It has long been recognised that the construction industry can be a tough industry to get paid, especially for subcontractors and suppliers who are at the bottom of the payment pipework.
That’s why over 15 years ago, security of payment was introduced to help all those who carry out construction work or supply related services and goods get paid. The latest version of security of payment is included in the Building Industry Fairness (Security of Payment) Act 2017 (BIF Act), which also covers project bank accounts and subcontractors’ charges.
Security of payment is all about speed and that is why it is so powerful for subcontractors and suppliers. We often refer to security of payment as a power tool and the new BIF Act version is a particularly powerful model. Under the BIF Act model, a simple invoice can trigger the security of payment process, which means:
You may be triggering security of payment and the tight time frames associated without even knowing it;
Your own suppliers and subcontractors may also be triggering security of payment and the tight time frames.
This means that for your business to survive:
you need to know how to use security of payment as a claimant AND as a payer; and
you need to act within the short time frames.
What is security of payment?
Security of payment is a process set up by the BIF Act, which:
Helps determine if the non-payment is a dispute or a debt due; and
Provides different enforcement measures depending on whether a debt or a dispute exists.
Is it a dispute or is it a debt due?
Security of payment uses a simple system to determine if non-payment is caused by a debt or a dispute. To trigger security of payment the following need to occur:
1. Construction contract
For the supply of construction work or related goods and services (this does not need to be a formal contract);[1]
2. A reference date
A reference date needs to have occurred (a reference date from which you are entitled to send a payment claim, is either stated in your contract or the default reference date is the last day of the month that you carry out the work);
3. You send a payment claim
A payment claim is a request for payment that identifies the construction work or related goods and services and states the claimed amount. A simple invoice often fulfils this test.
Whether it is a dispute or a debt due then depends on how the payer responds.
The payer can within 15 business days of receiving the payment claim:
Send a payment schedule disputing the payment claim;
Send a payment schedule agreeing to pay the payment claim; or
Do nothing and not send a payment schedule.
If a payer sends a payment schedule disputing the payment claim the BIF Act states that this is a dispute, then you can:
Apply to adjudicate the dispute within 30 business days of receiving the payment schedule. Adjudication is a fast track dispute resolution process, in which you can receive the decision in as little of 6 weeks after your application is made. The payer is limited to the reasons provided in its payment schedule.
If the payer sends a payment schedule agreeing to pay or does nothing and you are not paid by the due date for payment, it is considered a debt due and you can:
Apply to adjudicate the dispute within:
30 business days of the due date for payment or the last date for serving a payment schedule; if no payment schedule or payment is received; and
20 business days from the due for payment if a payment schedule is received and the amount agreed has not been received.
Adjudication is a fast track dispute resolution process, in which you can receive the decision in as little of 6 weeks after your application is made. If there is no dispute, if the adjudicator determines that no payment schedule has been served, the payer cannot provide a response to your application.
Send a warning notice[2] of your intention to file court proceedings within 20 business days of the due date for payment and then file court proceedings. The payer cannot raise a counterclaim or a defence in these proceedings.
Suspend work after giving 2 business days’ written notice[3] of your intention to suspend work.
In addition, QBCC can:
issue the payer with an infringement notice for failing to provide a payment schedule; or
issue an infringement notice and suspend the payer’s licence if the payer does not pay the adjudicated award and the payer is licensed.
Knowing that you have short time frames to act is only one part of the challenge, the other part of the challenge is being willing to enforce and use the power of security of payment to enforce payment.
We have been working with subcontractors and suppliers for over 15 years and understand the fear that most claimants have about upsetting the relationship with their customer. However, we also know the consequences of claimants not taking action or waiting until it is too late to seek legal advice. Often these consequences have a far reaching effect of even more important relationships including those with your family and employees. Therefore we cannot emphasise enough that enforcing payment is not biting the hand that feeds, it is instead enforcing your and your family’s right to be paid for work you have already carried out and paid for.
If you want to know more about the BIF Act and security of payment, call us today on 07 3128 0120 or email subcontractors@arbuildinglaw.com.au.
Footnotes
[1] Contracts with resident owners (home owners) is excluded from using this Act.
[2] Please note that a warning notice must be in particular form.
[3] Please note the suspension of work notice must be in a particular form and we do not recommend suspending work without seeking legal advice first.
