Are you ready for the BiF?
More provisions of The Building Industry Fairness Act 2017 take effect from 1 July 2018. You must be ready for these important changes.
The two key changes affecting most businesses are:
Payment Claims, and
Who is affected?
Commercial clients (including residential body corporates)
What is affected?
All building and engineering contracts, even those entered into before 1 July 2018.
All Payment Claims made from 1 July 2018.
Head contractor's are required to establish trust accounts entitled Project Bank Accounts (PBAs) for each new PBA contract within 20 business days of signing up the first subcontract. Subcontractors are beneficiaries of the trust accounts.
Subcontractors Charges are rolled into the BiF Act, although you still can not run an adjudication and a subcontractor's charge together.
Penalties and fines may be imposed for infringements under the Act;
Practical Completion is defined;
There is a statutory defects liability period of 12 months.
Scaffolding is now included as building work (this may affect other temporary work).
A Payment Claim does not have to be identified as served under the Act with the "trigger" phrase. All invoices are payment claims under the Act. BUT, there may be more responsibility on claimants to serve a valid payment claim that is:
identifies the construction work or related goods and services,
states the amount claimed,
requests payment of the claimed amount preferably by including a due date for payment.
My 2cents - This is likely to be a good thing. it means that a payment claim is a normal part of a sensible process. It is not (and was never intended as) a signal or threat that an adjudication application is about to commence. It may also add some much needed discipline to the preparation of payment claims. Claimants will need to identify variation negotiations and documentation differently so they are not mistaken for payment claims. We always recommend the adoption of "rolled-up" payment claims (total work to date, including variations, less actual payments made at the date of the payment claim). Standard accounting system invoices do not work very well as payment claims. Claimants will need a dedicated payment claim form, either manual or digital).
The maximum period for serving a Payment Schedule is extended to 25 business days (from 10) unless otherwise agreed in the contract. It is the same period as the maximum payment term for a subcontractor under the QBCC Act;
BUT, a contractor MUST serve one if a payment claim is disputed. There is no second bite of the cherry. in the form of an extension after a notice of intention to apply for adjudication. The notice is gone with the extension period. There are heavy penalties for not serving a payment schedule.
My 2cents - In my view it is wise to separate the timing of a payment schedule and a payment. if there is a disagreement, it gives both parties time to negotiate before the due date for payment. If respondents are well organised a response time of 10 days should be adequate for a payment schedule.
Where there is no payment schedule a claimant may proceed to adjudication or apply to the court for a summary judgement. The respondent is not entitled to provide an adjudication response.
Adding extra reasons in a complex claim (over $750,000) is also gone. All reasons must be included in the payment schedule.
My 2cents - This does not imply that respondents have to effectively provide an adjudication response with each payment schedule. It does mean that respondents should look at each item in or part of a claim and each set-off or withheld amounts and give a legitimate reason for each one. Blanket reasons are not a great idea.
The adjudication application cut-off is extended to 20 business days if there is a payment schedule and 30 business days if there is no payment schedule;
Terminating a subcontract automatically establishes a final reference date for a payment claim.
Professional consulting services, including quantity surveying, are included.
What are the effects?
Contractors must be proactive in serving payment schedules. There is no "reminder" if a subcontractor decides to apply for an adjudication of a payment claim. No payment schedule means no chance. It will be essential to have robust systems and processes to guard your entitlements;
The practice of terminating a subcontract in order to prevent a reference date arising has been curtailed with the declaration of a final reference date;
The cutoff dates for payment schedules and adjudication applications have been extended.
Scaffolding is specifically included. This may have ramifications for other temporary works.
That's enough for now. There is plenty more to digest.
But you had better prepare.
if you want to discuss systems and training to manage your payment processes, contact me on email@example.com or call 5630 1350 or 0404 842 104