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Security Of Payments Act QLD

THE ULTIMATE GUIDE TO THE SECURITY OF PAYMENTS ACT IN QUEENSLAND 2023

Introduction:

The primary objective of the Security of Payments Act is to ensure that contractors in the building and construction industry receive timely progress payments for their services.

Claim Process:

Under the various Security of Payments Acts, any contractor or subcontractor who enters into a building contract, has a statutory entitlement to regular progress payments. To avail to this right, the various Acts provide that a standard 'progress claim' or 'invoice' is also identified as a 'payment claim'.

A "Reference Date" is a crucial concept that determines when a party is entitled to make a payment claim. It could be a specific date (e.g., fortnightly or the end of each month) or tied to specific milestones, stages, or the completion of particular work.

On typical contracts in the building industry, the payment claim is generally submitted to the party responsible for payment at the end of a calendar month. It serves as a formal request for payment, covering the construction work completed in the preceding month.

According to the various Acts, the person or entity that receives the request for payment generally has 15 business days to respond with a 'payment schedule.'

A payment schedule is a formal response to a payment claim and includes essential information such as the identification of the payment claim to which it responds, the proposed amount of payment, and detailed reasons supporting why the proposed amount is less than the claimed amount. The payment schedule serves as a transparent communication tool, outlining the basis for the proposed payment and providing the claimant with clear justifications for any deductions or adjustments.

If a dispute arises and it is resolved under the Security of Payments Act, the contractor becomes the 'Claimant' and the person responsible for payment the 'Respondent'.

If the Respondent issues a payment schedule within the stipulated timeframe, and the amount is less than requested, the Claimant has the right to apply for adjudication generally within 20 business days.

Upon lodging the adjudication application with the registry, an adjudicator is appointed within four business days. For standard payment claims (generally $750,000 and under), the Respondent must provide its adjudication response within 10 business days of receiving a copy of the adjudication.

The adjudicator then determines the payable amount within 10 business days of receiving the Respondent's response, setting a due date for payment, usually within 5 business days of the decision's communication.

If the Respondent fails to pay the full progress payment by the due date, the Claimant can request an 'adjudication certificate' and pursue the unpaid amount as a debt in court. The entire process, from preparing the payment claim to obtaining an adjudication certificate, typically takes around 60 days compared with a year or two in a court of law.

Payment Claim Requirements:

A valid Payment Claim must pertain to construction works performed or related goods and services supplied within a specific month, accruing a 'Reference Date.' It should identify the relevant work, state the claimed payable amount, and explicitly request payment.

It is advisable to accompany the Payment Claim with an itemised invoice and evidence of the completed works, such as receipts, attendance records, and any instructed variations. This helps the Respondent assess the claim, much like what one would expect from subcontractors or suppliers.

The Payment Claim must be served within the time specified in the construction contract. If not stipulated, it is typically within 10 business days after the end of the month for works carried out in the preceding month. However, the final payment claim can be submitted up to six months after completing the works or 28 days after the defects liability period's conclusion.

The final payment claim must include a 'Supporting Statement,' confirming that all subcontractors have been paid the amounts owed by the Claimant at the date of the Final Payment Claim.

Payment Schedule:

Upon receiving a payment claim, the Respondent must provide a payment schedule within 15 business days or within a shorter period if the contract specifies that.

The payment schedule should identify the payment claim, state the proposed payment amount (if any), and explain why the proposed amount is less than the claimed amount.

Adjudication Application and Response:

An adjudication application is valid if it follows the approved form, identifies the relevant payment claim and payment schedule, includes the prescribed fee, incorporates relevant submissions, and is neither frivolous nor vexatious.

Similarly, an adjudication response is valid if it is in writing, identifies the Payment Claim and Payment Schedule, includes relevant submissions, complies with the Act, and is submitted within the prescribed time frame. Both parties must exchange copies of their respective documents.

Common Questions Answered

  • Q: I made a mistake in my payment claim, can I adjust the scope and value?

    A: Depends. If it has been paid then, unlikely, but you can claim for the (unpaid) works as construction works in your next payment claim. If it is in dispute, then errors and omissions can be corrected before any amounts are adjudicated. If the errors are discovered after the final payment claim has been paid the payment request may have to be made outside the SOP Act.
  • Q: I did not want to enter into a dispute with the builder because he gives me regular work, so I have been accepting the lower amounts he allowed in the payment schedules, but now I may make a loss on the project… can I claim all of the unpaid amounts at the end of the job?

    A: Yes, you can include the portions of the completed works that have not been paid in a new payment claim even if the works were completed a few months beforehand. However, you may have a problem if you submitted your final payment claim, or waited too long and cannot accrue a new reference date.
  • Q: Are the periods of time allocated for the various actions in the SOP Act suggested or mandatory?

    A: Mandatory. Non-compliance with time means that an adjudicator may find that he/she does not have jurisdiction to adjudicate the dispute. However, if the respondent did not issue a payment schedule, he/she cannot submit one when the adjudication process commenced, and the respondent cannot raise new issues for non-payment in addition to those listed in the payment schedule.
  • Q: Are all works in a building ‘construction works’ under the SOP Act?

