Chapter 15 Security of Payment Legislation Queensland
The security of payment legislation in Queensland consists of two acts:
- Building Industry Fairness (Security of Payment) Act 2017 (Qld) (Qld Act); and
- Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act).
Building Industry Fairness (Security of Payment) Act 2017 (Qld) (Qld Act)
Since the Qld Act was introduced in 2017, progress payments, the provisions which were previously in the Subcontractor’s Charges Act 1974 (Qld) and project bank accounts are all within the purview of the Qld Act. Chapter 3 prescribes the security of payment regime.
When does the legislation apply?
The Qld Act applies to all construction contracts. A contract can be written or oral, or a combination of both.
A construction contract is broadly defined and applies to a contract, agreement or other arrangement under which one party undertakes to carry out construction work for or to supply related goods and services to another party (construction contract).
‘Construction work’ and ‘related goods and services’ are defined in a similar manner to the NSW Act and typically include building work, civil work, services work and any operation integral to preparing or completing those works. However, under the Qld Act construction work also includes building work within the meaning of the QBCC Act.
The Qld Act does not apply to:
- construction contracts involving domestic building work if a resident owner is a party to the contract and lives in or intends to live in the building;
- to 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 but does apply to all other construction contract works at a mine or on a mining lease;
- the extent that it deals with construction work carried on outside Queensland or the supply of goods and services for construction work carried on outside Queensland.
The Qld Act expressly excludes ‘pay when paid’ provisions from construction contracts, which is where a contractor makes its liability to pay a subcontractor dependent on payment to the contractor by the principal or head contractor.
It is not possible to contract out of the provisions of the Qld Act.
The right to make a payment claim
The right to a progress payment
The Qld Act entitles a person to a progress payment if the person has carried out construction work, or supply related goods and services, under the construction contract.
A progress payment is a payment to which a person is entitled under section 70 of the Qld Act, which defines a progress payment to include, without affecting any entitlement under section 70, a final payment, a single or one-off payment or a milestone payment (section 64).
Contractors who are required to be licensed for building work under the QBCC Act but who are not licensed are not entitled to a progress payment.
When can a contractor make a payment claim?
A contractor may issue:
- a payment claim within the later of:
- the period worked out under the construction contract; or
- six months after the construction work or related goods and services to which the claim relates were last carried out or supplied; and
- a final payment claim within the later of:
- the period worked out under the construction contract;
- 28 days after the end of the last defects liability period under the contract; or
- six months after the completion of all construction work or complete supply of related goods and services,
with each being a ‘reference date’ under the Qld Act.
Only one payment claim for each reference date under the construction contract can be served. However, a contractor can include in a payment claim an unpaid amount that has been the subject of a previous payment claim. A claim, or an item within a payment claim, that has been the subject of an earlier adjudication determination cannot be included in any subsequent payment claim.
How does a contractor make a payment claim?
A valid payment claim can be issued on and from each reference date and must:
- identify the construction work or related goods and services;
- specify the amount of the progress payment claimed (the claimed amount); and
- request payment of the claimed amount.
What amount can be claimed?
A person is entitled to claim the amount calculated under the contract. If the contract does not provide for the valuation of the construction work and related goods and services, the entitlement is the amount calculated on the basis of the value of the work having regard to the contract price, other rates and prices, any variation and, if the work is defective, the cost of rectifying any defects.
A progress payment under a construction contract becomes payable:
- if the contract contains a provision about the matter that is not void under section 74 of the Qld Act or under sections 67U or 67W of the QBCC Act — on the day on which the payment becomes payable under the contract; or
- if the contract does not contain a provision about the matter or contains a provision that is void under section 74 of the Qld Act or sections 67U or 67W of the QBCC Act — 10 business days after a payment claim is made.
Interest on the unpaid amount of a payment claim is payable at the greater of the following rates:
- the rate prescribed under section 59(3) of the Civil Proceedings Act 2011 (Qld) for a money order debt; and
- the rate specified under the contract.
For a construction contract to which section 67P of the QBCC Act applies (because it is a building contract) interest is payable at the penalty rate under that section.
What must a principal or head contractor do when it receives a payment claim?
How to respond to a payment claim
A principal or head contractor served with a payment claim will have to comply with the strict timing requirements, for both its response and payment, as set out in the Qld Act and the QBCC Act (if the QBCC Act applies).
The Qld Act makes a distinction between ‘standard payment claims’ (being claims for less than $750,000 (excl GST)) and ‘complex payment claims’ (being claims for more than $750,000 (excluding GST)) for the purpose of determining time frames for adjudication of payment claims. The distinction is not relevant to determining the timeframe for which a response to a payment claim must be made under the Act.
