Construction contracts: Knowing the rules can help keep the money flowing

Everyone in the construction industry knows how critical cash flow is to the long-term success of their business. With regular news of construction companies becoming insolvent, there has never been a more important time to understand exactly what you can and can't do when it comes to getting paid under a construction contract.

We have outlined in this email the key information you need to be aware of, and the critical legal requirements you must meet, to make valid payment claims and ensure you get paid as quickly as possible.

We regularly advise clients in this area, both before and after contracts are signed, so please contact us if you would like to review your current payment claim processes, are experiencing difficulties in getting your payment claims paid or wish to challenge a payment claim.

The Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act) provides a regime under which businesses and individuals can claim and dispute invoices in an efficient and cost-effective way.

The BIF Act sets out:

1. when a payment claim can be issued;
2. what must be included in a payment claim;
3. how to dispute a payment claim; and
4. the process to resolve a payment claim dispute.

This regime does not apply to a:

1. construction contract to the extent it forms part of a loan agreement, a guarantee or an insurance contract;
2. construction contract for domestic building work if a resident owner is a party to the contract, to the extent the contract relates to where the owner resides or intends to reside; or
3. construction contract under which it is agreed that what is payable is calculated other than by reference to the value of the work carried out.

As such, the BIF Act is most typically followed in the context of commercial building works, or disputes between contractors and subcontractors.

What are Payment Claims?

A Payment Claim is commonly issued as a result of the construction contract outlining staged works with a dollar value attributable to each stage. In those cases, the contractor may issue a Payment Claim (i.e. progress claim) on completion of each stage.

A Payment Claim must:

• be a written document;
• identify the work, goods or services to which it relates;
• state the amount claimed; and
• request payment of the claimed amount.

A Payment Claim is frequently in the form of an invoice but must include the above details to be valid under the BIF Act.

A supporting statement must also accompany a Payment Claim, declaring:

• all subcontractors have been paid all amounts owed; and/or
• where subcontractors have not been paid, details of:
  • the subcontractor;
  • the amount owing;
  • details of the works undertaken;
  • when the works were undertaken; and
  • why the subcontractor has not been paid.

The lack of a supporting statement does not affect the validity of a Payment Claim but does constitute a breach of the BIF Act, which may attract a fine.

When can Payment Claims be issued?

A contractor (i.e. the Claimant) is entitled to claim a progress payment under a construction contract on:

• the "reference date"; and
• the construction work being completed; or
• the supply related to goods or services is complete.

A "reference date" is a date stated within, or worked out under, the construction contract.

Where the construction contract does not stipulate a reference date, the reference date will be the last day of the month in which the construction work was first carried out, or the related goods and services first supplied, and the last day of each later month.

It is a breach of the BIF Act to issue a Payment Claim where the construction work has not been carried out or the goods or services have not been supplied.

A Payment Claim, unless it relates to final payment, must be given before the longer of the following periods:

1. the period, if any, worked out under the construction contract; or
2. the period of 6 months after the construction work to which the claim relates was carried out or the related goods or services were supplied.

Where a Payment Claim is for final payment, it must be issued within whichever of the following periods is longer:

1. the period, if any, worked out under the construction contract;
2. 28 days after the end of the last defects liability period;
3. 6 months after completion of all construction work to be carried out under the construction contract; or
4. 6 months after the complete supply of related goods and services to be supplied under the construction contract.

How can Payment Claims be disputed?

To dispute a Payment Claim, a Payment Schedule must be given within whichever of the following periods ends first:

1. the period, if any, within which a Payment Schedule must be given under the construction contract; or
2. 15 business days after the Payment Claim is given.

Any amount proposed to be paid in the Payment Schedule must be paid no later than the due date for the Payment Claim. A Payment Schedule is not required where the Payment Claim has been paid in full by the due date.

Adjudication

Adjudication is a cost-effective and efficient process to help resolve disputed Payment Claims.
Claimants can apply for adjudication through the QBCC where:

1. a Payment Claim has not been paid by the due date; or
2. a Payment Schedule proposes to pay less than that sought in the Payment Claim.

Adjudication applications must meet certain requirements under the BIF Act to be accepted by the QBCC and avoid delay.

On receiving an adjudication application, the QBCC will refer it to an adjudicator for a decision. The other party is given an opportunity to respond to the adjudication application, however, any response is limited to the content included in the Payment Schedule. Where they failed to provide a Payment Schedule within the allowed timeframe, any response provided cannot be considered by the adjudicator in making their decision.

The adjudicator's decision does not affect any rights a party may have to make a court claim. However, their decision is enforceable through the Court.

Time to Adjudicate

There are strict timeframes for adjudication applications to be brought. After the expiry of the applicable timeframe, the Claimant is no longer able to file an adjudication application, and recourse would need to be taken through alternative means to recover the sum claimed (e.g. Court or the Queensland Civil and Administrative Tribunal).

The following table outlines the timeframes to bring an adjudication application in certain circumstances:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.