How should contractors amend subcontracts to comply with legislation and provide greater protection from BIFSOPA claims in 2019?

The Building Industry Fairness (Security of Payment) Act 2017 (Qld) (the Act) commenced on 17 December 2018, meaning that, as of that date contractors in order to comply with the Act and provide maximum protection, need to update their subcontracts as follows:

No endorsement

Payment claims will not need to be endorsed as being made under the Act. Under the new definition of payment claim, a letter, tax invoice or email that requests payment of a stated amount, will be a valid payment claim under the Act. 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).

Be warned – failure to provide a payment schedule can result in automatic judgement for the subcontractor.

Time for payment schedules increased

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 subcontractor may make a judgement application or an adjudication application without notice and 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

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.

Conversion of security

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 as due and payable by the subcontract superintendent, so as to minimise a right to an injunction.

Termination for convenience

Ensuring that:

  • a termination for convenience clause exists;
  • that the clause requires delivery up of all certificates and approvals; 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 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 one further reference date to exist after any termination.

Adjudication Decisions

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

Preconditions to Payment

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

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 Bar

Amend the subcontract 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

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 it is alleged that the contractor has caused the delay.

Claims after PC

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

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

Making the release of subcontract retention dependent on the release under the head contract is void as “pay when paid”. Accordingly, it may be possible to tie the release of subcontract retention to a third party event that equates to head contract PC – such as issue of certificate of classification or other approvals if the event is not dependent “on the operation of, or terms of” the head contract. Careful drafting is required.

New Legislation or retention / security

The Act provides:

  • at s67 NB that it is an offence to fail to release ‘retention’ (not security) in accordance with the subcontract unless the retention is the subject of a dispute. Amend the subcontract by including as a deemed dispute in the dispute resolution clause any alleged failure to release retention; and
  • a contractor must give a notice to a subcontractor 10 business days before the end of the defects liability period:
    • for security – the date the defects liability period ends (unless security is not to correct defects); and
    • for retention – the amount to the paid and date for payment.

Amend the subcontract so the security is not held solely to correct defects – but is also a performance guarantee.

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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