What You Need To Know About The Building And Construction Industry Payments Act 2004

• What are the objectives of the legislation?
• When did the Building and Construction Industry Payments Act 2004 come into force?
• Can I use Adjudication to recover my progress payments?
• What type of work, goods and services are covered by the Act?
• How does a Claimant make a Payment Claim under the Act?
• When can a Payment Claim be made?
• What are the Respondent's obligations when served with a Payment Claim?
• What should the Payment Schedule contain?
• What is adjudication?
• How do I go about making an Adjudication application?
• How do I go about responding to an Adjudication application?
• Is it possible to appeal against an adjudication decision?
• How does the Subcontractor's Charges Act 1974 differ to the new Act and why does a subcontractor have to choose between one or the other in relation to a payment dispute?
• What are the implications for a BSA Licensed Builder or Trade Contractor who as a Respondent, has a judgment debt issued against them as a result of not complying with an adjudication decision ?
• Is there similar legislation in other Australian jurisdictions?
• Link to the Building and Construction Industry Payments Act 2004
• Link to the Building and Construction Industry Payments Regulation 2004
• Link to the Building and Construction Industry Payments Regulation (No. 1) 2004

Security of payment has been an issue in the building and construction industry over many decades, because it typically operates under a hierarchical chain of contracts with inherent imbalances in bargaining power. The failure of any one party in the contractual chain to honour its obligations can cause a domino effect on other parties resulting in restricted cash flow, and in some cases insolvency.

The objectives of the legislation are to ensure that a person is entitled to receive, and is able to recover, progress payments, if the person either undertakes to carry out construction work under a construction contract, or to supply related goods and services under a construction contract. It establishes a statutory-based system of rapid adjudication for the interim resolution of payment-on-account disputes involving building and construction work contracts.

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The Building and Construction Industry Payments Act 2004 was passed by the Queensland Parliament on Tuesday, 11 May 2004 and assented to on 20 May 2004. The legislation came into effect in two stages.

Stage 1 - 1 July 2004

Administrative provisions contained under the Act came into effect from 1 July 2004. These provisions included the establishment of the Adjudication Registry, as well as provisions relating to the registration of Authorised Nominating Authorities and Adjudicators.

Stage 2 - 1 October 2004

The provisions relating to recovering progress payments and the establishment of an adjudication regime came into effect from 1 October 2004. To be able to enter into adjudication, the progress payment which is the subject of the adjudication, must be for construction work carried out or the supply of related goods and services under a construction contract, entered into on or after 1 October 2004.

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The Act applies to persons who are party to a construction contract, where a claim exists by one of the parties that they are entitled to a progress payment where they have undertaken to carry out construction work, or supplied related goods and services under the contract.

Claimants wishing to claim against respondents would usually be one of the following:

• Contractors against principals/developers;
• Contractors against owner-builders*;
• Subcontractors against contractors;
• Suppliers against clients;
• Plant and equipment hirers against clients; and
• Consultants against clients.

*In relation to a construction contract for carrying out domestic building work, the Act does not apply to homeowners (refer to 'resident owner' as defined under the Domestic Building Contracts Act 2000, schedule 2 Dictionary), if the homeowner is party to the contract, to the extent the contract relates to a building or part of a building where the homeowner resides or intends to reside.

The Act does not apply to a construction contract between parties to the extent it deals with construction work carried out outside Queensland or related goods and services supplied for construction work carried out outside Queensland.

The Act does not apply to a construction contract between parties to the extent that it forms part of a loan agreement, a contract of guarantee or a contract of insurance under which a recognised financial institution undertakes to lend or repay an amount lent; guarantee payment of an amount owing or repayment of an amount lent, or provide an indemnity relating to construction work carried out or related goods and services supplied.

The Act also does not apply where consideration payable for construction work carried out or related goods and services supplied under the contract, is to be calculated other than by reference to the value of the work or goods and services supplied.

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Sections 10 and 11 of the Act define the meaning of 'construction work' and 'related goods and services' which is summarised as follows.

