Developers – are you ready for BIFSOPA? How to amend construction contracts to comply with legislation and provide greater protection in 2018

As of 1 March 2018, the project bank account (PBA) regime in chapter 2 of the BIFSOPA will apply to all head contractors tendering for state government building contracts between $1million and $10million.

When BIFSOPA applies to private contracts (estimated to be January 2019) then developers, in the exercise of their ‘oversight’ role under the BIFSOPA, will need to be attentive when reviewing payment instructions to financial institutions from contractors for discrepancies: as they may be liable to fines of more than $10,000 for failing to report to the commissioner.

Importantly, as of 1 July 2018 the balance security of payments provisions (including consolidation of BCIPA and SCA) will commence irrespective of the date of the contract. Also with a number of significant Supreme Court decisions, it is essential that developers review their contracts for compliance and protection as follows:

  1. Transitional amendments

Consider amending your contracts to encompass references to BCIPA (for claims pre-July 2018) and the equivalent provisions of BIFSOPA (for claims post-July 2018). This can be achieved by amending the definition of ‘Payments Act’.

  1. Payment claims

Claims do not have to be endorsed as made under BIFSOPA (as is currently the case under BCIPA) and a simple “tax invoice” may suffice as a claim under the new Act.

Also – there is now no 2nd chance warning and failure to provide a schedule in time will allow the contractor to apply for judgement in court or adjudication, for the full claim with essentially no defence.

  1. Payment schedule

Under BIFSOPA, developers are required to submit a payment schedule on the earlier of:

  • the time in the contract for:
    • responding to a payment claim; or
    • paying the full amount stated in the payment claim; and
  • 25 business days after the day the payment claim is issued.

Developers now have the option to amend contracts to allow for payment schedules to be issued up to 25 business days from receipt of a payment claim.

However, to do so may be impractical given that the QBCC Act requires that a builder be paid within 15 business days from receipt of the payment claim. We recommend no change from the current system where the certificate under the contract and the schedule are issued in 10 business days and payment is made on the 15th business day.

  1. Security

The Victorian Court of Appeal decision of Dedert Corporation v United Dalby Bio-Refinery Pty Ltd [2017] VSCA 368 is a reminder of the importance of amending the entitlement to recourse to security in standard contracts (for example clause 5.2 in AS4000 and AS4902) to be wider than just for “amounts due” and to:

  • to allow security to be converted “immediately” following the provision of notice;
  • allow conversion for any “claim” to payment, the developer “may have” or “claim to have” against the head contractor;
  • to allow conversion for any “loss”, liquidated or unliquidated; and
  • to survive termination,

so that recourse to security is as broad as possible and not limited to claims certified by the superintendent, so as to minimise a right to an injunction.

  1. Termination for convenience

Developers need to ensure that:

  • there is a termination for convenience clause in your contract; and
  • any termination for convenience clause survives termination of the contract.

This will allow a developer to terminate for any reason, without demonstrating fault, and will limit future BIFSOPA claims.

  1. Adverse adjudication decisions

Amending contracts per 4 above to ensure a developer can, in effect, immediately convert security after receiving an unfavourable adjudication decision.  This strategy can assist in overcoming an adverse adjudication decision, by allowing developers to set-off monies owing from progress claims and preserve the security under the contract.

  1. Preconditions to payment

Pre-conditions for payment under BCIPA and BIFSOPA are void. Pre-conditions as to a reference date arising (for example, documentation required to assess amounts being claimed and determine whether such amounts are properly payable) may be the alternative solution provided they facilitate the objects of the legislation.

Cases such as Lean Field Developments Pty Ltd v E & I Global Solutions (Aust) Pty Ltd & Anor [2014] QSC 293 provide guidance as to what documentation has / has not been held to hold utility in advancing the objects of the legislation. We recommend obtaining legal advice prior to drafting such preconditions.

  1. Release at PC

Requiring a signed deed of release as a pre-condition to a head contractor achieving Practical Completion (PC) and Final Completion (FC), to prevent contractors from lodging an adjudication application after PC and FC.

  1. Time bars

Amend the contract so that the superintendent has the ability to grant an extension of time (EOT) at the superintendent’s absolute discretion (whilst being under no obligation) so that an adjudicator or court cannot exercise discretion (of the superintendent) in favour of the head contractor to award time-barred EOT claims.

  1. Liquidated damages

Excluding the operation of the prevention principle, as an additional safeguard of a developer’s entitlement to liquidated damages. If a head contractor does not lodge an EOT on time and the superintendent rejects it, the developer is not prevented from applying liquidated damages against the head contractor, even if the developer caused the delay. A failure to amend your discretionary EOT clause in this way may affect your entitlement to liquidated damages as seen in the recent NSW Court of Appeal decision of Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd [2017] NSWCA 151.

  1. Warranties

Protect and define the parties’ rights (especially those of a Body Corporate, lessees and subsequent purchasers) and liabilities in relation to pure economic loss for latent defects, by requiring the head contractor to provide a warranty in favour of those third parties at PC. This is important given that the current state of the law prevents subsequent purchasers and tenants from suing the builder in negligence for economic loss.

  1. Claims after PC

Amending the reference date clause in the contract so there are no reference dates between PC and FC and so no right to lodge an adjudication after PC, other than at FC.

  1. Set off

Amend the set off clause to:

  • include amounts “claimed” to be due;
  • include monies owing under other contracts between the parties; and
  • to survive termination.

This gives a wider right to set off any “claimed” amounts which is not restricted to a developer’s claim certified by the superintendent or a single project.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader’s specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

Key contacts:

Stephen Pyman – Director | Principal
Christopher Rowden – Principal


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