Since the highly anticipated Building and Construction Industry Payments Amendment Bill 2014 (the Bill) was passed on 11 September 2014, there has been a large amount of information published on the basic, prescriptive changes that the bill implements. In this update, we look beyond the changes themselves and explore the strategic and practical issues and implications that the settled bill presents.
The expectation is that the Bill will be enacted on 2 November 2014 (Commencement Date), at the earliest, but until then the current regime remains in place.
Click here for the key amendments.
Nothing changes for Contracts entered into before the Commencement Date
Section 115 of the amended BCIP Act provides that the unamended BCIP Act will continue to apply to construction contracts that were entered into before the Commencement Date (Current Contracts). Apart from the abolition of ANAs and appointment of adjudicators by the QBCC discussed in the key amendments link, there does not appear to be any other impact on payment claims, payment schedules, adjudication applications and adjudication responses for Current Contracts.
The current definition of ‘business day’ will still apply to Current Contracts and it will be important for respondents in particular to remain vigilant over the Christmas shutdown period as it may still be possible to serve payment claims on 24 December or 2 January in respect of Current Contracts. This position will remain for potentially a number of years until all defects liability periods for Current Contracts have expired.
Impact on contracts entered into from the Commencement Date
Christmas shutdown moratorium
The definition of ‘business day’ has been amended so that time will not run for service of payments schedules, adjudication applications, adjudication responses or second chance notices in the period between 22 December to 10 January. This will remove the inconvenience for respondents who frequently received large claims on the day before the Christmas shutdown period or even early in January when most companies are on skeleton staff.
New contract payment claims
Unless a longer period is provided for in the contract, the time to serve a final payment claim will be 6 months (reduced from 12 months) after the completion of all construction work under the contract, or 28 days after the end of the last defects liability period under the contract. The reduced limitation period means that claimants will have to keep a close eye on the calendar to ensure that they issue claims within 6 months after completion of work.
The most significant amendment in respect of payment claims is the creation of a dual-model regime distinguishing between standard claims and complex claims. The definition of complex claims has been simplified to include all claims in excess of $750,000 (excluding GST).
The requirements for a valid payment claim remain the same as under the unamended BCIP Act and claimants will not need to identify whether a claim is a standard or complex claim.
New contract payment schedules
The most significant amendments are found in the provisions in relation to payment schedules and adjudication procedures.
Standard payment claims – (claims up to $750,000 excluding GST)
The only impact to payment schedules in response to standard payment claims is that a respondent will no longer be exposed to the real threat of having judgment entered against them in the event that a payment schedule is not served within 10 business days. Under the amended BCIP Act a claimant can no longer apply for summary judgment if the respondent fails to provide a payment schedule within 10 business days, but must now wait until after the due date for payment and then serve a second chance notice of the claimant’s intention to start court proceedings to recover payment. The respondent then has a further 5 business days to provide a payment schedule.
In our view this is one of the most significant changes to the current regime, because it removes the “big stick” in the hands of claimants that previously compelled respondents to provide a payment schedule within 10 business days.
In a common scenario where payments become due 30 days after receipt of progress claims, a respondent can now effectively choose whether to provide a payment schedule after 10 business days or alternatively may use the full 30 days and wait for the claimant to issue a second chance notice before issuing a payment schedule. Claimants may argue that such tactics are unreasonable conduct that should be taken into account when the adjudicator considers the parties’ liability for fees pursuant to section 35A of the amended BCIP Act, but it seems little consolation for a significant opportunity created for respondents to delay the adjudication process.
No doubt we will see some creative drafting incorporated into standard terms and conditions in the coming months as respondents attempt to make full use of this favourable amendment. Of course claimants will still be entitled to suspend works pursuant to section 19 of the amended BCIP Act, but only if the respondent does not pay the claimed amount on the due date. However, few claimants have used this right in the past. It is likely that we will see significantly less applications for summary judgement under the new regime.
Complex claims – (claims in excess of $750,000 excluding GST)
Respondents must now serve payment schedules in response to complex payment claims within the following time limits:
- 15 business days, if the payment claim is served within 90 days after the reference date, or
- 30 business days, if the payment claim is served after 90 days from the reference date.
It is likely that standard contracts will need to be redrafted to deal with standard and complex claims and the requirement to provide payment schedules/progress certificates in response to claims. For instance, the requirement to provide a payment schedule to a complex claim within at least 15 business days will exceed the maximum time period to provide a progress certificate under Australian Standard contracts. Further, contracts will need to be redrafted to also deal with the time for payment. Interestingly, the interaction between the amended BCIP Act and the time for payment under part 4A of the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act) appears not to have been fully thought through as the time to issue payment schedules under the amended BCIP Act, may on occasions, fall after the maximum statutory due date for payment under the QBCC Act. Creative drafting will no doubt need to be implemented.
The timeframes for preparing adjudication responses have been increased to at least 10 business days for standard payment claims and 15 business days for complex payment claims. Respondents may also apply for further time up to an additional 15 business days for complex payment claims, however any application for additional time must be made within 5 business days after receipt of the adjudication application.
Respondents to complex claims will also be able to raise new reasons in the adjudication response that were not previously raised in the payment schedule. Claimants may respond to new reasons within 15 business days after receipt of the adjudication response and may apply to the adjudicator for an extension of time of up to 15 business days.
It will be vital for claimants to review adjudication responses in detail to ensure that no new reasons are raised which require a response. Failure to do so may result in the adjudicator viewing the claimant’s silence as a concession.
Adjudicators will also have 15 business days to decide complex claims and can still request an extension of time from the parties.
In our view the amendments will severely reduce the number of multi-million dollar adjudication applications under the new regime, as the extended time limits and ability for respondents to raise new reasons in the adjudication response will significantly increase the legal costs to prepare adjudication applications for complex claims.
Claimants in large scale projects may be better served to issue its undisputed claims under the contract only and restrict their payment claims under the BCIP Act to disputed claims so as to fall under the $750,000 threshold. Another possible strategy might be to split or stagger claims to remain under the $750,000 threshold for complex claims. Further, it may be advantageous for contractors and subcontractors to include within their contracts a rapid expert determination process that is final and binding. This may be more appealing than the lengthy process that complex claims under the amended BCIP Act are required to go through and which are only interim awards.
Adjudication decisions affected by jurisdictional error are not entirely void
Currently, if an adjudication decision is affected by jurisdictional error (no matter how small) the entire decision is liable to be set aside.
Under the amended BCIP Act, if a decision is reviewed and the Court finds that only a part of an adjudicator’s decision is affected by jurisdictional error, the court may allow the part of the decision not affected by the error to remain binding on the parties.
This may significantly reduce respondents’ appetite to review decisions which are adverse to their interests.
There is no doubt that the amendments have changed the adjudication landscape dramatically. Strategies that have worked in the past to extract speedy recovery of progress claims may be ineffective under the new regime.
The effect of the transitionary provisions has made it an imperative for contractors and principals alike to implement measures in their contract-administration practices to clearly separate contracts entered into before the Commencement Date from contracts entered into from and after the Commencement Date to ensure that they comply with the different time limits which will apply.
The continuing success of the BCIP Act to protect security of payment for participants in the construction industry will also depend on the successful transfer of the current role of ANAs to the QBCC.
Andrew Kelly | Partner | +61 7 3338 7550 | email@example.com