Construction work is:

1. The construction, alteration, repair, restoration, maintenance, extension, demolition or dismantling of:
   1. Buildings or structure, whether permanent or not, forming, or to form, part of land;
   2. Any works forming, or to form, part of land, including walls, roadworks, power-lines, telecommunication apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for land drainage or coast protection.
2. The installation in any building, structure or works of fittings forming, or to form, part of land, including heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply, fire protection, security and communications systems.
3. The external or internal cleaning of buildings, structures and works, so far as it is carried out in the course of their construction, alternation, repair, restoration, maintenance or extension.
4. Any operation which forms an integral part of, or is preparatory to or is for completing, work of the kind referred to in paragraph (a) or (b) above, including:
5. 1. Site clearance, earthmoving, excavation, tunnelling and boring;
   2. The laying of foundations;
   3. The erection, maintenance or dismantling of scaffolding;
   4. The prefabrication of components to form part of any building, structure of works, whether carried out on-site or off-site;
   5. Site restoration, landscaping and the provision of roadways and other access works;
6. The painting or decorating of the internal or external surfaces of any building, structure or works;
7. Carrying out the testing of soils and road making materials during the construction and maintenance of roads;
8. 'Building work' as defined within the meaning of the Queensland Building Services Authority Act 1991.

It should be noted that construction work does not include the drilling for or extraction of oil or natural gas, or the extraction whether by underground or surface working of minerals, including tunnelling or boring, or constructing underground works for that purpose.

Related goods and services are:

1. Goods such as materials and components to form part of any building, structure or work arising from construction work.
2. Goods such as plant or materials (whether supplied by sale, hire or otherwise) for use in connection with the carrying out of construction work.
3. Services such as the provision of labour to carry out construction work.
4. Services such as architectural, design, surveying or quantity surveying relating to construction work.
5. Services such as building, engineering, interior or exterior decoration or landscape advisory services relating to construction work.

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A Claimant must prepare in writing and serve a Payment Claim addressed to a Respondent, which includes the following information and wording:

• Clearly identify or describe the construction work or related goods and services to which the progress payment relates;
• State the amount of the progress payment which is due;
• To ensure the Claimant is able to apply for adjudication of the progress payment should the parties disagree over the payment of the claim, it is essential that the Payment Claim includes the words:

"This is a payment claim made under the "Building and Construction Industry Payments Act 2004 (Qld)"

There is nothing preventing the Claimant from supplying other information to support the claim, such as:

• Statements detailing the extent of the work completed;
• Completion certificates;
• Delivery dockets;
• Photographs; and
• Any other applicable contract documentation requirements.

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Payment claims may be served only within the period worked out under the construction contract, or within 12 months after the construction work or supply of related goods and services were carried out or supplied, whichever is the later period.

Only one payment claim can be served in respect to each reference date under the construction contract. However, if a previous payment claim has been made, without reference to the Act written on the claim, that amount can be included in the later payment claim.

The reference date under the construction contract is the date upon which a claim for a progress payment may be made for the carrying out of construction work or supply of related goods and services.

If the construction contract does not provide for a reference date, the reference date is then determined to be the last day of the named month in which the construction work or related goods and services were first carried out or supplied.

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If a Respondent wishes to dispute a payment claim served on them under the Act by a Claimant, the Respondent has a limited number of days within which to respond to the Claimant by serving them with a Payment Schedule. This time limit is either 10 business days after the Payment Claim is served, or as per the time required by the relevant construction contract, whichever is the earlier period.

Once served with a Payment Claim, the Respondent becomes liable to pay the entire claimed amount to the Claimant on the due date for the progress payment, unless the Respondent serves a Payment Schedule within the time limit.

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The Respondent must prepare in writing a Payment Schedule addressed to the Claimant, which includes the following information:

• Clearly identify the Payment Claim to which the Payment Schedule has been prepared in response to;
• State the scheduled amount of the payment, if any, that the Respondent proposes to make to the Claimant.
• If the scheduled amount stated is less than the claimed amount (the amount stated in the Payment Claim as due for payment), the Payment Schedule must clearly state why it is less. If the reason for the scheduled amount being less is because the Respondent is withholding payment for any reason, these reasons must also be clearly explained in the Payment Schedule.

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Adjudication is a process which can only be initiated by a claimant who believes they are entitled to a progress payment for construction work, or the provision of related goods and services provided in relation to construction work.

The adjudication of payment disputes applies to construction contracts entered into after the commencement of this Act, whether written or oral, or partly written and partly oral in the State of Queensland.

An adjudication of a matter is carried out by an independent registered adjudicator who decides the amount, if any, that is due in respect of a progress payment claimed under the Act.

To initiate the adjudication process a claimant must lodge an adjudication application with a registered Authorised Nominating Authority (ANA). The ANA may require the payment of a fee for lodgement of the adjudication application and each ANA is likely to charge a different scale of fees. The ANA then nominates an appropriate adjudicator from their panel of potential registered adjudicators who shall decide the matter. Adjudicators cannot be pre-appointed under a construction contract, and may only be appointed by an ANA to adjudicate on a claim.

It is recommended that claimants should ask an ANA about fees and the likely fees and expenses of the adjudicator prior to lodging an adjudication application.

