After months of uncertainty regarding the commencement of the amendments to theBuilding and Construction Industry Payments Act 2004 (BCIPA)—and uncertainty over what shape those amendments would finally take—the construction industry now has some clarity leading into the Christmas break.
The amended BCIPA commenced on 15 December 2014.
We have previously kept you updated on the evolution of the amendments to the BCIPA. This included updates on the introduction to parliament of the original Amendment Bill in June 2014, parliament passing a modified Amendment Bill inSeptember 2014, and parliament passing modifications to the transitional provisions of the Amendment Act on 8 December 2014 .
However, a remaining area of uncertainty relates to the new definition of “business day” and the timing for serving payment schedules in the amended BCIPA. There are a few potential traps to be aware of, especially leading into the welcome Christmas break.
BUSINESS DAYS AND PAYMENT SCHEDULES—MORE TIME FOR RESPONDENTS?
The dreaded “BCIPA Christmas present” is now confined to the ghosts of Christmas past.
The amended BCIPA provides that “business days” do not include 22 December to 10 January (inclusive). This is a significant expansion to the “Christmas shutdown period” which was previously only from Christmas Day to 1 January (inclusive).
This extended holiday period will be welcomed by all construction industry participants, especially respondents.
In addition to this amended definition of “business day”, the amended BCIPA introduces separate requirements for payment schedules in response to “standard payment claims” (less than $750,000) and “complex payment claims” (more than $750,000) which, at least superficially, allow more time for respondents to issue a payment schedule:
- For standard payment claims: a payment schedule must be issued within the earlier of the time stated in the relevant construction contract, or 10 business days of receipt of the claim.
- For complex payment claims: a payment schedule must be issued within the earlier of the time stated in the relevant construction contract, or:
- 15 business days of receipt of the claim, if the claim was served 90 days or less after the reference date to which the claim relates; or
- 30 business days of receipt of the claim, if the claim was served more than 90 days after the reference date to which the claim relates.
However, in practice matters are not as clear as they seem.
HOW DOES THIS WORK FOR EXISTING CONTRACTS?
The revised definition of “business day” applies to all steps under the BCIPA from 15 December 2014. This is a critical change from the original Amendment Bill which provided for different regimes depending on when the contract was entered into (before or after the commencement of the amendments), including different definitions of business day.
Although we support the intent of this change—to eliminate the problem of the industry dealing with dual systems and to reduce red tape—it does create other potential areas of uncertainty.
The extended timeframes might not be available if the contracts themselves do not reflect those timeframes, which existing contracts are unlikely to do. This is because the amended BCIPA itself provides that payment schedules (both simple and complex) must be issued “within the earlier of” the time required by the contract or the timeframes under the BCIPA.
In an effort to align with the old BCIPA, in most existing contracts, all progress certificates (and/or payment schedules)—regardless of their value—are likely to be required within 10 business days. Further, it is highly unlikely that any existing contracts define business day in the same terms. Chances are that existing contracts use the old definition of “business day” provided under the old BCIPA.
So, when is the payment schedule due? The time set out in the contract or the extended timeframes in the amended BCIPA?
It will depend on the precise wording of each contract. Previous cases have indicated that the drafting in the contract must be very clear to shorten the timeframe for a payment schedule under the statutory scheme.
However, the position is far from clear and respondents should not risk it. The safer course for respondents to existing contracts may be to retain the status quo for the response to any payment claims, and not take false comfort from the extended timeframes under the amended BCIPA.
There is one saving grace for respondents. For payment claims served from 15 December 2014, the amended BCIPA requires claimants to give a mandatory “second chance notice” to respondents, allowing the respondent a further 5 business days to serve a payment schedule if they failed to do so initially, before the claimant can apply for judgment or make an adjudication application under BCIPA.
Going forward, to make matters clearer, contracts should be drafted to align with these extended timeframes.
WHAT ABOUT THE QBCC ACT?
Added to the uncertainty highlighted above, parties to commercial building contracts may not reap the full benefits of the extended timeframes, even if they are drafted into new contracts. This is due to a misalignment between the BCIPA amendments and the provisions of the Queensland Building and Construction Commission Act 1991 (QBCC Act).
For starters, the amended BCIPA and the QBCC Act define “business day” differently. The QBCC Act does not exclude the extended Christmas shutdown period from the counting of business days.
Secondly, there is a potential misalignment between when a payment schedule is due under the BCIPA and when a progress payment is due to comply with the QBCC Act. The QBCC Act provides that a provision in a commercial building contract is void to the extent it provides for payment of a progress payment later than 15 business days after submission of a payment claim. Accordingly, most commercial building head contracts contain provisions with 15 business day payment claims, in order to comply with the QBCC Act.
TRAPS FOR RESPONDENTS
This means that, in some cases a respondent will be obliged to pay claims before the due date for the delivery of the relevant payment schedule.
Just to illustrate a few potential problems, consider the following scenarios:
- For complex payment claims issued within 90 days of the relevant reference date, the due date for payment will most likely be the same day that the payment schedule is due.
- If the same complex payment claim is issued right before Christmas—recall the different definitions of “business days”—payment will be due before the payment schedule is due.
- Worse, for complex payment claims issued more than 90 days after the reference date, the due date for payment (15 QBCC Act business days) will be long before the due date for the payment schedule (30 BCIPA business days).
Any contractual provision attempting to remedy this disconnect, by allowing payment to be made after the payment schedule is issued, would be void due to the QBCC Act.
In these situations, the respondents are placed in an unenviable position. Should the respondent:
- Withhold payment until the payment schedule is issued (beyond the due date for payment mandated by the QBCC Act)? In this case, the respondent runs the risk of a claimant becoming entitled to suspend works under section 67O of the QBCC Act.
- Issue an earlier progress certificate under the contract, and then issue a later payment schedule under the BCIPA? This would seem to undermine the whole purpose of giving respondents more time to issue payment schedules.
- Pay an amount to the claimant, pending the issue of the payment schedule, and then seek to recoup any overpayments later? Again, this would seem to undermine the purpose of the BCIPA amendments.
It is not helpful advice for respondents to simply be told that the three schemes (the BCIPA, the QBCC Act, and the contract itself) are distinct and should all be complied with separately. That is far too complex, does not reduce “red tape”, and is not how the construction industry should have to operate.
TRAPS FOR CLAIMANTS
It is not just respondents who should be concerned. This misalignment between business days, due dates for payment, and due dates for payment schedules could also adversely affect claimants seeking to enforce payment.
We outlined in our previous updates the requirement in the amended BCIPA for claimants to give a mandatory “second chance notice”, allowing the respondent a further 5 business days to serve a payment schedule if they failed to do so initially. The claimant may only apply for judgment in a court or make an adjudication application once this additional period has elapsed. However, a claimant is time-barred from applying for either adjudication or judgment if they fail to serve the second chance notice within 20 business days of the due date for payment.
As illustrated above, in certain circumstances the due date for payment could be long passed before the time for a payment schedule has elapsed. Claimants must watch their calendars closely—and count the business days properly—to ensure that the 20 business day time bar does not slip under their radars and the right to enforce payment is lost.
Following the QBCC’s recently published discussion paper “Better Payment Outcomes”, the government is looking for more ways to improve payment outcomes and boost confidence in the sector. Hopefully, harmonising and simplifying the issues between the BCIPA and the QBCC Act is one of the first things the government considers.