BIF Act reforms commencing 1 October 2020
Respondents beware of new protections for claimants enforcing adjudicated amounts
WHO SHOULD READ THIS
All principals, head contractors, subcontractors, suppliers and consultants performing construction work in Queensland as well as institutions that provide finance for building and construction projects.
THINGS YOU NEED TO KNOW
Key provisions of the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Act 2020 (Qld) (BIFOLA Act) will take effect from 1 October 2020, bringing changes to the statutory adjudication regime as well as mechanisms for securing payment of adjudicated amounts.
WHAT YOU NEED TO DO
On 1 October 2020, the following provisions take effect:
Other amendments also take effect on this date, including changes to the definition of ‘complex payment claim’ (removing the reference to ‘exclusive of GST’), notification obligations on respondents following payment of adjudicated amounts and the introduction of an approved audit program by the Commissioner of the QBCC for non-compliance with the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act).
The BIFOLA Act received royal assent on 23 July 2020, introducing significant changes to the BIF Act with the ultimate objective of strengthening the security of payment regime for building and construction work in Queensland. In particular, the BIFOLA Act has incorporated a number of key provisions into the BIF Act to improve the statutory adjudication process for recovering debts. Of significance are the introduction of ‘supporting statements’ to accompany head contractors’ payment claims, ‘payment withholding requests’ by claimants, and a head contractor’s right to lodge a statutory charge over the property of a respondent who refuses to pay an adjudication debt.
Although similar laws exist in New South Wales (NSW) (at least with respect to supporting statements and withholding payment requests), these reforms are unprecedented for the building and constructor sector in Queensland. The new laws are set to come into force in less than a month, with commencement taking effect on 1 October 2020. In this focus alert, we unpack the new regime and summarise what industry participants will need to be across in preparation for the commencement of these reforms.
Supporting statement requirement
To provide some context, the BIF Act provides a statutory adjudication process for disputed progress payments and the recovery of adjudication debts. Under the BIF Act, a claimant can apply for adjudication if it has served a valid payment claim for construction work or related goods and services provided pursuant to a construction contract, and:
- the claimant received a payment schedule and did not agree with it; or
- the claimant received a payment schedule but was not paid in full by the due date for payment; or
- the claimant did not receive a payment schedule and was not paid in full by the due date.
Under the reforms, the BIFOLA Act amends section 75 of the BIF Act to include the new requirement for head contractors to provide a supporting statement when submitting a payment claim to the principal. The supporting statement must declare that all subcontractors have been paid amounts owed to them by the head contractor at the date of the payment claim. As it is not made clear in the amendments, it will be a matter for judicial determination as to whether a head contractor will only be required to declare amounts owed to its subcontractors whose work is claimed in the payment claim – as opposed to amounts that could be owed to the subcontractors on the project generally.
In the event the head contractor has not paid its subcontractors in full, the head contractor must provide the following details for each subcontractor in the supporting statement:
- the subcontractor’s name;
- the amount still unpaid;
- the details of the unpaid payment claim for the subcontractor;
- the date the subcontractor carried out the construction work or supplied the related goods and services; and
- the reasons the amount was not paid in full.
Given the requirement to provide details of all ‘unpaid payment claims’, head contractors may also be required to disclose amounts owed to subcontractors which are the subject of dispute.
Aside from those subcontractors who have not been paid in full, there is an obligation on the head contractor to confirm that all other subcontractors have been paid in full. A failure to provide a supporting statement claim will incur a maximum penalty of 100 penalty units (i.e. $13,345). However, interestingly a failure to provide a supporting statement will not render a payment claim invalid. This is expressly confirmed in the amendments to section 75 of the BIF Act and consistent with the recent findings of the NSW Court of Appeal.
Further penalties for failure to pay scheduled amounts on time
In addition, the BIFOLA Act imposes additional requirements in relation to payment schedules. Under the proposed amendments to section 76 of the BIF Act, if the respondent gives the claimant a payment schedule, the respondent must pay the claimant the amount proposed in the payment schedule no later than the due date for the progress payment to which the payment schedule relates. A failure to do so will attract a maximum penalty of 100 penalty units (i.e. $13,345). This provision does not apply to any amount the respondent is required to retain in respect of a payment withholding request (as discussed below).
Payment withholding requests
Another significant change is the introduction of the ‘payment withholding request’ mechanism, which is available to both head contractors and subcontractors. The rationale behind payment withholding requests is to incentivise the payment of adjudicated amounts and in turn reduce the risk of non-payment.
Under Part 4A of the BIF Act (once the amendments commence on 1 October 2020), if a respondent fails to pay an adjudicated amount by the due date, the claimant may require a higher party (i.e. the principal’s financier or other entity that supplies finance under the contract, or the principal where the respondent is a head contractor) to retain a sufficient amount to cover payment of the adjudicated amount out of a ‘related amount payable’ to the respondent. A payment withholding request cannot be issued to a higher party that is a resident owner. Claimants will be permitted to require respondents to disclose the higher party’s contact details, along with information as to whether any amount is or will become payable by the higher party to the respondent. This information must be provided within 5 business days after the request is made, and financial penalties apply for non-compliance or if false or misleading information is provided by the respondent.