Once the ANA has selected and contacted the appropriate adjudicator, the claimant and respondent will receive a notice from the adjudicator advising that the adjudicator has accepted the adjudication application.

It is important to note that if the claimant does not receive acceptance from the adjudicator within 4 business days after lodging the adjudication application, the claimant can give the ANA a notice of withdrawal of the adjudication application and has 5 business days within which to lodge another application, with another ANA.

The adjudicator must decide an adjudication application within:

• 10 business days after the earlier of the date on which they receive the adjudication response, or the date the adjudication should have been received, or
• Such longer time as both the claimant and respondent may agree.

The adjudicator must reach the decision considering the following matters only:

• the Building and Construction Industry Payments Act 2004;
• To the extent they are relevant, the provisions of the Queensland Building Services Authority Act 1991, part 4A,
• the contract (oral or written);
• the payment claim;
• the payment schedule (if any)
• the adjudication application;
• the adjudication response (if any);
• the results of inspections; and
• any other submissions (including relevant documents and submissions made at a conference, if any, called by the adjudicator) which the adjudicator allows the parties to make.

The adjudicator will decide the following:

• the amount of the progress payment, if any, which the respondent must pay the claimant;
• the date on which the amount became or becomes payable;
• the rate of interest payable on such amount; and
• if the parties are to pay the adjudication fee other than in equal shares, the proportion payable by each.

The adjudicator must serve a copy of the decision to both the claimant and the respondent.

The respondent must pay the adjudicated amount within 5 business days after the date upon which the adjudicator's decision is served on the respondent, or the date upon which the adjudicator decides the amount becomes payable, whichever is the later.

Should the respondent fail to honour an adjudicator's decision in respect to payment, the claimant can ask the ANA to provide an adjudication certificate.

The claimant can then have the adjudication certificate filed in the appropriate court as a judgment. The claimant must support the certificate with an affidavit stating that the whole or a part of the adjudicated amount has not been paid at the time the certificate is filed.

The judgment debt is then enforceable in the same way as any court judgment, without time consuming and often expensive court hearings of the matters in dispute.

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Adjudicators cannot be pre-appointed under construction contracts, but must be appointed by an Authorised Nominating Authority (ANA) to adjudicate on a claim. To initiate the adjudication process a claimant must lodge an adjudication application and any accompanying fee with a registered ANA. The ANA then nominates an appropriate adjudicator from their panel of potential registered adjudicators to decide the matter.

It should be noted that each ANA charges a different scale of fees and it is therefore recommended that claimants ask an ANA about fees, as well as the likely fees and expenses of the adjudicator, prior to lodging an adjudication application.

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1. In accordance with section 21 of the Act, the time for lodging an adjudication application is:
   1. where the claimant received a payment schedule within 10 business days after the payment claim is served and the claimant disputes any reasons for non payment - 10 business days from the day of receipt of the payment schedule;
   2. where the claimant received a payment schedule within 10 business days after the payment claim is served showing that an amount will be paid and the claimant did not seek adjudication and the amount was not paid on the due date for payment - 20 business days from the due date for payment;
   3. where the claimant did not receive an initial payment schedule within 10 business days after the payment claim is served and the full amount of the payment claim was not paid on the due date for payment -
      1. the claimant has 20 business days from the due date for payment to notify the respondent of the claimant's intention to apply for adjudication; and
      2. the respondent has 5 business days to provide a payment schedule; and
      3. the claimant may apply for adjudication within 10 business days of the expiry of the 5 business days period provided to the respondent regardless of whether or not a payment schedule was served on the claimant.
2. The claimant must include with the application the fee payable to the Authorised Nominating Authority, if applicable. If an application fee applies but does not accompany the application, the application is not valid.
3. The applicant should attach to the application copies of:
   1. The construction contract (which may be a formal contract document, an exchange of letters, a quotation and acceptance or a record of an oral agreement) under which the payment claim is made;
   2. The payment claim;
   3. The payment schedule, if any;
   4. Any supporting documents (eg. certificates, test results, delivery dockets, invoices, photographs, statutory declarations, expert reports, written statements, etc); and
   5. A written submission by the claimant evidencing that the claimed amount is due and unpaid and evidencing the value of the work, materials or services for which payment is claimed. The submission must also respond to the reasons, if any, given by the respondent for not paying and must provide evidence or arguments to refute the respondent's grounds for withholding payment.
4. A copy of the adjudication application and all attachments or other things accompanying it must be served on the respondent. To expediate the adjudication this should be done at the same time as it is served upon the Authorised Nominating Authority.
5. The adjudication application may be served on the respondent in accordance with the contract, or it may be served in accordance with the Acts Interpretation Act 1954, section 39, or the provisions of any other law about the service of documents. Section 39 of the Acts Interpretation Act 1954 permits a document to be served on a respondent if:
   1. an individual, by delivering it in person; or
   2. an individual, by leaving it at, or by sending it by post, telex, facsimile or similar facility to, the address of the place of residence or business of the respondent last known to the claimant; or
   3. a body corporate eg. a company, by leaving it at, or sending it by post, telex, facsimile or similar facility to, the head office, a registered office or a principal office of the body corporate.

