You have served, or been served, with a payment claim – so what’s next?
The next step in the adjudication process is the respondent either:
- paying the claimed amount in the payment claim in full; or
- serving a payment schedule.
This article provides practical tips on the assessment and preparation of payment schedules. An explanation of payment claims can be found here. The consequences of not serving a payment schedule will be covered in a future article.
What is a payment schedule?
A payment schedule is the respondent’s (principal/head contractor) response to a payment claim served by a claimant (head contractor/subcontractor), which usually disputes the claimant’s entitlement to payment for the works claimed.
A payment schedule assesses the amount owing for each work item claimed. It then “schedules” an amount (if any) to be paid to the claimant. This step in the adjudication process defines the dispute between the parties by setting out what amounts claimed are in dispute and why.
As set out below, payment schedules must comply with the timing and form requirements under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) .
Under section 76 of the Act, a respondent must respond to the payment claim by giving the claimant a payment schedule within the earliest of:
- the period, if any, within which the respondent must give the payment schedule under the construction contract; or
- 15 business days after the payment claim was given to the respondent.
Courts have held that a contract must have clear language for a contractual provision to override the default timeframe of 15 business days. However, there are usually rights for a contractor to also pursue a principal for a failure to issue a payment schedule and pay amounts by the due date under the contract.
Under section 69 of the Act, a payment schedule is a written document that:
- identifies the payment claim to which it responds;
- states the amount of the payment, if any, that the respondent proposes to make; and
- if the amount proposed to be paid is less than the amount stated in the payment claim—states why the amount proposed to be paid is less, including the respondent’s reasons for withholding any payment.
Generally, there is a bit of leeway when satisfying the above requirements due to the significant consequences of failing to serve a valid payment schedule. That said, there are common pitfalls that respondents can fall into, which can substantially benefit claimants.
We set out some tips below on complying with and assessing the jurisdictional requirements of payment schedules.
1. Identify the payment claim to which it responds
When identifying payment claims:
- the payment schedule should state the date the payment claim was issued, the number of the payment claim (if any) and the amount claimed in the payment claim; and
- respondents must issue individual payment schedules for each payment claim. So, if there are multiple payment claims such as one from an end of month reference date and one from the practical completion reference date then two payment schedules are needed.
For example, a payment schedule may include a covering statement that says “We refer to Payment Claim No. 22 issued on 17 April 2022 claiming the amount of $1,200,000 (ex GST)”.
2. State the amount proposed to be paid
If payment schedules do not schedule the correct amount this can prejudice parties’ positions in adjudication. To correctly and clearly state the amount of payment:
- schedule an amount next to each individual work item from the payment claim;
- have a total to be paid that reconciles each line item;
- if the amount to be paid is being reduced by other contractual claims (eg liquidated damages) that do not align specifically with a work item, add these underneath as their own line items; and
- generally, liquidated damages should not include any GST.
A template payment schedule provided by the Queensland Building and Construction Commission can be found here. This sets out the general reconciliation of different work items.
3. State reasons for non-payment
The requirement to state reasons is the one that gets the most attention, because a respondent will not be able to rely on any new reasons in an adjudication if the reasons are not stated in the payment schedule. To meet this requirement appropriately:
- include all previous assessments or correspondence relating to the disputed items;
- include jurisdictional reasons regarding the validity of the payment claim;
- state all contract clauses relied on for non-payment; and
- include any set-offs, such as for defect works or liquidated damages.
In relation to the inclusion of jurisdictional reasons in payment schedules ((2) above), recent case law suggests that jurisdictional reasons cannot for the first time be raised in an adjudication response and should be raised in the payment schedule.
Accordingly, if you consider that there are issues with the validity of a payment claim (e.g. it fails to identify the works claimed or claims for works under 2 contracts), you should raise these issues in the payment schedule.
Otherwise, you may be prevented from relying on these arguments in any adjudication response.
What would the Empire Do?
The consequences of failing to provide reasons is best illustrated in the following Star Wars hypothetical:
- after the rebel alliance destroyed the first death star, Death Star Constructions Pty Ltd was engaged to create the new and improved Death Star II for the Empire;
- during construction, the Empire directed Death Star Constructions Pty Ltd to develop and implement a new design that made the reactor less vulnerable to rebel forces;
- Death Star Constructions Pty Ltd completed the additional works. However, Death Star Constructions Pty Ltd failed to comply with the harsh time bars under the death star contract;
- Death Star Constructions Pty Ltd submitted a payment claim, including claiming 500,000 credits for the additional works in relation to the reactor;
- the Empire served a payment schedule, which scheduled 0.00 against the additional reactor works claimed but failed to include any reasons for non-payment;
- Death Star Constructions Pty Ltd submitted an adjudication application for the outstanding amounts;
- the Empire attempted to submit an adjudication response, which included reasons in relation to the additional reactor works being time-barred; and
- the adjudicator awarded 500,000 credits to Death Star Constructions Pty Ltd, including because the adjudicator was not able to consider the new reasons (i.e. reliance on time bars) which were not included in the payment schedule.
Payment schedules are a pivotal step in the adjudication process, which allow the parties to understand what is in dispute and make informed decisions about whether to proceed to adjudication.
A failure to issue a payment schedule, or issuing one incorrectly, can seriously damage your rights as a respondent to a payment claim.
These impacts will be further covered in a future article.