Queensland's security of payments regime is undergoing a major overhaul, with the introduction into Parliament of the Building and Construction Industry Payments Amendment Bill 2014 on 21 May 2014.
In particular, the Bill affects:
- the appointment of adjudicators;
- the timeframes for payment claims, payment schedules, adjudication responses and adjudication decisions;
- the definition of "business days" over the Christmas period;
- dividing claims into "standard" and "complex" payment claims;
- raising new reasons for non-payment in adjudication responses;
- adjudicators' fees, where decisions are void;
- adjudicators' decisions affected by jurisdictional error; and
- the need for the claimant to give notice before starting court proceedings to recover payment where a respondent has failed to deliver a payment schedule in time.
Industry concerns over security of payment laws and the Wallace Review
The Building and Construction Industry Payment Act was introduced in 2004 to regulate progress payments for construction work and related goods and services in Queensland. In the 10 years since then, various concerns have been raised about its operation, including the timing of the payment claim and adjudication processes for larger cases and the role of authorised nominating authorities (ANAs) in appointing adjudicators in disputes.
In response to these concerns, the Queensland Government released a discussion paper seeking feedback about the Act and retained barrister Andrew Wallace to review and assess the submissions. Mr Wallace recommended a number of changes to the Act in his report. The Bill makes changes to the Act in line with the recommendations that were accepted by the Government.
When does the new regime apply and what are the transitional arrangements?
Indications from the Government are that the Bill is expected to come into effect in late 2014.
The only transitional arrangements in the Bill are for adjudication applications already made to ANAs, which are to be decided under the old regime.
This means the Bill will apply upon commencement to all payment claims, even in relation to construction contracts entered into before the Bill commenced. Potential claimants and respondents will need to be up to speed on the new arrangements from day one.
The Bill is silent as to what is to happen to payment claims delivered before the Bill comes into effect but the adjudication application is made after. In particular, it does not address whether they remain valid even though they are unlikely to be in the form required by the new regime, nor the timeframes that will apply in relation to the balance of the process under the Act.
This will be a tricky transitional issue for claimants and respondents to consider.
New regime for adjudication applications and appointing adjudicators
The right of claimants to choose the ANA to appoint the adjudicator is to be removed. Indeed, the ANAs will be entirely abolished. The Bill provides that the Queensland Building and Construction Commission (QBCC) will have a single adjudication registry responsible for appointing adjudicators. If the Bill is passed, all adjudication applications will have to be made to the Adjudication Registrar.
There will also be, for the first time, an approved form for applications and the form must be accompanied by a fee to be prescribed by regulation.
New time limits for payment claims
Under the proposed new section 17A, payment claims, other than a final payment claim, can be delivered at any time up to six months after the construction work was last carried out or the related goods and services were last supplied, or any later time specified in the contract.
For final payment claims, the payment claim can be delivered at any time up to the later of:
- the period worked out under the contract;
- 28 days after the end of the last defects liability period; and
- six months after the completion of all construction work or supply of related goods and services.
"Final payment" and "defects liability period" are both defined in the Bill, but these definitions are likely to be different to their definitions in construction contracts. This is might cause some confusion and debate as to when final payment claims under the Act must be delivered.
Standard payment claims and complex payment claims
The Bill establishes two categories of claims – "complex payment claims" and for "standard payment claims" – each with its own timeframe.
Claimants must identify in payment claims whether the claim is a standard or a complex claim – if they don't, the payment claim might be invalid. If a claim identified by the claimant as standard is subsequently found by an adjudicator to be a complex claim, the adjudication application is deemed withdrawn.
There is however no such sanction for a standard claim wrongly described as a complex claim – it is simply treated as a complex claim. This means it is vital that claimants are sure of the status of their payment claims. If in doubt, a claimant should consider identifying its claim as complex, despite the additional time this gives to the respondent (as described below).
A complex claim is any claim for:
- more than $750,000; or
- a latent condition; or
- a time-related cost.
All other claims will be standard claims. The term "time-related" cost is not defined and will no doubt be the subject of considerable debate as to its breadth.
New timeframes for payment schedules
Currently, respondents must in all cases provide payment schedules within 10 days of receipt of payment claims.
The proposed new section 18A maintains the 10 day response period for standard claims but gives respondents at least 15 business days to deliver a payment schedule for complex claims. If the payment claim for a complex claim is served more than 90 days after the relevant reference date, the respondent then has 30 business days to deliver its payment schedule.
Possible relief for missed and late payment schedules
Currently, if a respondent fails to deliver a payment schedule on time, the amount claimed in the payment claim is deemed a debt payable by the respondent to the claimant and the claimant can commence court proceedings to recover payment of the debt.