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The respondent may lodge a response to the application only if the respondent served a payment schedule under the Act. The response may be served on the adjudicator on or before the later of:

1. 5 business days after receiving a copy of the adjudication application; or
2. 2 business days after receiving notice of the adjudicator's acceptance of the adjudication application.

The respondent's response can only cover issues previously outlined in a payment schedule. In other words, the respondent cannot identify any new reasons for denying payment in an adjudication response.

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Under the Act there are no appeal rights

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For the past 30 years, subcontractors have enjoyed the benefits provided for under the Subcontractor Charges Act 1974. Under this piece of legislation, a subcontractor can create a statutory charge over monies payable to his or her contractor or superior contractor, and thereby secure the payment of monies owed by that person to the subcontractor, without having previously obtained a court judgment for the alleged debt.

The Act introduces an alternative statutory remedy which subcontractors may opt to employ. However, there is nothing in the Act preventing a subcontractor from utilising the Subcontractor Charges Act 1974. Therefore, subcontractors are perfectly entitled to rely on the Subcontractors Charges Act 1974 as they always have done.

In essence these two statutory instruments cater for the needs of subcontractors in vastly different ways. The Subcontractor Charges Act 1974 facilitates a process whereby monies are frozen pending final contractual resolution of a payment dispute through the courts, which in many instances can be a lengthy and costly exercise. The Act provides subcontractors with a very different alternative, namely the rapid interim resolution of a payment dispute at a reasonable cost.

The Act however, requires subcontractors to choose between lodging either a notice of claim of charge under the Subcontractor Charges Act 1974 or an adjudication application in relation to a payment dispute.

If a subcontractor could rely on both these legislative initiatives at the same time in relation to the same or any portion of construction work or related goods or services, it would be possible for a subcontractor to prevent the flow of monies from the principal to the contractor (by notice of claim of subcontractors' charge), but at the same time the builder could be obliged to comply with an adjudication decision to pay the subcontractor an amount of money. In effect the contractor would be "hit" twice for the same work.

At the end of an adjudication process, if not satisfied, a subcontractor can lodge a notice of claim of a subcontractors' charge and secure any outstanding monies, or else reactivate the adjudication process at the time of the next progress payment. These are alternative methods of approach.

An adjudication decision has the status of a competent court of jurisdiction, which if necessary can result in a judgment debt being issued for the amount in question. A judgment debt provides grounds for a subcontractor, successful in obtaining an adjudication decision in their favour, to commence bankruptcy proceedings against a defaulting individual contractor or wind up proceedings against a defaulting corporate contractor.

A "rogue" subcontractor, of which thankfully there are very few, who is not interested in being paid for work done but absolutely committed to destroying a contractor by forcing them into some form of insolvency may be attracted to attempt to achieve such an outcome by essentially misusing these legislative initiatives.

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A judgment debt is the amount entered in a court as owing by a contractor in relation to a building contract, for goods or services supplied for building work.

It is an offence under the Queensland Building Services Authority Act 1999 for a contractor not to inform BSA within 14 days, if they have not paid a judgment debt in full within 28 days after judgment is entered or whatever longer period allowed by the court for payment.

Ten points will be allocated for unsatisfied judgment debts. However demerit points allocated for non-payment of judgment debts will be removed as soon as BSA is satisfied that the debt has been paid.

A contractor who accumulates 30 demerit points (3 unsatisfied judgment debts) over a three-year period will face an industry ban for three years. If they return to the industry and again, within 10 years of the first ban, accumulate 30 demerit points over a three-year period, they will face an industry ban for life.

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Similar legislation already exists in New South Wales (Building and Construction Industry Security of Payment Act 1999 NSW) and Victoria (Building and Construction Industry Payment Act 2002) and has proven to be of enormous benefit to the industry in speeding up the payment process.

The Queensland legislation has been prepared in such a way that it aligns closely with interstate legislation so that the process is easily understood, no matter which State a construction contract is entered into.

The Act can be accessed by clicking on this link.

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The Regulation can be accessed by clicking on this link.

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The amendment Regulation can be accessed by clicking on this link.

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