The related amount payable to the respondent by the higher party is the amount that is or becomes payable by the higher party to the respondent under an arrangement for the construction work or related goods and services to which the adjudicated amount relates. The higher party must retain either the adjudicated amount or the related amount payable to the respondent – whichever is less. For example, if the adjudicated amount is $55,000 but the amount payable to the respondent is only $40,000, the higher party’s obligation is to retain $40,000.
The claimant must give a copy of the payment withholding request to the respondent at the same time it gives the request to the higher party. A failure to provide a copy of the withholding request to the respondent and the higher party at the same time will result in a maximum penalty of 50 penalty units ($6,672.50). If a person receives a payment withholding request but it is not the higher party, it must notify the claimant that it is not the higher party within 5 business days after receiving the request (or face up to 50 penalty units). Once a claimant has been paid the adjudicated amount, it must inform the higher party within 5 business days of payment, or risk up to 50 penalty units.
Jointly and severally liable
It is important to note that if the higher party fails to comply with a payment withholding request, it becomes jointly and severally liable with the respondent to pay the adjudicated amount to the claimant (but only to the extent, it failed to retain the amount required). The higher party may then recover as a debt from the respondent any amount that the claimant recovers from it.
Further, where a payment withholding request has been made to a higher party, the amount that must be retained is also subject to a charge in favour of the claimant for securing payment of the amount to them, which can be enforced by the claimant. Any attempt to defeat the charge will be of no effect against the claimant and the charge is declared to be a statutory interest to which the Personal Property Securities Act 2009 (Cth) applies.
Remarkably, Queensland is the first jurisdiction to introduce such tough measures, indicating the Queensland Government’s intent to clampdown on any party seeking to deviate from its payment obligations under the BIF Act.
Statutory charge over the principal’s property
The BIFOLA Act introduces a significant new remedy for head contractors that have not been paid an adjudication debt following the filing of an adjudication certificate. This remedy permits the head contractor to request a charge over the property on which construction work was carried out or related goods and services were supplied to, where:
- the construction work or related goods and services relate to the adjudicated amount; and
- the respondent (i.e. principal) or a related entity for the respondent, is the registered owner of the property.
The charge is lodged with the registrar of titles and will exist for 24 months after it is registered unless it is discharged or set aside earlier (or the adjudicated amount paid, or the adjudication is set aside). Head contractors can enforce the charge by applying to the Court for an order that the property be sold. An order by the Court for the sale of the property will authorise the sale free of all encumbrances affecting the property (other than those the Court decides to preserve) and will have effect despite any such encumbrances or any Act (other than the BIF Act). The amendments define ‘encumbrance’ affecting the property to mean:
- a mortgage, lien or charge over the property;
- a caveat claiming interest over the property by way of security; or
- a writ affecting the property.
What this means is that a head contractor claimant can apply to have the property sold regardless of any prior encumbrances (as defined). While it does not displace the usual order of priority of registered interests against the title of the property, such as mortgages, it still represents a remarkable shift in the options available to head contractor claimants to recover adjudication debts. On settlement of the sale the property ordered by the Court, the sale proceeds are to be applied in the following order:
- first – payment of the sale costs and the head contractor claimant’s costs in seeking the order sale;
- second – payment of amounts to satisfy any registered encumbrances, including the charge registered by the head contractor claimant, in the order of their priority under the Land Title Act 1994 (Qld);
- third – payment of any balance to the registered owner of the relevant property or to someone else at the owner’s discretion.
As the reader will appreciate, these are extraordinary additional protections afforded to head contractor claimants to adjudications under the BIF Act, with potential consequences for lenders, banks and other holders of registered interests over the property.
Other important amendments
The BIFOLA Act provides that the following other amendments also commence 1 October 2020, which unlike some of the other amendments have not attracted much fanfare, but are still important to be aware of:
- The monetary threshold for complex payment claims of ‘more than $750,000’ will no longer be ‘exclusive of GST’.
- Respondents who pay the adjudicated amount to the claimant must notify the Adjudication Registrar within 5 business days of making payment (along with evidence of the payment) or risk monetary penalties. This means that even if a respondent pays the adjudicated amount in full and on time, it can still be penalised if it does not notify the Adjudication Registrar.
- If a claimant withdraws its adjudication application, as soon as practicable, it must inform the Adjudication Registrar, or face financial penalties.
- The timeframe for the ‘warning notices’ required by section 99 of the BIF Act before court proceedings are commenced for unpaid payment claims will be extended from 20 business days to 30 business days.
- A new Chapter 5, Part 3 will be introduced to the BIF Act, which provides the QBCC Commissioner with powers to approve an audit program to investigate whether a person has been complying with the BIF Act. As part of the approved audit program, the Commissioner may require a person to give or provide access to certain documents, with penalties applying for non-compliance.
- Adjudicators will have additional requirements to notify the Adjudication Registrar of extensions of time for their decisions, and must provide a copy of their decision (along with notice confirming payment of all fees) to the Registrar at the same time as the parties or face 40 penalty units.
This article forms part of our broader series of articles in our BIF Act Amendment Series. Keep an eye out for future alerts to stay updated on the various reforms continuing to shape the building and constructor sector in Queensland.
For further information on any of the issues raised in this alert, please contact members of our team below.
 TFM Epping Land Pty Ltd V Decon Australia Pty Ltd  NSWCA 93.
This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.