Supporting statement essential for valid service of payment claim

The Supreme Court has determined that a payment claim is not validly served in accordance with the Building and Construction Industry Security of Payment Act 1999 (NSW) (“Act”) if it is not accompanied by a supporting statement from a head contractor. The decision in Kitchen Xchange v Formacon Building Services clarifies the effect of non-compliance with one of the amendments to the Act that became operative on 21 April 2014.

A ‘supporting statement’ is essentially a declaration by a head contractor that all subcontractors have been paid all amounts that are due and payable in relation to the construction work the subject of the payment claim.

Section 13(7) of the Act says that a head contractor must not serve a payment claim on the principal unless the payment claim is accompanied by a supporting statement that indicates that it relates to the payment claim.

The Court has determined that, if a supporting statement does not accompany the payment claim, the payment claim may be valid, but, importantly, the payment claim is not validly served in accordance with the Act.

Valid service of a payment claim is an essential requirement for invoking the jurisdiction of the Act and therefore empowering an adjudicator to make a determination on an adjudication application. If a payment claim is not validly served, the adjudicator has no power to make an adjudication determination based on the payment claim and any determination by an adjudicator would be susceptible to being quashed by the Courts.

Contractors should bear this in mind before electing to expend significant time and expense in proceeding down the path of adjudication, only for a Court to render a favourable determination invalid and unenforceable.

Builders are reminded that the amendments to the Act made in April 2014, including the requirement for payment claims to be accompanied by a supporting statement, do not affect construction contracts entered into prior to 21 April 2014.

Amendments to Queensland legislation

Amendments to the Building and Construction Industry Payments Act 2004 (Qld) (BCIPA) came into force on 26 September 2014 and will have a significant impact on how payment claims are made, managed and adjudicated in Queensland.

Some of the key amendments to be aware of:

Appointment of adjudicators

One of the more interesting amendments relates to the appointment of adjudicators.  The Queensland Building and Construction Commission (QBCC) (formerly the QBSA) will now be the sole adjudication registry responsible for appointing adjudicators based on their skills, experience, areas of expertise and availability.  The establishment of a single adjudication registry is aimed at removing the common industry perception that certain nominating authorities are “claimant friendly” and to eliminate a claimant’s ability to ‘adjudicator-shop”.

Time for making claims

The time for when payment claims can be made is reduced from 12 months to six months after the construction work was last carried out or the related goods and services supplied (unless the contract provides a longer period).

Classification of claims

BCIPA now distinguishes claims as either ‘standard’ or ‘complex’.  A ‘complex payment claim’ is a claim for over $750,000 excluding GST (or a greater amount prescribed by regulation).

Respondents now have a longer time frame to serve a payment schedule in response to a ‘complex payment claim’.  The time for a respondent to provide a payment schedule is extended to 15 business days (from 10 business days). Timeframes are extended to 30 business days if the payment claim for a progress payment is served more than 90 days after the date in the contract on which a claim for progress payment may be made. Statistics suggest that only 10% of claims adjudicated under BCIPA will fall into this category.

In relation to standard claims (which are simply claims that are not complex claims), the former process for issuing payment schedules will continue, although respondents now have a longer period for adjudication responses.  The time for a respondent to provide an adjudication response is increased from five business days to 10 business days.  For ‘complex payment claims’ the adjudicator can extend the time for an adjudication response by up to an additional 15 business days.

A respondent to an adjudication application for a ‘complex payment claim’ can now include reasons in its response that were not included in the respondent’s payment schedule.  In such circumstances, the claimant may be given a right of reply to the new reasons of up to 15 business days and the claimant can apply to the adjudicator for an extension of time of up to 15 additional business days because of the complexity or volume of the new reasons.

Definition of ‘business day’

Also of relevance is the amended definition of ‘business day’, which now excludes the period between 22 December and 10 January during the industry Christmas shut down period.

Transitioning into the amended BCIPA

For construction contracts entered into before 26 September 2014, the former recovery of progress payment provisions under BCIPA (which are defined as being the sections in the unamended BCIPA dealing with the process for payment claims, payment schedules and adjudications of disputes) will continue to apply for the recovery of progress payments as if the provisions had not been amended.  However, the changes relating to the appointment of adjudicators being transferred to the registrar will apply to all construction contracts.

The amendments result in significant changes to the industry and its participants, who should familiarise themselves with the new procedures and consider what the changes mean for them in the context of their existing and future projects.  The new laws will also impact on the drafting of future contracts, which will need to reflect these changes.