Principal or head contractor to respond to a payment claim
If a principal or head contractor is given a payment claim, it is required to either pay the amount claimed within the time stated in the contract or respond with a payment schedule within the earlier of either:
- the time stated under the contract; or
- 15 business days of receipt of the payment claim.
A payment schedule must state all reasons that the principal or head contractor has for withholding payment from the contractor.
If the principal or head contractor assesses that there is an amount payable, and the QBCC Act applies because the work under the contract is ‘building work’, that payment must be made within 15 business days of receiving the payment claim (for commercial building contracts) and 25 business days of receiving the payment claim (for construction management trade contracts and subcontracts).
If a principal or head contractor fails to pay the claimed amount within the time stated in the contract or give a payment schedule within the prescribed time, then, the principal or head contractor is liable to pay the claimed amount by the due date for payment.
If the principal or head contractor fails to pay, the contractor’s options are to proceed to adjudication or proceed to recover the unpaid portion of the payment claim in any court of competent jurisdiction, as a debt owing to the contractor. The principal or head contractor is not allowed to raise any defence under the construction contract or make any counterclaim in those proceedings. Statutory defences may be available in some circumstances.
Contractor’s rights if principal or head contractor fails to serve a payment schedule
It is an offence under the Qld Act to not give a payment schedule (if the claimed amount is not paid in full by the due date for payment) for which a principal or head contractor may be fined (section 76 of the Qld Act).
Contractor’s rights if not paid – how to enforce its rights
Adjudication – how and when to make an application
Where a contractor commences an adjudication application, the principal or head contractor may provide an adjudication response:
- for a standard payment claim, within 10 business days of receiving a copy of the adjudication application or within 7 business days after receiving notice of an adjudicator’s acceptance of the application, whichever is later; or
- for a complex payment claim, within 15 business days of receiving a copy of the adjudication application or within 12 business days after receiving notice of an adjudicator’s acceptance of the application, whichever is later.
For a complex payment claim, a principal or head contractor may also request from the adjudicator an extension of time for responding of up to an additional 15 business days. This request must be made within the later of 5 business days after receiving the adjudication application or 2 business days after receiving notice of the adjudicator’s acceptance of the adjudication application.
The adjudication response must be in writing, identify the adjudication application to which it relates and may contain submissions in support of the response only to the extent that the submissions rely on reasons contained in the payment schedule. A principal is precluded from raising reasons in its adjudication response which are not contained within its payment schedule.
The principal or head contractor may give the adjudication response to the adjudicator only if the principal or head contractor has served a payment schedule on the contractor within the time specified in the Qld Act.
What is the adjudication procedure?
An adjudicator must decide an adjudication application as quickly as possible and in any case for a standard payment claim within 10 business days and for a complex payment claim within 15 business days after:
- the date on which the adjudicator receives the adjudication response; or
- the date on which the adjudicator should have received the adjudication response; or
- within the further time that the parties have agreed.
An adjudicator is to decide:
- as a preliminary matter, whether he or she has jurisdiction to adjudicate the application;
- the amount of the progress payment, if any, to be paid by the principal or head contractor to the contractor (the adjudicated amount);
- the date on which any amount became or becomes payable;
- which party is responsible for payment of the adjudicator’s fees; and
- the rate of interest payable on any amount.
The adjudicator must only consider:
- the provisions of the Qld Act to the extent they are relevant;
- the provisions of the QBCC Act, Part 4A;
- the provisions of the construction contract from which the application arose;
- the payment claim to which the application relates together with all submissions and relevant documents properly made in support of the claim (ie the adjudication application);
- the payment schedule together with all submissions and relevant documents properly made in support of the schedule (ie the adjudication response); and
- the results of any inspection by the adjudicator of any matters to which the claim relates.
The adjudicator’s decision must be in writing and include the reasons for the decision, unless the parties have both asked the adjudicator not to include the reasons in the decision.
The adjudicator, or any other adjudicator in a subsequent application involving the same work or goods and services, must give the work the same value as that previously valued by an adjudicator, unless a party satisfies the adjudicator that the value of the work or goods and services has changed since the previous determination.
Once an adjudicator has made a decision as to the amount payable, the principal or head contractor is required to pay that amount within 5 business days after the date on which the adjudicator’s decision is served on the principal or head contractor or a later date decided by the adjudicator.
The payment is only a progress payment, and the right to recover any disputed amount will remain intact under the contract or at law.
Reviewing the adjudicator’s decision
An adjudication decision can only be challenged in court where the adjudicator has committed a jurisdictional error. That is, an adjudication decision will not be set aside for any factual or legal error made by an adjudicator, but may be susceptible if it can be demonstrated that:
- there has been a denial of natural justice; or
- the adjudicator acted outside of his/her jurisdiction (or did not have jurisdiction to determine the dispute).
