Up for discussion: the Building and Construction Industry Payments Act 2004
A Queensland Government discussion paper has been released to gather feedback from industry on the way payment disputes in the building and construction industry are dealt with.
Payment disputes in the building and construction industry are unfortunately all too common – so common in fact that state governments around Australia have for some years had in place laws to try to ensure that payment disputes can be resolved relatively quickly and inexpensively.
In Queensland the main piece of legislation* is the Building and Construction Industry Payments Act 2004 (Qld) – or ‘BCIPA’ as it tends to be abbreviated (rather awkwardly). The object of BCIPA is – quite literally – to ensure that a person who undertakes to carry out construction work or to supply related goods and services under a construction contract is entitled to receive and is able to recover payment. Under BCIPA an independent decision maker – an ‘adjudicator’ – decides who gets paid and how much. The adjudicator’s decision though is not the final word on the matter – whatever the adjudicator decides, the parties are still free (later on) to argue the rights and wrongs of any dispute about the payment before a court or a tribunal. So the adjudicator’s decision is in a way only a preliminary or temporary decision, but it serves the very important purpose of keeping the money flowing during the life of construction projects and it helps avoid projects grinding to a halt because of a dispute between the parties.
Is BCIPA achieving its objects? Could the system be improved? Those are questions posed in a Discussion Paper released by the Queensland Government in December 2012. A link to the full Discussion Paper is here.
BCIPA has now been in operation in Queensland for over eight years - the Government thinks it’s time to stop and ask those questions by way of the Discussion Paper with submissions closing on Friday 22 February 2013.
The purpose of this article is to draw attention to the Discussion Paper and highlight some of the issues raised for those of you involved in the industry – particularly those of you who might be interested in making submissions.
How BCIPA works
It’s worth pausing briefly to summarise how BCIPA works by way of a very simplified example.
- A person (‘Bill’) does work or supplies goods and services under a construction contract.
- Bill thinks he should be paid for what he’s done.
- Bill makes a ‘payment claim’ from the other party to the contract (‘Ben’). Bill makes sure that he chooses the right date to make the payment claim.
- If Ben thinks Bill is entitled to the amount claimed, Ben pays Bill the full amount. If Ben thinks Bill is not entitled to some or all of what Bill has claimed, Ben gives Bill a ‘payment schedule’ which says what Ben will pay (if anything) together with reasons. Ben has to pay Bill the amount (if any) in the payment schedule.
- If Bill is happy with that, that’s the end of the matter. If Bill is unhappy, he can apply for an adjudication. Ben gets to have his say in the adjudication.
- The adjudicator makes a decision. If the adjudicator thinks Bill should be paid any amount, then Ben has to pay that amount. If Ben does not pay, then Bill can get a Court order that Ben must pay the amount.
In a typical situation, all of that can happen within a month or two, if not weeks. By contrast, Court proceedings almost always take many months, if not years to resolve.
BCIPA of course does not apply in some situations, the most obvious being most domestic building work.
The story so far
BCIPA commenced operation on 1 October 2004. Since then there have been over 4,500 applications for adjudication in Queensland. There would have been countless (literally) payment claims and payment schedules exchanged. In the meantime bearing in mind that an adjudication application is only made after that exchange has occurred in each instance. In practice of course most payment claims are paid without even a payment schedule being given in reply. Where a payment schedule is given, many of those matters are resolved at that point in time. So while BCIPA is in fact being heavily used in practice every day, much of the impact is neither visible nor even measurable.
The Discussion Paper suggests however that – anecdotally at least – BCIPA has improved communication and record keeping in the building and construction industry and has improved the ‘payment culture’. Our experience over time supports that suggestion, although we also continue to see that compliance with BCIPA and attention to ‘paperwork’ within the industry varies greatly. Some do it very well while others have some way to go. Generally speaking, our experience is that those who do attend carefully to their paperwork – and to their compliance with BCIPA – tend to have less problems with payment disputes, and when they do find themselves involved in a dispute they tend to have a relatively better outcome.
