The Queensland Government has issued a series of reforms to improve security of payment for subcontractors. These have been introduced in stages through the Building Industry Fairness (Security of Payment) Act 2017 (BIF Act). They replace the previous Building and Construction Industry Payments Act 2004 (BCIPA).
The first stage, announced in March 2018, was to introduce project bank accounts on government building contracts. This stage, the second stage commenced on 17 December 2018 and includes reforms to progress payments, adjudication and subcontractors’ charges. Any payment claims made before 17 December 2018, would be governed under the old BCIPA, and payment claims on or after 17 December will follow these new reforms outlined below.
The purpose of these reforms is to ensure Queenslanders who work in the building and construction industry are paid for the work they do. Stage 2 reforms include a fairer progress payment process, streamlined adjudication procedures and the modification and simplification of the provisions from the now repealed Subcontractors’ Charges Act 1974.
Stage 2 Changes – Key Points
- Payment claims will not have to include specific wording indicating they are made under the legislation. An invoice setting out the amount claimed and the work it relates to will be considered a payment claim.
- Payment schedules must be issued within 15 business days (or earlier if provided in the building contract) after the payment claim has been provided. (The old BCIPA had stipulated a period of 10, 15 or 30 business days depending on timing and complexity of the claim.) If the claimant disputes the amount in the payment schedule, they can now choose to proceed straight to adjudication. A maximum penalty of 100 penalty units (about $13,000) may apply for not supplying a payment schedule where a claim is not paid in full by the due date.
- Adjudication changes will now allow quicker and easier resolution of issues – with new application timeframes of up to 30 business days. If an adjudication decision requires a payment to be made, this must be paid within five business days or another date set by an adjudicator, otherwise a penalty will apply (previously there was no penalty).
- a statutory default Defects Liability Period of 12 months has been introduced from the date of practical completion (where none is provided in the contract). It also requires that head contractors inform subcontractors of the end of the defects liability period within 10 business days of the defects liability period ending. The reforms introduce significant penalties for not paying a retention or security to a contractor, in accordance with the contract, without a reasonable excuse. A maximum penalty of 200 units (about $26,000) or imprisonment may apply.
- when subcontractors provide a notice of claim of charge, the contractor receiving the notice must respond to the subcontractor (and give notice to the person higher in the contractual chain) within 10 business days of receiving the notice of claim. The response must advise if the contractor agrees with or disputes the claim.
What does this mean for Consultants?
Consultants who take on the role of superintendent or superintendent’s representative for a construction project need to understand the importance of Security of Payment Legislation and reforms introduced which will impact on the performance of your services and how you administer the contract. Consultants should assist the principal meet their 15 business day period to issue payment schedules. Failure to do so means the principal must pay the contractor’s claim in full.
As consultants, it is important to remember that Security of Payment Legislation will override the terms of the contract (except if Security of Payment Legislation gives the contract permission to take precedence). Any provisions in a contract that contradict Security of Payment Legislation are likely to be void and ineffective. Under the BIF Act, a contract can set a shorter period for providing a payment schedule (i.e. less than 15 business days), but if a contract tries to set a longer period then that provision is void.
Consultants in the construction industry are entitled under most Security of Payment Legislation to make their own payment claims. You will need to follow the specific procedure under the legislation in your state or territory for guidance on making a payment claim.
This is a basic overview of the new reforms that have been introduced in Stage 2 of the BIF Act. Refer to the Queensland Government Building and Plumbing Newsflash Number 562 for details on the changes introduced. In short, these are:
- changes to the process for payment claims for construction work and payment schedules
- changes to the adjudication of payment disputes, including new application timeframes of up to 30 business days
- incorporation of simplified subcontractors’ charges provisions, which will enable unpaid subcontractors to place a charge on payments due to the person owing money to the subcontractor.
The main overall purposes of these reforms are to give greater certainty of cashflow to the building and construction industry and to clarify protection for subcontractors.
Our Practice Guides on Security of Payment Overview (which we have just updated to note this change) and Contract Administration have more information about general duties that are related to security of payment.