Debt collection in the construction industry is fraught with problems because of delayed payment terms. In turn, extended payments negatively affected the cash flow of players in the industry. For those involved in the construction industry, receiving payment on time can be described as difficult at best. Often, invoices are issued and the creditor does not get paid by the due date. You do not want to upset your clients with constant emails/phone calls as this may lead to strained relationships and potential jobs lost down the line.
The Queensland Building and Construction Commission (QBCC) has taken note of this type of situation. Meanwhile, other states recognize this as the Security of Payments Act. To address the problems on delayed payments, the QBCC put in place procedures that makes debt recovery a much smoother operation than the traditional debt collection claim. Surprisingly, however, a lot of businesses within the construction industry are unaware of, or simply do not take advantage of the QBCC.
Simple Inclusion of Correct Phrase in Invoice
The BCIPA Act helps businesses within the construction industry get paid. Likewise, the Act helps businesses find a quicker resolution to disputed matters. The Act does not distinguish whether the contract was for construction work or the supplying of goods or services to the construction industry.
The most important part of this whole process is including the correct phrase on your invoices. Otherwise, you cannot submit a claim under this Act. On your Invoice, you must include the following: “This is a payment claim made under the Building and Construction Industry Payments Act 2004 (Qld)”. Yes, it is that simple.
Important Changes in BIF Act 2017
Despite the QBCC, late payments continued to persist in the construction industry. Consequently, the Queensland Parliament passed the Building Industry Fairness (Security of Payment) Act 2017. Essentially, the Act ensures that companies pay the people they work with in the building and construction industry. Specifically, the Act aims to:
- Improve the security of payment for subcontractors by establishing a framework for Project Bank Accounts (PBAs);
- Modernise and simplify the provisions for making a subcontractors’ charge;
- Increase ease of access to the security of payment legislation;
- Provide the Queensland Building and Construction Commission (QBCC) increased regulatory oversight to the industry;
- Raise penalties for non-compliance with the legislation.
On 17 December 2018, the BIF Act commenced provisions on:
- progress payments
- subcontractors’ charges
- requirements relating to retention monies and security
Use of Project Bank Accounts (PBAs)
The Act includes the mandatory use of PBAs for certain construction projects. The plan was to gradually phase this regime over two years. In the first phase, all Queensland Government building projects with the value of between $1-$10 million will use the PBAs. This will be followed by a second phase where all construction projects above $1 million will use the PBAs. These projects include projects in the private, and government sectors.
The Act also implements key changes to the payment process, streamlining debt collection in the construction industry. Notably, the most significant change is the requirement for creditors to provide a payment schedule at all times. The requirements, as a consequence, help contractors anticipate cash flow problems.
In addition, the Act mandates the recipient of a payment claim to provide the payment schedule within 15 days from receipt of the claim. The date can be earlier if it is stated in the contract.
A payment schedule is a written response to a payment claim, which:
- identifies the invoice or payment claim that it’s responding to,
- tells a contractor the amount they’ll be paid, if any, and
- provides reasons why the amount may be less than the amount claimed.
The provision on payment schedule is meant to address the extended payment terms that have become industry practice in the world of construction and building. To improve your debt collection system, we advise you to include this provision in your contracts. For instance, adding a one-liner in your contacts can mean a big difference. As a consequence to non-compliance, the payment schedule requirement will merit a penalty of 100 penalty units.
Furthermore, the Act outlines processes for dispute resolutions and for dealing with phoenix corporations. Adjudication is a quick and low-cost way to resolve a payment dispute. The adjudication process was first established under the BCIPA. The new rules further streamline the processes.
Under these changes, the claimant doesn’t need to notify the other party that they intend to go to adjudication. Most importantly, there is no ability to issue an adjudication response if a matter goes to adjudication and no payment schedule was issued. Lastly, there is also no ability to raise new matters not provided for in the payment schedule.
As a consequence for not paying an adjudicated amount, a maximum penalty of 200 penalty units will be imposed. The debtor has a minimum of only only 5 business days to pay the adjudicated amount.
Subcontractors’ charges provide a way for unpaid subcontractors to secure a claim over monies owed to them. They can make a charge over money owed to the contractor that’s higher in the contractual chain (including other subcontractors).
The BIF Act:
- modernises and simplifies the subcontractors’ charges provisions
- introduces a maximum penalty of 20 units for a contractor who receives a subcontractors’ charge and doesn’t respond within 10 business days.
Defects liability period notice
The BIF Act makes changes to the QBCC Act concerning retention monies or security held under a building contract.
The BIF Act introduces:
- statutory default defects liability period of 12 months from the date of practical completion, if a contract doesn’t provide a defects liability period.
- penalties for not paying retention or security to a contractor (without a reasonable excuse) at the end of the defects liability period.
- requirement that the person withholding retention under a building contract must provide a notice (in an approved form) of the end of the defects liability period to the person they’re withholding retentions. This should be done from within 10 business days of the end of the DLP. The time could be just five business days under a higher subcontract. This requirement doesn’t apply to a contracting party who enters into a building contract as a principal.
2020 Proposed Amendments to BIF Act
Still, with the enactment of the BIF in 2017, there were snags in debt collection in the construction industry. As a result, further amendments were proposed early this year. These amendments include the following:
Project bank accounts
First, this regime will be replaced with ‘project trusts’, with some distinct differences to what is currently in place. Changes include the removal of the disputed funds’ account and new powers for the QBCC to audit and freeze project trusts. In the new rules, prescribed subcontracts and subcontracts with related entities may also require project trust.
Security of payment
Second, the Bill proposes to require a head contractor’s payment claims to be accompanied by a ‘supporting statement.’ This statement declares that subcontractors have been paid all amounts owed to them or explaining any shortfall. This provision is similar to the position in New South Wales.
Additionally, the Bill introduces more measures for claimants to enforce adjudication decisions. The new rules will also require claimants to make ‘payment withholding request’ on a higher-tier party. Claimants can likewise register a charge over the property where the claimant carried on the work. This can be done if the respondent (or a related entity) is also the owner.
Third, the Bill introduces a demerit point system for building certifiers, which can result in a building certifier being disqualified from holding a licence.
Executive liability offences
Fourth, the Bill introduces liability for executive officers for project trust offences by the company. The bill also contains an executive liability offence of failing to exercise due diligence to ensure that a company licensee complies with the QBCC’s minimum financial requirements.
Architects and engineers
Fifth, the Bill provides investigators carrying out investigations into conduct by architects or registered professional engineers with additional rights of entry, search powers and powers of seizure.
You can read an in-depth discussion by McCullough Robertson of the proposed amendments here. A copy of the Bill, which has been referred to the Parliament’s Transport and Public Works committee, is available here.
Improve Debt Collection With BIF Act
Updates and changes can be confusing to business owners. But these changes, if maximized, can help businesses in the construction industry maintain positive cash flow.
You can do this by:
- Familiarizing with the current legislation, including the timeline by which specific provisions will be rolled out.
- Implementing contract terms to improve debt recovery system.
- Going over your current processes and making adjustments to accommodate the new payment claim and adjudication scheme.
If you need a walk-through of how these regulations can help you efficiently recover debts within the construction industry, contact:
Garth Post, Head of Recoveries