The consensus seems to be that BCIPA is a good thing for the industry but – like anything – there is room for improvement.
Issues raised in the Discussion Paper
The Discussion Paper raises a number of issues and then – conveniently – poses a series of 19 questions for submitters to address. The full list of questions is set out in the Discussion Paper (with a convenient summary on pages 27 and 28) together with background to each of the questions.
While there are a range of issues addressed in the Discussion Paper – and the importance of particular issues will vary depending upon where a particular business sits within the industry – these are some of the ‘key’ issues raised for discussion.Should work over a stated value be excluded from BCIPA?
There are some who argue that contracts dealing with very high amounts – in the tens of millions of dollars – should be exempted from the operation of BCIPA. The argument is that with such large sums of money involved, the rights of the parties should be determined by the Courts and not by adjudicators (who are not judicial officers). It’s also argued that the parties to those types of contracts tend to be on a level playing field – they tend to be very well resourced financially and in terms of their access to legal and other expertise. BCIPA works best when it addresses the ‘power imbalance’ that can sometimes exist between parties to a construction contract, but that imbalance tends to diminish as the value of the contract increases.
The difficulty with the argument is basically deciding where to draw the line – exactly what value should exclude a contract from BCIPA? Is it $5 million, for example, or is it $50 million?
Should ‘purchasers’ be able to use BCIPA?
As things stand it’s only a person who performs construction work or supplies goods and services who can use BCIPA to bring and quickly resolve a payment claim. The party under a construction contract cannot presently use BCIPA to bring a claim for, say, breach of contract. If a purchaser of building work alleged that there had been a breach of contract by the contractor providing the work, then currently the purchaser can attempt to have its claim ‘set off’ against a payment claim brought by the contractor under BCIPA, but otherwise the purchaser has to use some method of bringing their claim (typically suing in a Court or tribunal) other than under BCIPA. But there are some who argue that the powers of adjudicators under BCIPA should be expanded so that the adjudicators could deal with claims made by purchasers.
That would be a fairly radical change to the BCIPA regime. It would certainly increase the complexity of the regime, but it might be attractive to those purchasers of building work who currently do not have the same ‘open access’ to the BCIPA regime enjoyed by claimants.
Should claimants have to ‘reference’ BCIPA on payment claims?
At present, if a claimant wishes to bring a claim under BCIPA then they have to ensure that their claim expressly states that it is made under BCIPA. Many contractors as a matter of prudence have a standard statement on their invoices that is to the following effect: This is a payment claim made under the Building and Construction Industry Payments Act 2004 (Qld).
The Discussion Paper asks whether in fact claimants should have to make a statement to that effect in order to use the BCIPA regime or whether they should be able to use the regime whether or not such a statement is made. The arguments against doing away with the requirement is that a party needs to know as soon as possible that they have received a claim under BCIPA because of the strict time limits that apply to responding to such a claim – a payment schedule must be given after all within 10 days. It would be unfortunate if a party did not realise that they had received a claim under BCIPA and then missed out on the opportunity to respond within the time limit.
There are a number of other important issues raised in the paper including the following:
- Should the current system of appointing adjudicators continue?
- Are the current timeframes under BCIPA appropriate?
- Is BCIPA fair to all the parties involved? Is there an imbalance in favour of claimants?
- Should ‘termination for convenience’ clauses be made void?
- Should changes be made to BCIPA to further limit barriers to making payment claims, in particular preconditions to making claims that a contract might try to impose?
Those issues and the others dealt with in the Discussion Paper are of great importance to the building and construction industry in Queensland. We encourage those of you involved in the industry to take the time to read the Discussion Paper and to make submissions by 22 February 2013.
*Queensland is unique in that it has a second piece of ‘security for payment’ legislation – the Subcontractors’ Charges Act 1974 (Qld). That Act serves a different (although related) purpose, and is not the focus of this article.
If you have any questions in relation to this bulletin please do not hesitate to contact any of the members of CG Law’s Building & Construction team.