Under the proposed new regime, failure to deliver a payment schedule on time will still result in a deemed debt, but a claimant cannot commence recovery proceedings unless:
- the claimant gives the respondent a notice, within 20 business days after the due date for payment of the debt, of its intention to commence proceedings. The notice must also give the respondent five business days to deliver a payment schedule (ie. the respondent must be given a second chance to deliver a payment schedule); and
- the respondent fails to deliver its payment schedule within that five business day period.
This second chance already exists as a mandatory requirement in the current regime if a claimant elects to pursue its claim through adjudication. Now the second chance is also compulsory if a claimant wants to recover the debt through court proceedings.
This is not a free kick for respondents, as there is still a deemed debt and the claimant remains entitled to suspend work until the debt is paid. Claimants therefore maintain considerable commercial leverage to encourage respondents to pay deemed debts.
New timeframes for adjudication responses
Claimants will still only have 10 business days from the delivery of a payment schedule to make an adjudication application for both standard and complex claims.
Under the existing Act, respondents have only five business days to deliver an adjudication response to any application. Under the proposed new section 24A, this period will be increased to 10 business days for standard claims and 15 business days for complex claims.
Further, for complex claims, respondents may apply to the adjudicator for an extension of up to 15 business days, for a total response period of up to 30 business days.
Right to raise new reasons for withholding payment in adjudication responses
Under the proposed new section 24, adjudication responses in complex claims may include any and all reasons for withholding payment the respondent wishes to raise, whether or not those reasons were included in the payment schedule.
The new proposed new section 24B of the Act provides a right for claimants to submit a reply to any new issues so raised.
New regime over Christmas
In the proposed new regime, "business days" will exclude the period from 22 December to 10 January. This is designed to prevent respondents receiving payment claims and adjudication applications just before Christmas and needing to prepare payment schedules and adjudication responses over the traditional Christmas shut-down period.
This will also give claimants breathing space where payment schedules are delivered just before Christmas.
Changes to the adjudication process
The proposed new section 25(3)(a) confirms that adjudicators are empowered to determine if they have jurisdiction to decide a dispute.
For standard claims, adjudicators will still only have 10 business days after receipt of the adjudication response to finish their decisions.
For complex claims, the proposed new section 25A(3) will give adjudicators 15 days after receipt of adjudication response to finish their decisions. Where the claimant delivers a reply to new material, the adjudicator has 15 business days from receiving the reply.
The parties can still agree a longer timeframe for the adjudicator to make the decision. If the parties do not agree an extension, the adjudicator can unilaterally extend its decision making period by 5 business days.
Accumulation of new timeframes
The new regime means that the total timeframe for complex claims from delivery of a payment claim to delivery of an adjudicator's decision will increase from 35 days currently (plus any increases in time agreed between the parties for the adjudicator) to 75 days (plus up to an additional 15 days the adjudicator may grant to a respondent plus any extra time the parties agree to grant to the adjudicator).
Adjudicator's fees where decision is void and unenforceable
The proposed new section 35(6) provides that if a court finds that an adjudicator's decision is void and unenforceable, the adjudicator is still be entitled to be paid any fees or expenses for the adjudication, so long as they acted in good faith.
Part of adjudicator's decision affected by jurisdictional error
The proposed new section 37(4) states that if a court finds that only a part of an adjudicator's decision is affected by jurisdictional error, the court must identify the part affected by error and allow the part not affected by error to remain binding on the parties.
Thus, while the new regime provides new potential avenues for respondents to attack adjudication decisions, the consequences for claimants might not be as severe as under the existing regime.
Key actions for claimants and respondents
The Bill has been referred to the Transport, Housing and Local Government Committee, which is now calling for written submissions by 5.00pm on Monday, 16 June 2014. The Committee's report itself is due by 18 August 2014. It's an excellent opportunity for all players in the construction industry to express their views on any areas of concern.
Generally, however the new regime will make life a little easier for respondents in general. Contractors that are typically only claimants will need to be more patient, especially for complex claims.
Head contractors should feel some benefits, given they are open to the greatest number of claims from their subcontractors. However, this might not always be the case, such as where the head contractor's claim against its principal is a complex claim, but the claims it receives from its subcontractors are standard claims. In these cases, the head contractor is likely to face an increased lag between when it is the subject of an adverse adjudication decision in respect of a subcontractor claim and when it might obtain recovery from its principal.
Whether a claimant or respondent, anyone in the construction industry must be ready for these changes from day one, and educate their staff about them, including the receptionist who might physically receive payment claims, about the proper internal processes for handling them.
Claimants will need to understand not just the new timeframes and processes, but also the crucial new distinction between standard and complex payment claims.
As for respondents, longer timeframes and possible relief for missed or late payment schedules will not absolve them of the responsibility to deal promptly and properly with payment claims.
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