If you do not:
- Pay such a Payment Claim in full; or
- Respond with a fulsome Payment Schedule (noting that all reasons for non-payment must now be included; regardless of the value of the Payment Claim),
then you could be faced with an adjudication application/ or Court proceedings in which you have almost no viable arguments.
A claimant no longer has to give a second chance for a Payment Schedule
Under the old Act there was a requirement to give the recipient of the Payment Claim a second chance to deliver a Payment Schedule before the claimant could go to adjudication or Court. This has now gone.
There is a requirement to give a warning notice if a claimant intends to start proceedings in Court, but the new law does not provide an opportunity for the respondent to give a Payment Schedule. Once the time to give a Payment Schedule has expired, it is too late to give one. There is no second chance any more.
As a consequence, it is even easier to get in trouble if you overlook or miss an invoice or progress claim. Consequently, you need to ensure that all invoices and requests for payment are reviewed in a timely manner.
Special rules for Complex claims (ie. for over $750k) have been abolished
If there is an adjudication application, there will be no capacity for respondents to include in their adjudication response reasons for non-payment which are not referred to in their Payment Schedule.
Time for making adjudication applications has been extended
However, depending on the circumstances an applicant will have either 20 or 30 business days to file the application. In most circumstances, you currently only have 10 business days from receipt of a Payment Schedule to lodge your adjudication application.
Right to make claims after contract is terminated
Historically, in Queensland, if a contract is terminated, no further “reference dates” accrue after termination. This means that (generally speaking) a party cannot make a Payment Claim after termination of a contract.
This problem has been fixed by providing that a Payment Claim can be made after termination of the contract. Interestingly, this might lead to principals and contractors opting to take work out of the hands of contractors and subcontractors (allowing a suspension of reference dates pending the completion of the work)1 rather than terminating contracts (particularly for convenience). It may also lead to interesting amendments to termination for convenience clauses as a means of finally dealing with the contractual relationship (by accord and satisfaction).
Limits on documents in Adjudication Applications
Regulations have been issued limiting the size of adjudication applications for amounts under $25,000. For example, submissions must not exceed 10 pages.
New statutory defects liability period
There has often been difficulty establishing exactly when the defects liability period is to expire (particularly if retention or security is held until practical completion under a contract higher in the contractual chain). This has resulted in contractors not being able to work out when their retentions should be released, and retention monies not being released when they should be. Under the new Act, a contracting party (being the superior party in the contractual chain) must advise the contracted party when the defects liability period ends within 10 business days before it ends. If the contracting party does not give such notice, it faces the prospect of being fined. This means that now contractors should have a lot less difficulty determining exactly when the retention should be released and indeed, having them released.
Penalty or failure to release retentions on time
If someone fails to release retention monies, or security held after practical completion such as a bank guarantee, on time for no good reason, they can be fined up to $25,230.00. This should be sufficient to ensure retention monies and security held after practical completion such as bank guarantees, are released when they should be. One note of caution is that retention money or security will still in some circumstances be permitted to be held notwithstanding these provisions for example, where a party has an accrued right to utilise retention or security. The terms of the relevant contract will remain key in this regard. Generally, however this new provision is likely to significantly reduce and often eliminate the need for people from whom retention monies or securities are being retained to spend tens of thousands of dollars applying to the Courts for an injunction to enforce their right to the return of retention monies or release of security
Subcontractor charges improvements
The new Act overcomes a number of procedural or practical problems with subcontractor’s charges. For example, parties in the contractual chain have always been obliged to provide information such as particulars of the correct contracting party but because there has been no penalty, this information has often not been provided. The result has been that contractors cannot work out exactly which entity they should be serving to create a subcontractor’s charge or they serve the wrong entity. With a potential fine of $2,523.00, compliance is now very likely.
Next phase of Project Bank Accounts delayed
In contrast, the next phase of Project Bank Accounts, introducing it to the private sector, has been delayed. In our view, this is a wise move as it gives greater time to evaluate how the Project Bank Accounts system is working on the limited Government jobs to which it currently applies and for the Government to consider any appropriate changes before implementing it more widely.
This article is general commentary on a topical issue and does not constitute legal advice. If you are concerned about any topics covered in this article, we recommend that you seek legal advice.
For further information please contact the authors – Michael Cope, Special Counsel – Building & Construction, and Ian Heathwood, Partner – Building & Construction, or any member of our Building & Construction team.