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  • Writer's pictureJohn Lowry

When is a Payment Claim not a Payment Claim?



We should be celebrating 20 years of security of payment legislation in Queensland.  Instead, we are seeing many actors in the industry hardly taking it seriously.

Recently, I posted my disappointment at a mid-sized electrical subcontractor who did not know the Building Industry Fairness (Security of Payment) Act 2017 (The  BiF Act) existed.

It is always disappointing to see Claimants and Respondents go to considerable expense to prosecute or defend a claim in an adjudication, after they have failed to fulfil their basic contract management processes.


My observation with a number of adjudications in the past two years, is that many claimants and respondents - subcontractors, contractors, commercial clients, and their professional consultants have not established robust, repeatable, complying processes to manage their payment and contract management processes.


In a recent Queensland Court of Appeal case (MWB Everton Park Pty Ltd as trustee for MWB Everton Park Unit Trust v Devcon Building Co Pty Ltd [2024] QCA 94), Justice Dalton J.A.  found it necessary to give the industry a lesson in payment claims and payment schedules.


This case should not be allowed to go under the radar, since it re-states important concepts in relation to payment claims in Queensland.


I will refer, from here, to the Builder and Client, for the sake of simplicity.  I also include superintendents and contract drafters, who cling to their tradition, where their “Progress Certificate” was the defining document for approving a progress payment.


In this case, the contract provided:

“The builder had the right to claim “payment progressively” on the “21st day of each month” for work done to that date – cl 37.1 and Item 28 of annexure part A. Clause 37.1 of the contract provided for each progress claim to be given in writing to the superintendent and to include details of the value of the work under contract which the builder had done, and any other monies then due to the builder pursuant to the contract. Clause 37.2 of the contract provided that, within 10 business days after receiving the progress claim, the superintendent was to issue to both the principal and builder a progress certificate, evidencing the superintendent’s opinion of the monies due from the principal to the builder pursuant to the progress claim”.


The Builder served a payment claim on the Client.  A number of the conditions for a payment claim were satisfied, though her honour was clearly not impressed with the format and layout of the claim.  The payment claim schedules, headed “Project Summary”, and “Payment Claim” relied on percentages complete of a schedule of trade totals.


The Builder then followed the payment claim, 17 days later, with a series of Tax Invoices for the same work.  The Client relied on the Tax Invoices as being the relevant Payment Claim, and responded with a Payment Schedule under the Act. The Builder contended that the Payment Schedule was out of time in relation to the earlier Payment Claim.


Her Honour observed that the Builder seemed confused about the concept of a payment claim, and in essence, should be responsible for “getting it right”. I agree. The Builder is the beneficiary of payment laws. Making basic mistakes indicates that the Builder does not have a robust, repeatable process to claim payment, and is not ensuring that those in his organisation responsible for collecting payment are properly trained, or keeping pace with the law.


It is clear that Her Honour found it necessary to set out and, and re-state, the conditions for a valid payment claim under the Act.


Her Honour rejected the first Payment Claim on three grounds:

  1. It did not describe the work, such that the Client could readily understand and respond to the claim.  She relied on an earlier judgement  KDV Sport Pty Ltd v Muggeridge Constructions Pty Ltd, where it was found that a trade schedule, with percentages complete, did not sufficiently identify the work.

  2. Her Honour rejected submissions that previous claims had been made and paid on the same basis.

  3. The payment claim did not clearly state the amount of the payment claimed, preferring a number of amounts for separable parts of the work.

  4. Her Honour noted that, under section 68(1)(c) the payment claim must “request payment of the claimed amount”.


Commentary:

There is an arrogance with Superintendents and contract authors not adopting the terminology of the Act in relation to the legislated payment process.  All contracts should nominate a reference date for payment, which makes it clear that the “reference date” for payment under the contract,  is the date “on or from which a progress payment may be made” (s.67,70).

Equally, the concept of a “progress certificate” for payment “evidencing the superintendent’s opinion of the monies due”, should have long been assigned to the dustbin of time, in favour of a payment schedule under the Act, that is, a response to a payment claim.


Traditionally, Superintendent’s (Architect’s and Engineer’s) Certificates performed two functions, firstly to certify that work done has complied with the design and specifications, and secondly to determine an amount for payment.  The first role can still be relevant, but the “opinion on payment” is superseded and dangerous for clients.


In my view the traditional “Progress Certificate” should be separated into two documents, being,

1) A Progress Certificate that work has been completed in compliance with the design and specification, in the opinion of the superintendent, and

2) a complying Payment Schedule under the Act.

A Progress Certificate may be the basis for valuing a Progress Schedule, including deductions.


There are some important observations on Her Honour’s judgement.  She was explicit in setting out to clarify the conditions for a complying payment claim.


Payment Claims and Tax Invoices

I wrote about the risks of confusing Payment Claims and Tax Invoices in 2018.   They serve quite different purposes under State and Federal laws and should be served at different times.   The risks are evident in this case.

Her Honour was not satisfied that the payment schedule had “buried” the amounts payable in spreadsheet calculations, rather than making a clear, unambiguous statement of the claimed amount.


Every builder and subcontractor should, by now, have a complying, accurate, repeatable process for making payment claims.

 

But we were doing it that way all along

It is common for a waiver-like argument to be made, that many adjudicators might have accepted, that the style and form of the payment claim had been used many times before, and, by inference, the Client understood and accepted the format of the claim. 

Her Honour relevantly said,

“It did not matter that the claim was the 17th progress claim and that, as the primary judge remarked, it was substantially in the same form as the earlier claims. Nor did it matter that someone on behalf of the principal did not swear that they did not understand what work had been done in respect of the 17th claim (or any of the preceding claims).6 Unless something which meets the statutory definition of a payment claim is delivered to the principal, the principal has no statutory obligation to make a payment or respond with a payment schedule. Contractual concepts such as waiver (if that is what the primary judge had in mind) are irrelevant to this. Further, whether or not the document claimed to be a payment claim meets the statutory definition must be a matter of objective construction; the Court cannot be concerned with a subjective understanding of the principal”


This is an important concept for adjudicators to consider when making adjudication decisions.

Claim format

Whilst it is critical to a Builder, the relationship between the builder and subcontractors/suppliers, in a lump sum contract, is of little interest to a Client, who should not be expected to "pick it apart" in order to come to a conclusion about its accuracy.


Her Honour, citing earlier cases, including KDV Sport Pty Ltd v Muggeridge Constructions Pty Ltd, took issue with the common practice of claiming completion percentages against a list of trade amounts, on the basis that, to a client, this method of calculation did not reasonably identify the construction work to which it related such that the basis of the claim was reasonably comprehensible to the Client.  

There is a better way

 In my view, payment claims should be made against a current, updated construction program.  Apart from being accurate and readily understandable, this method opens the door to full automation of payment through the entire payment chain, with existing systems.

I estimate automating this process, alone, will save 1.1% of the construction cost on a $20million project.

A not-so-new, but ignored requirement

Her Honour noted that it is also a requirement, under s.68(1)(c) for the Builder to “request payment of the claimed amount”.  She decided it is not sufficient to state the amount claimed (required under.68(1)(b)).  The phrase “amount due this claim” did not, in her view, satisfy this requirement, although she notes, using the word “Invoice” on a payment claim (s.68(3)) will satisfy this requirement.


It is very common practice to use the words “amount now due”, or amount claimed”.  This is an important new interpretation of the basic requirements for a valid payment claim, that every builder and subcontractor should take immediate action on. 


Although it is unfortunate that section 68(3) continues to confuse payment claims and invoices, it would now be a reason for an adjudicator or court to rule against a payment claim.







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