The Building Industry Fairness (Security of Payment) Act 2017 (Qld) took effect on 17 December 2018. The Act’s predecessors, the Building and Construction Industry Payments Act 2004 (Qld) and the Subcontractors’ Charges Act 1974 (Qld) no longer apply.
The security of payment legislation in Queensland is designed to promote cash flow down the contracting chain. It does so by providing a number of protections for contractors and mechanisms for a (relatively) quick recovery of progress payments.
Who is covered by the legislation?
The Act applies to construction work carried out in Queensland. Certain types of contracts are excluded, the most notable being a construction contract for carrying out domestic building work (see section 61(2)(b)).
The comments below only apply to construction contracts covered by the Act.
General protections for contractors
Some of the general protections for contractors under the legislation are as follows:
- Minimum interest rates on late progress payments. The claimant will be entitled to claim interest on late payments at the rate set out in the contract, or the rate prescribed by the Act, whichever is higher. As of 1 July 2019, the rate prescribed is 7.25%. Note that this rate changes over time.
- ‘Pay when paid’ provisions are deemed to have no effect. If the contract contains a clause to the effect that a payment to the claimant is dependent upon another party to the contract (typically a head contractor) first receiving payment from someone else, that clause has no legal effect.
- Deemed payment terms. If the contract does not provide a due date for payment of progress payments or contains a ‘paid when paid’ provision, the Act provides the date for payment is 10 business days after the date a payment claim for the progress payment is made.
- A statutory right to suspend work following non-payment. Note that this right only exists where there is an amount that has become due and payable (for example, following the principal’s approval of a progress payment) and where the claimant has given prior written notice of its intention to suspend. If the claimant incurs a loss or expense because the respondent removes any part of the work from the contract as a result of the claimant suspending work, the respondent will become liable to pay the amount of the loss or expense.
Procedure for recovering progress payments
The process for recovering progress payments is the better-known part of the Act, and where the legislation derives its name.
- A claimant has a statutory right to receive regular progress payments under the Act.
- A claimant can recover a progress payment by making a payment claim.
- The respondent (usually the principal) has 15 business days to respond to a payment claim, unless the contract requires the response to be given in a shorter period. This is done through a document called a ‘payment schedule’.
- If the respondent provides a payment schedule within the required timeframe and the amount in the payment schedule is less than the amount stated in the payment claim, the claimant has the right to apply for adjudication.
- If the respondent fails to pay the full amount of the progress payment claimed in the payment claim by the due date, the claimant can recover the unpaid portion as a debt in court. If a claimant does not want to commence court proceedings, it can apply for adjudication.
- Importantly, if the respondent fails to provide a payment schedule and the claimant applies for adjudication, the respondent is not entitled to submit an adjudication response.
What is adjudication under the Act?
Adjudication under the security of payment legislation involves the determination of a dispute over a progress claim by an independent adjudicator.
The adjudicator is not a judge (and is often not a lawyer), and is appointed by the adjudication registrar (The Queensland Building and Construction Commission). To apply for adjudication in Queensland the claimant must make an application to the QBCC, who will then refer the application to an adjudicator within four business days.
An adjudication application is a written document that must be sent to the QBCC within a fixed period. The timeframes depend on whether the application relates to a failure to give a payment schedule, a failure to pay the full amount stated in the payment schedule or the amount stated in the payment schedule being less than the amount in the payment claim. The timeframes range from 20 to 30 business days from the date of the payment schedule depending on which category applies. A claimant must also serve a copy of its application on the respondent. The QBCC has an online application process which you can access here.
Both parties will be equally responsible for paying the adjudicator’s fee unless the adjudicator determines otherwise. If an application is successful, the claimant would normally be able to recover the portion of the fees it paid (or most of it) from the respondent.
The respondent will only have a certain amount of time to respond to an application – either 10 business days after receiving a copy of the adjudication application, or 7 business days after receiving notice of the adjudicator’s acceptance of the adjudication application, whichever works out to be the later date. If the payment claim is a ‘complex payment claim’ (i.e. a claim for more than $750,000 (ex GST), the respondent will have 15 business days after receiving the application, or 12 business days after receiving the adjudicator’s acceptance, whichever works out to be the later date. If it is a ‘complex payment claim’, the respondent can apply for an extension of up to an additional 15 business days to provide an adjudication response.
As mentioned above, if the respondent has not provided a payment schedule, it will not be entitled to respond to an application (see section 82(2)).
Importantly, the respondent can only include reasons for withholding payment in its adjudication response if those reasons were included in its payment schedule. The adjudicator may require the respondent to resubmit the adjudication response without the new reasons.
Once the time for the respondent to provide a response has lapsed, the adjudicator is required to determine the application. Unless the parties agree to extend the timeframe, the adjudicator’s decision is required to be issued within 10 business days after the date on which the adjudicator receives the adjudication response. If the payment claim is a ‘complex payment claim’, the adjudicator has 15 business days after the date on which the adjudicator receives the adjudication response.
What effect does an adjudication determination have?
Once an adjudication determination has been issued, if an adjudicator decides that a respondent is required to pay the adjudicated amount, the respondent must pay within five business days or a later date decided by the adjudicator.
If the respondent does not pay, the claimant will have a right to suspend work (subject to giving the required notice) and will also have the right to obtain an ‘adjudication certificate’.
The registrar will provide the claimant with a certificate no later than five business days after being given the decision. The claimant can then proceed to file that in court to obtain judgement.
There are very few situations where an adjudication determination can be set aside. In most cases, the adjudicated amount must be paid.
Finally, it is important to recognise that a payment under the Act is an interim payment only, effectively a payment on account. If an amount is received under the Act to which a party is not contractually entitled, the other party will have the right to recover the difference. This is where the legislation gets its name from – any payment you recover under this statutory payment is effectively ‘security’ pending the determination of the final position under the contract.