A contractor may apply to the court to claim an unpaid amount as a judgment debt in two circumstances:
- first, where the principal or head contractor has agreed to an amount payable under a payment schedule, or the adjudicator has determined an amount is payable, and the principal or head contractor has not paid;
- secondly, where the principal or head contractor has failed to give a payment schedule within time and the payment claim is effectively deemed to be a debt owing.
In the second circumstance, section 93(4) of the Qld Act provides that the principal or head contractor is not entitled in the court proceedings to either bring a counterclaim or raise any defence under the construction contract. By not issuing a schedule the principal or head contractor loses the protection of the contract. However, the principal or head contractor may raise other non-contractual defences, for example, instances of misleading and deceptive conduct under the Competition and Consumer Act 2010 (Cth).
If the principal or head contractor fails to deliver a payment schedule, fails to pay a scheduled amount or fails to pay an adjudicated amount, the contractor may suspend the works on 2 days’ notice until 3 business days after the principal or head contractor has remedied its defaults. The principal or head contractor is also liable to pay for any loss or damage sustained by the contractor as a result of removing any work from the contractor due to the contractor’s decision to suspend the works. A contractor is not liable for any losses suffered by the principal or head contractor due to the contractor’s suspension.
Interim but not final
Section 101 of the Act operates to preserve a party’s rights under a construction contract and any civil proceedings arising under it. The Qld Act is designed as an interim payment scheme only with all final rights under a construction contract preserved and capable of final determination by a court or tribunal as appropriate.
Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act)
The Qld Act applies to both ‘construction work’ (which includes ‘building work’ as defined under the QBCC Act) and ‘related goods and services’. In contrast, the QBCC Act deals only with ‘building work’, which is defined more narrowly. Where a construction contract includes the performance of building work, the special provisions applying to building work under the QBCC Act will also apply to that construction contract. For example, the time when payments are to be made and default interest.
What rights does the legislation confer on contractors?
Part 4A QBCC Act regulates contracts under which building work is carried out in the following way:
- the contractor may ask for any direction to be given in writing and is not required to comply with the direction until it is given in writing (section 67I(3)));
- there is a statutory right to suspend the works in circumstances where the principal or head contractor has failed to comply with an order of a court or tribunal, or the principal or head contractor has failed to pay an amount required to be paid under the contract (section 67O(2)(b));
- a penalty rate of interest is payable on progress payments not made by their due dates (section 67P);
- a clause in a subcontract, management trade contract or commercial building contract that provides for payment of progress payments more than 25 business days or 15 business days respectively is void (sections 67U and 67W);
- limits are placed on the amount of security that can be required to be given under a building contract (section 67K); and
- notice is required to be given before security can be called for amounts owing under the contract (section 67J(1)).
Building Industry Fairness (Security of Payment) Act 2017, Chapter 4: Subcontractors’ Charges (SC)
When does the legislation apply?
A subcontractor may issue a SC in circumstances where building, construction and civil work carried out on land in Queensland is performed by a subcontractor.
Subcontractors must choose whether to proceed under Chapter 4 (SC) or Chapter 3 (SOP) of the Qld Act. They cannot proceed under both chapters at the same time. The Qld Act states that if a notice of claim of charge is given under Chapter 4, no action (adjudication or court proceedings) under Chapter 3 may be started.
What rights does the legislation confer on contractors?
The legislation allows a subcontractor to claim a charge on money payable or any security given under a contract between a principal or head contractor and a contractor where the subcontractor has a contract for the performance of work on land with that contractor.
The charge can secure payment of money that is payable to the subcontractor for work performed by it under the subcontract (Part 2).
What must a principal or head contractor do when faced with a claim?
A principal or head contractor may at any stage pay into court the amount claimed in the notice of claim of charge (section 126(4) and (5)). This payment discharges the principal or head contractor from any further liability for the amount paid and of the costs of any proceeding for the amount paid. If the principal or head contractor considers that it is prejudicially affected by a claim of charge it can apply to the court for an order that the claim be cancelled or modified (section 139).
What are the subcontractor’s rights if not paid – how does a subcontractor enforce its rights
If a subcontractor provides a valid notice of claim of charge for the money owed under the subcontract, and payment is not made to the subcontractor, the subcontractor is able to commence proceedings in a court to enforce the claim of charge. Any proceedings must be commenced within:
- where a claim of charge is in respect of retention money only, 4 months; or
- in all other cases, 1 month,
after the notice of claim of charge has been given (section 136(1)).