Improving payment outcomes for all parties operating in the building and construction industry has been a key priority for a succession of governments.
Security of payment has been an issue for many decades, particularly in relation to subcontractors.
The building and construction industry is particularly vulnerable to payment problems because it generally operates under a hierarchical chain of contracts. 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.
To improve contractual and payment outcomes within the building and construction industry, Parliament on 11 May 2004 passed the Building and Construction Industry Payment Act 2004.
The Act establishes a statutory-based system of adjudication for the quick resolution of payment disputes on an interim basis by an appropriately qualified and independent adjudicator. This will allow for payments to flow quickly down the contractual chain.
Adjudication does not extinguish a party's contractual rights to obtain a final determination of a payment dispute by a court or tribunal of competent jurisdiction.
The significance of an adjudicator's decision, however, is that pending final determination of the payment dispute, the party with the most commendable case, as determined by the adjudicator retains the monies in dispute.
Significantly, decisions by an adjudicator are enforceable as a judgment debt if a contracting party fails to pay monies to a contracted party as determined by the adjudicator.
The application of the Act covers all forms of construction contracts other than contracts involving "resident owners" under the Domestic Building Contracts Act 2000.
However, a person who holds (or should hold) an owner builder's permit under the Queensland Building Services Authority Act 1991 is not by definition a resident owner. This means an owner builder will fall under the jurisdiction of the Act.
Owner builders need to be aware of the implications of the Act. These being:
- If served with a payment claim by the contractor or supplier, you must respond to the claim within 10 business days of being served. Your response must be in writing (a payment schedule) and identify the payment claim it relates to.
- If you intend to withhold monies from the claim you must state your reasons for withholding the amount
- Failure to respond to a payment claim will remove the opportunity to provide an adjudication response should the claimant proceed to adjudication.
- If you and the contractor or supplier are unable to resolve the payment dispute the claimant may proceed to adjudication by lodging an application with an Authorised Nominating Authority (ANA)
- In such a situation an owner-builder would be nominated as a Respondent and the contractor or supplier would be applying as the Claimant.
- The Authorised Nominating Authority will appoint an independent, registered adjudicator with relevant expertise to hear such disputes.
- An adjudicator must make a decision on the dispute within 10 business days from either receiving the owner builder's (Respondent) adjudication response or the expiry of the specified timeframe for receiving an adjudication response.
- The adjudicator has the power to call for further submissions, hold a conference and view the relevant construction site.
- An adjudicator must provide to both parties reasons for a decision including the adjudicated amount and the payment date.
- If payment of the adjudicated amount is not made, the Claimant can request an Adjudication Certificate, which can then be lodged in a court of competent jurisdiction as a judgment debt against the owner builder.
The important benefits of the adjudication process are that it allows for a prompt interim decision on disputed payments, encourages communication between the parties about disputed matters and provides parties with a much faster and cost effective alternative to resolve the dispute without entering the court system.
The adjudication process also allows unpaid parties to suspend work or the supply of goods until payment of the adjudicated amount is received.
The Act became fully operational on 1 October, 2004 and applies to all construction contracts entered into on or after that date.
To gain a better understanding of your rights and obligations as an owner-builder, even if you are nominated as the Respondent in any Adjudication Application, click this link which will take you to 'Information for Respondents'.