    A: No, works such as the rectification of defects are not ‘construction works’ that accrue a new reference date.
  • Q: Is an owner with a ‘building owner permit’ allowed to change his/her mind and decide to live in the property so now classifies as a ‘resident owner’ and has the construction works excluded from the SOP Act?

    A: No, the owner is bound to the contract as written when the parties entered into it.
  • Q: The builder says he/she can only get $250,000 per month from the lender to pay for the works. Can a progress claim be capped to that amount?

    A: No, ‘pay when paid’ provisions are not enforceable under the SOP Act. This principle also applies to a builder that will not release payments until it is paid by the Principal. Furthermore, a clause is written into the contract to that effect has no legal effect and can be ignored.
  • Q: The contract says that formal communication is by post, but we communicated only via email during the execution of the contract. Now that we are in a formal dispute, the builder wants to enforce the contract to the letter. Have I lost my right to payment because I failed to notify the builder formally by post?

    A: Unlikely. The adjudicator should be asked in the application to look at how the parties communicated during the execution of the works, and if different from the written contract, the method of communication used during the conduct of the works is likely to be accepted as formal communication. It could be argued that the contract was amended or changed ‘by conduct’ and that the clause has no effect.
  • Q: Do I have to pay for the works if the company or the tradesman carrying out the works are unlicensed?

    A: No, the SOP Act does not allow for payment for unlicensed work.
  • Q: If the contract is silent on markups for indirects and overhead and profit on variations instructed by the respondent, am I entitled to add any markup to any variation instructed by the builder?

    A: Yes, so long as it is a reasonable amount. You need to justify the percentage applied in accordance with standard industry practice, an adjudicator can approve or vary the amount.
  • Q: Am I allowed to charge for supervision, overhead and profit when firming up a PC sum.

    A: Depends on the definition of PC sum. Most QSs understand a ‘Provisional Cost Sum’ to cover a yet-to-be-defined scope so overhead and profit are added to the material and labor cost component when the scope is finally defined. However, some people confuse ‘Provisional Sums’ with ‘Prime Cost Sums’ where the overhead and profit (and sometimes even the labor component) is considered to have been allowed in the contract price. Yet others (i.e. plumbers) read PC sum as ‘Prime Cost Items’ as in a re-measurement contract where the contractor will get compensated for the actual quantity of PC items at the PC rate multiplied by the adjustment amount as a lump-sum on top of original lump-sum amount.
  • Q: I was unable to travel to the site due to COVID, can the builder hire a local contractor and backcharge me for the works?

    A: Depends. If your contract includes a ‘not to be exceeded’ dates, a mandatory schedule with a critical path, or a ‘time is of the essence’ clause, the builder may backcharge you even if you did your best to travel to the site. If the contract does not, then it is unlikely.
  • Q: We were delayed due to the builder calling us to stay back because the pre-works for our trade were not ready. However, the builder now claims that we did not notify him of the delay within 7 days as per the notification requirements in contract. Are we now time-barred from making a claim for the delay?

    A: No, in this case, it is the builder who first became aware of the delay, so the notification requirements became superfluous (‘it notified itself’ when he called you). Always ask in a contract without a formal notification clause ‘what constitutes notification?’… you may be surprised by some of the answers.

Why engage an Engineer/Solicitor as your Construction Lawyer?

Numerous disputes often revolve around ambiguous jurisdictional challenges that essentially pertain to issues related to licensing issues, the validity of the contract, and legal precedents without addressing the scope of works, quality, or cost of delays. In the realm of construction law, unlike personal injury or family law, the title 'Construction Lawyer' is not regulated by the Law Society, allowing numerous lawyers with no construction site experience to adopt the label.

While navigating the intricate legislative requirements of the Security of Payments Act demands a profound legal understanding, ensuring compliance and timely adjudication applications requires expertise beyond the typical purview of a 'Construction Lawyer', successful applications hinge on technical merit, valuation, and expert delay analysis, areas often outside the expertise of construction law practitioners.

Some law firms attempt to address this by offering access to a 'team of experts,' but even for larger contractors, reliance on such a team may prove disadvantageous. In contrast, a Construction Lawyer with a comprehensive construction background, particularly one versed in technical matters, can navigate complex issues and provide tailored insights and strategies for amicable resolution of disputes.

Opting for a Construction Lawyer with hands-on experience, technical qualifications, and a diverse professional background ensures a nuanced understanding of construction-legal-commercial issues, especially when compared to those who rely solely on affidavits and reports they barely understand.

Ultimately, engaging with a professional who combines legal acumen with practical industry experience, such as someone with MEP and trade qualifications, a background as a Design Engineer, Engineering Manager, Project Manager, QS, Planner, and extensive experience with major contractors, can significantly enhance the effectiveness of addressing construction disputes and legal matters.

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