The Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIFSOPA) commenced on 17 December 2018, and since then cases interpreting the legislation have taught us the following:
No endorsement
Payment claims will not need to be endorsed as being made under the BIFSOPA. 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, and therefore principals:
- 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); and
- should consider implementing an (email) address for specific service of all claims for payment.
Payment claim content
In KDV Sport v Muggeridge Construction, Justice Brown made it clear that a payment claim must still purport in a reasonable way to identify the particular work in respect of which the claim is made. Providing a percentage of work carried out is not enough – there needs to be a description of the work. In respect of variations – the particular construction work must be identified.
Time for payment schedules reduced
Payment schedules must be issued within the earlier of the period stated under the contract or 15 business days after the payment claim was served. Where a principal fails to issue a payment schedule or pay the claimed amount by the due date for payment, the contractor 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
Principals 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:
- 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 superintendent as not paid when payable, so as to minimise the right to an injunction.
Termination for convenience
Ensuring that:
- a termination for convenience clause exists; and
- any termination for convenience clause survives termination.
This will allow a principal 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 one further reference date to exist after any termination.
Adjudication Decisions
Amending contracts to ensure a principal can, in effect, immediately convert security after receiving an unfavourable adjudication decision. This strategy can negate an adverse adjudication decision. To do this, the principal will need to set-off monies owing from progress claims and keep the security alive.
Preconditions to Payment
The Leanfield decision has taught developer to 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 BIFSOPA will be normally be invalid.
Release at PC
Requiring a signed deed of release as a precondition to a contractor achieving PC and FC, to prevent contractors from lodging a payment claim after PC.
Time Bars
Amend the contract so that the superintendent has the right to grant EOTs at the superintendent’s absolute discretion (whilst being under no obligation) so that an adjudicator or court cannot exercise the discretion (of the superintendent) in favour of the contractor to award time-barred EOT claims.
Liquidated Damages
Excluding the operation of the prevention principle, as an additional safeguard of the entitlement to liquidated damages. This means that if a contractor does not lodge an EOT on time and the superintendent rejects it, the principal can apply liquidated damages even if it is alleged, they have caused the delay.
Warranties
Protect and define the parties’ rights (especially those belonging to body corporates, lessees and subsequent purchasers) and liabilities in relation to pure economic loss for latent defects, by requiring the contractor to provide a warranty in their favour at PC. This is important because a body corporate, subsequent purchasers and lessors are unlikely to be able to sue the builder in negligence for economic loss and will look to recover from the principal.
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.
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 claim certified by the superintendent or a single project.
The BIFSOPA provides at s67 NB that it is an offence to fail to release ‘retention’ (not security) in accordance with the contract unless the retention is the subject of a dispute. Amend the contract by including as a dispute in the dispute resolution clause any alleged failure to release retention.
Warranties
The Lucas Fluid case showed developers that it will be very difficult for a builder to rely on precontractual discussions or documents if the builder gives a warranty as to fitness for purpose.
Superintendents
Also, we now know from the Lucas Fluid case that, irrespective of what the contract says, a superintendent will have an implied duty to act honestly and impartially when assessing, valuing and determining under the contract.
Project bank accounts replaced with ‘statutory trusts’
On 6 February 2020, the Queensland Government introduced into Parliament the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Bill 2020 (the Bill). If passed, the Bill will amend the Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) by:
- Replacing project bank accounts with ‘statutory trusts’, which comprise project trusts and retention trusts for contracts over $10million in the private sector from 1 July 2021.
- A single project trust account must be established by head contractors within 20 business days of entering the first subcontract for the project (a failure to do so will attract a fine of up to $333,625).
- Both the principal and the head contractor must establish a retention trust account.
- All payments from the principal to the head contractor must be paid into the project trust account.
- The subcontractors are the primary beneficiaries of the monies held in the project trust account and the head contractor is the trustee and secondary beneficiary, meaning that the monies liable to be paid to subcontractors must be paid before the head contractor pays itself.
- Project trusts will be required for:
- State government and Hospital and Health Services’ building contracts valued at $1 million or more (ex GST) from 1 July 2020;
- private sector and local government building contracts valued at $10 million or more (ex GST) from 1 July 2021;
- private sector and local government building and construction contracts valued at $3 million or more (ex GST) from 1 January 2022; and
- all building and construction contracts valued at $1 million or more (ex GST) from 1 July 2022.
- Head contactor claimants may have a charge registered over the principal’s property on which the construction w1ork the subject of an adjudicated amount was carried out.
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