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Improving Debt Collection in the Construction Industry With BIF Act 2017

Debt collection in the construction industry is fraught with problems due to delayed payment terms. The extended payments, which, unfortunately, have become industry practice, negatively impacts the cash flow of players in the industry. To address this, Queensland passed the Building and Construction Industry Payments Act (BCIPA) in 2004. Late 2017, the Parliament amended the BCIPA with the Building Industry Fairness (Security of Payment) Act 2017 because debt recovery problems persisted.

SBR Construction Industry Security Payment Act

Important Changes in BIF Act 2017

Essentially, the Act ensures that people working in the building and construction industry is paid for the work they do. 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 
  • adjudication 
  • subcontractors’ charges 
  • requirements relating to retention monies and security 

Use of Project Bank Accounts

The Act discusses the mandatory use of PBAs for certain construction projects. The plan was to gradually phase this regime over two years. The phase will start with all Queensland Government building projects with the value of between $1 million and $10 million using the PBAs. All construction projects above $1 million, including those by commercial, private, and government sectors will use the PBAs on the second year. 

Payment Schedule 

The Act implements key changes to the payment process, streamlining debt collection in the construction industry. The most significant change is the requirement for creditors to provide a payment schedule at all times. Knowing that the construction industry is plagued by extended payment terms, this requirement helps contractors anticipate cash flow problems. 

If the recipient of a payment claim does not intend to pay the amount in full by the due date, the creditor must provide a payment schedule. The creditor needs to provide a payment schedule for every payment claim unless the creditor will pay the full amount on the due date. 

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 
  • provides reasons why the amount may be less than the amount claimed. 

A payment schedule is a written response to a payment claim, which: 

  1. identifies the invoice or payment claim that it’s responding to 
  2. tells a contractor the amount they’ll be paid, if any 
  3. provides reasons why the amount may be less than the amount claimed.

The Act mandates the recipient of a payment claim to provide the payment schedule within 15 days from receipt of the claim or earlier if it is stated in the contract. This provision 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. Non-compliance to the payment schedule requirement merits a penalty of 100 penalty units. 

Adjudication

The Act also outlines processes for dispute resolutions and for dealing with phoenix corporations. Adjudication is a quick and low-cost way to resolve a payment dispute, first established under the BCIPA. The BIF Act streamlines the processes for adjudication. 

Under these changes: 

  • the claimant doesn’t need to notify the other party that they intend to go to adjudication 
  • there is no ability to: 
    • issue an adjudication response if a matter goes to adjudication and no payment schedule was issued 
    • raise new matters not provided for in the payment schedule 
  • there is a maximum penalty of 200 penalty units if an adjudicated amount isn’t paid within 5 business days or another time decided by the adjudicator. 

Subcontractors’ charges 

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:

  1. modernises and simplifies the subcontractors’ charges provisions 
  2. 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 from within 10 business days of the end of the DLP (or 5 business days under a higher subcontract), though this doesn’t apply to a contracting party who enters into a building contract as a principal. 

2020 Proposed Amendments to BIF Act 

Even with the enactment of the BIF 2017, there were snags in debt collection in the construction industry that further amendments were proposed early this year. These amendments include the following: 

Project bank accounts. 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. Prescribed subcontracts and subcontracts with related entities may also require project trust. 

Security of payment. The Bill proposes to require a head contractor’s payment claims to be accompanied by a ‘supporting statement’, declaring that subcontractors have been paid all amounts owed to them or explaining any shortfall, similar to the position in New South Wales. The Bill also introduces additional measures for claimants to enforce adjudication decisions through the making of a ‘payment withholding request’ on a higher-tier party or by registering a charge over the property on which the work was carried out if the respondent (or a related entity) is also the owner. 

Certification. 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. The Bill introduces liability for executive officers for project trust offences by the company and 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. The Bill also 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 

Since the Act outlines several updates and changes, it is crucial for business owners and other participants in this industry to understand what needs to be done to maximize the benefits provided by the Act to improve debt collection in the construction industry.  

You can do this by: 

  1. Becoming familiar with the current legislation, the BIF 2017, and the proposed 2020 amendments, including the timeline by which specific provisions will be rolled out. 
  2. Implementing contract terms to improve debt recovery system. 
  3. Going over your current processes and see if you need to make adjustments to accommodate the new payment claim and adjudication scheme. 

If you need help or a walk-through of how these regulations can help you efficiently recover debts within the construction industry, contact Slater Byrne Recoveries at 1300 794 290 and [email protected] 

Photo by Josue Isai Ramos Figueroa on Unsplash