How should contractors amend subcontracts to provide greater protection from BIFSOPA claims in 2019?

The Queensland Government has officially proclaimed that the security of payment provisions under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act) will commence on 17 December 2018, meaning that, as of that date:

No endorsement

  1. Payment claims will not need to be endorsed as being made under any legislation. Conceivably, under the new definition of payment claim, a letter, tax invoice or email that requests payment of a stated amount, may be a valid payment claim under the BIF Act, and therefore:
    • claimants should ensure they do not unintentionally exhaust a reference date by issuing a document which is in fact a payment claim under the BIF Act; and
    • contractors need to be vigilant of failing to identify that an invoice or document that requests payment of an amount is a payment claim, and consequently failing to respond with a payment schedule (which, in addition to creating a liability to pay the claimed amount, is grounds for disciplinary action and could also result in fines of up to 100 penalty units, which currently equates to approximately $13,000).

Time for payment schedules reduced

  1. Payment schedules must be issued within the earlier of the period stated under the subcontract or 15 business days after the payment claim (in whatever format) was received by the contractor. Where a contractor fails to issue a payment schedule or pay the claimed amount by the due date for payment, the claimant may make a judgement application or an adjudication application without notice, with no defence or cross-claim. Contractors and subcontractors must still be paid at 15 business days and 25 business days respectively.

No new reasons for withholding payment

  1. Respondents will no longer be permitted to raise new reasons for withholding payment at adjudication, that were not included in the payment schedule (even for complex payment claims). Accordingly, if you are scheduling an amount that is less than the claimed amount, you should ensure that every reason for withholding payment is included in the payment schedule.

New offence for failing to pay adjudicated amount

  1. Where a respondent fails to pay to the claimant the adjudicated amount by the due date for payment, this is grounds for disciplinary action and can result in fines of up to 200 penalty units (which currently equates to approximately $26,000).

Conversion of security

  1. Amending the conversion of security clause in standard subcontracts:
    • to allow security to be converted “immediately” following the provision of notice;
    • to allow conversion for any amount “claimed to be” due; and
    • to survive termination,

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

Termination for convenience

  1. Ensuring that:
    • a termination for convenience clause exists; and
    • any termination for convenience clause survives termination.

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

This is particularly important in view of reforms to the Corporations Act 2001 (Cth) taking effect from 1 July 2018, which will render ineffective any clauses in a construction contract that allows a party to terminate in the event that the counterparty becomes insolvent, has a managing controller appointed, or goes into administration.

Keep in mind that BIFSOPA now legislates for a reference date to exist after any termination.

Adjudication Decisions

  1. Amending the subcontracts per paragraph 1 to ensure a contractor can, in effect, immediately convert security after receiving an unfavourable adjudication decision. This strategy can negate an adverse adjudication decision. To do this, the contractor will need to set-off monies owing from progress claims and keep the security alive.

Preconditions to Payment

  1. Obtain legal advice on the validity of any preconditions on the right to lodge a payment claim, or to reference dates arising (for example, the provision of a statutory declaration or other documentation required to assess the claim). Preconditions as to the validity of a claim under BCIPA will be normally be invalid.

Release at PC

  1. Requiring a signed deed of release as a precondition to a subcontractor achieving PC and FC, to prevent subcontractors from lodging an adjudication application after PC.

Time Bars

  1. Amend the contract so that the subcontract superintendent has the right to grant EOTs at their absolute discretion (whilst being under no obligation) so that an adjudicator or court cannot exercise discretion (of the superintendent) in favour of the subcontractor to award time-barred EOT claims.

Liquidated Damages

  1. Excluding the operation of the prevention principle, as an additional safeguard of the contractor’s entitlement to liquidated damages. This means that if a subcontractor does not lodge an EOT on time and the subcontract superintendent rejects it, the contractor can apply liquidated damages even if they have caused the delay.

Claims after PC

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

Set off

  1. Amend the set off clause to:
    • include amounts “claimed” to be due;
    • include monies owing under other subcontracts between the parties; and
    • to survive termination.

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

Release of subcontract security / retention

  1. Making the release of subcontract security / retention dependent on the release under “the head contract” is void as “paid when paid”. Accordingly, it may possible to tie the release of subcontract retention / security to a third party event that equates to head contract PC – such as issue of certificate of classification or other approvals.
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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