Do Your Service and Maintenance Agreements Work for You?
Check that your Service and Maintenance Agreements do not inhibit your ability to get paid.
A Queensland decision highlights the need to ensure that your service and maintenance agreements work for you and not against you when it comes time to be paid.
Multiple contracts with the same client "The Building and Construction Industry Payments Act 2004" (BCIPA) and its successor "The Building Industry Fairness (Security of Payment) Act 2017" (BiF), applies, in each case, to “a construction contract”, that is, each contract is separate and must be claimed separately. If a dispute arises over payment it must be dealt with for each separate contract, even though one dispute may relate to a number of separate premises. It is common for property owners to hold separate properties in different legal entities. If you agree to separate maintenance contracts for each entity you will be fragmenting your ability to get paid in the event of a dispute over payment. It also complicates your accounting, because, to protect your entitlement, each separate contract must be managed and billed separately. If you seek adjudication of a disputed or late payment under the BCIPA or BiF, each contract is the subject of a separate adjudication or court application.
This practice leads to unnecessary expense if you need to settle a payment dispute or enforce a late payment.
We recommend that you agree on a single client entity with whom you will contract. It may be a holding company or any trading entity of your client’s choice. If you understand and apply the BCIPA / BiF properly, you will be able to satisfy your client’s needs for separate Tax Invoices at the same time as you protect your own payment processes and entitlements.
Period contracts A Queensland judgement is significant for companies offering service and maintenance contracts that often, or usually involve additional repairs and replacements.
Luscombe Builders were engaged to undertake flood repair work in Brisbane for Matrix Homes. The original agreement (Period Subcontract) required Luscombe “to perform and complete...Works yet to be agreed”. Each project was subject to a separate Works Order that described the specific project works. Some of the properties had a purchase order, work started on others on an verbal direction on the understanding that Luscombe would issue an invoice and be paid for the work.
The adjudicator agreed that it was all “construction work” under the Period Subcontract and awarded Luscombe approximately $408,000.00.
The judge disagreed. He decided that the work under Work Orders and the verbally instructed work were indeed separate contracts. Because a payment claim may only be served in relation to one contract, he decided the payment claim was invalid, in that it included the work of two separate contracts. A matter of natural justice was also considered by the judge.
The claimant was prevented from collecting its award.
It is very important that your contract includes a procedure for payment for all the work that you are likely to do under or in connection with the work that ensures all the work is captured under the one period contract.
It is very common for period maintenance contracts to include payment terms of 30 days from the date of invoice. It is not wise to tie payment to tax invoices when the key document that entitled you to payment is a Payment Claim under the BCIPA / BiF.
The basis for payment under a Payment Claim is quite different from a tax invoice. It is: A Payment Claim may only be served after the reference date under the contract; Only one payment claim may be made for each payment period, per contract.
You must serve a SEPARATE PAYMENT CLAIM for each contract.
Payment terms are the number of business days stated in the contract from RECEIPT of the Payment Claim, not from the invoice date.
The maximum payment terms under a construction contract in Queensland is 15 business days. If you offer 30 calendar days you are giving away 2 weeks and your client is at risk if there is a dispute, because the 10 day default provision under the Act will apply. Neither you nor clients need this uncertainty.
John Lowry is a director of AQS Advisory Services thepowertool construction payment systems and the author of Payment (really) Matters Construction Payment Bulletin. Subscribe to Payment (really) Matters Construction Payment Bulletin here >>
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