Nobody went to primary school careers day saying “when I grow up I want to administer paperwork in a timely fashion”.
That said, it’s part and parcel of any construction project, large or small.
And as we’re about to explain, possibly the worst thing you can do from here on in is put a payment claim to one side to be “dealt with later”.
Common Practice As it Was
Let’s say you get a payment claim served on you (bearing in mind that it no longer requires an endorsement – so perhaps it’s an email from your sub-contractor saying “we’ve completed stage 3 please attend to payment”).
What should you do?
Well, in previous years you might have done nothing. Perhaps you send it to your accounts team, or sit on it for a while because you know that:
- there are some issues to sort out with the subcontractor; and
- if they are going to start proceeding s to recover the unpaid portion of the claimed amount or apply for adjudication of the payment claim then they need to send you a “second chance” notice first, to allow you a further opportunity to give a payment schedule.
As of December 2018, the requirement to send a second chance notice has been abolished. Which means… no reminder from your claimant.
As a result, no matter what, you should ensure that any payment claim which is not paid in full is properly responded to, to avoid potential court proceedings or an adjudication down the track.
But even more significant than the abolition of the second chance notice are the consequences of failing to deliver a payment schedule in response to a payment claim if the payment claim is not paid in full on or before the due date for payment.
What Used to Happen
In past years, if you got busy and forgot to submit a payment schedule a few things were going to happen.
At the least, you’d get a second chance notice from the claimant. This won’t happen anymore.
It is still the case under the new legislation that if you fail to give a payment schedule and fail to pay the claimed amount by the due date for payment, the whole claimed amount may be recovered by the claimant as a debt in court. In that proceeding, the respondent cannot raise any counterclaim or raise any defence in relation to matters arising under the contract.
Alternatively the claimant can apply for adjudication of the payment claim.
The consequences of failing to put in a payment schedule were always pretty bad, but now they are… really bad.
It’s an Offence
First up, failing to provide a payment schedule in response to a payment claim is an offence if the payment claim is not paid in full on or before the due date for payment.
That means you could be prosecuted and fined up to 100 penalty units ($13,055 for individuals, and $65,275 for corporations) just because your diary system wasn’t up to date.
Beyond the chance for prosecution, the BIF amendments also point out that failing to submit a payment schedule and failing to pay the payment claim in full on or before the due date for payment can also result in disciplinary action against you.
An investigation and possible disciplinary action is usually the last thing any construction company wants to be dealing with, especially if it’s fairly easily avoided.
No New Reasons in Any Adjudication Response
Previously, if a payment schedule was given on time, a respondent could include new reasons for withholding payment in an adjudication response if the claim was a “complex payment claim” (ie. over $750,000).
Now, you cannot raise in an adjudication response anything that has not been raised in a payment schedule earlier, regardless of the size of the payment claim. So if you’re hoping to rush through a skinny payment schedule and then deal with it properly later, that’s probably not going to work. Any grounds that you want to rely on have to be included in a payment schedule.
So if you don’t submit a schedule the only thing standing between you and a judgment debt is whether an adjudicator, without any input from you, decides that a claimant’s claim is valid.
What you Need to Do
First – treat every request for payment as a payment claim. Have a system to get the ball immediately rolling in response to any communication that seeks payment of a contract sum or any part of it.
Second – diarise your response dates so you don’t miss them. You won’t get a second chance notice from the claimant if you fail to give a payment schedule on time.
Third – if your payment schedule is going to assert that the claimant is entitled to less than their full claim, then you must include all reasons that you might want to rely upon.
Generally speaking, the risks of not responding to a payment claim with a payment schedule (unless you’re paying it in full by the due date for payment) now far outweigh the potential administrative cost savings.
If you need help setting up your systems for dealing with the new BIF procedures, don’t hesitate to get in touch.