New Ways to Ensure Claimants Get Paid in Construction

Security of Payment

As of 1 October, important changes to the enforcement mechanisms for payment claims have come into play. We’ll summarise the new ways for claimants to collect outstanding monies below.

The Building Industry Fairness (Security of Payment) and Other Legislation Amendment Act 2020 brought various amendments to building legislation in Queensland, including the Building Industry Fairness (Security of Payment) 2017 Act (Qld) (BIF Act) and the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act).

The main changes introduce new enforcement mechanisms for adjudicated amounts and the requirement for supporting statements when issuing payment claims.

New enforcement mechanisms for claimants

The amendments introduce the new concept of “payment withholding request” (PWR).

A PWR enables claimants who have been awarded an adjudicated amount, to require the retention of funds which are payable from a higher party to the Respondent.

So, subcontractors who have been awarded an adjudicated amount can issue a PWR to a Principal under a head contract for the retention of fees payable to the head contractor.

Similarly, head contractors can issue a PWR to a financer of a principal when an adjudicated amount is awarded under a head contract. The Principal or the financer is obliged to retain the amount requested from any amounts otherwise payable to the head contractor or the principal. The request then operates as a charge over the retained money, until the claimant is paid by the respondent or the adjudication decision is set aside.

If this sounds familiar, it’s because it’s very similar to the subcontractors’ charge process. However, a key benefit to this new provisions is that PWRs can be registered on the Personal Property Securities Register and charges can now be issued to financers under head contracts

PWRs will give more utility to the “pay now argue later” scheme which the BIF Act seeks to implement, effectively increasing the tools of recovery in a claimant’s toolbox to ensure that time and money spent at adjudication is not wasted.

Practical Example

Let’s say Residential Builder Pty Ltd (the Head Contractor) is refusing to pay Frameco Pty Ltd (the Subcontractor) even though Frameco has been successful at adjudication. Frameco may be able to issue a PWR to Residential Builder’s principal, WeDevelop Pty Ltd. WeDevelop would then be required to retain monies payable to Residential Builder. The PWR will operate as a charge over those monies and may well allow Buildco to be paid more quickly than other methods of enforcement.  If Frameco was the head contractor, then Frameco would instead have the option of issuing the PWR to the project financier.

More Power for Head Contractors

If a head contractor is awarded an adjudicated sum, then obviously the charging process described above won’t have any function because there is no upstream principal to provide the security.

So to protect head contractors who have been awarded adjudication sums, a new power has been introduced. Specifically, head contractors will now have the ability to establish a charge over the “relevant property” of a principal or a related entity, where an adjudicated amount remains unsatisfied after filing an adjudication certificate in court as a judgment debt.

“Relevant property” is, effectively, the land on which the works took place.

If this criteria is satisfied, head contractors will be able to lodge a charge with the Titles Office as a security for the adjudicated amount.

If the adjudication sum remains unpaid, the head contractor might then be able to apply to court for the sale of the land. However, claimants must give registered owners notice of the intention to enforce the charge prior to making an application seeking that the property be sold.

This is a particularly powerful tool both from a collection standpoint and a leverage standpoint. Almost no principal will be comfortable with these steps given the dramatic flow on effects with their financier and overall project costs.

Practical example

Let’s say Residential Developer Pty Ltd (the Developer) owns a lot which it intends to develop into a residential apartment block. The Developer engages Buildco Pty Ltd (the Builder) to build the apartment block. After completion of the apartment block due to a failed feasibility of the project the Developer holds off from paying the Builder even though the Builder has been successful at adjudication. In this situation Buildco may be able to establish a charge over the property with the ability to apply to court for sale of the property if the payment remains unpaid.

Supporting Statements where there is a subcontract

The amendments also offer increased protections to ensure that subcontractors are paid by head contractors.

If there is a subcontract in place with a head contractor, the head contractor will be required to accompany its own payment claims with a “supporting statement”.

A supporting statement for a payment claim requires a declaration that all subcontractors have been paid by the claimant at the date of the payment claim. The statement must include details of all subcontractors that have not been paid and the reasons why they have not been paid. However, while penalties may apply, failure to provide a supporting statement will not invalidate the payment claim.

QBCC amendments

Finally, there are new amendments to the QBCC Act, which seek to enhance enforcement measures available to the QBCC.

The purpose of these amendments is to ensure transparency between regulators. For example, the QBCC may suspend or cancel a licence if the licensee holds or has held an interstate or New Zealand licence and the commission is satisfied the interstate or New Zealand licence has been suspended or cancelled.

Putting It Into Practice

As a principal, head contractor or subcontractor you should be aware of both the additional collection mechanisms and the additional burdens under the new amendments.

If you need help resisting or bringing enforcement action, or understanding how these changes apply to you, get in touch with us and we’d be happy to help.

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