2024: The FAR, Federal Acquisition Regulations, Part 32
Colin Harris and Mark Kenney
1. Presented by
Mark Kenney, Carter Newell
Colin Harris, HWL Ebsworth
Amendments to BCIPA: the First 10
months
2. – 2 –
Overview
Practical issues arising from amendments
Effect on adjudication volumes
Effect on the process and behaviours
Challenges to decisions – have things changed?
3. – 3 –
Background
On 15 December 2014, amendments to the Building and Construction
Industry Payments Act 2004 (Qld) (BCIPA) came into effect. The
amendments have had significant impact at three levels:
The parties (claimants and respondents)
Adjudicators
The Registry
4. – 4 –
Types of payment
claims
The 2014 amendments to the Act introduced a dichotomy between
Complex Payment Claims (i.e. claims for more than $750,000
exclusive of GST) and Standard Payment Claims (i.e. other claims).
Different timeframes and adjudication processes apply to those
different categories.
Parties should be mindful that the $750,000 threshold relates to the
total amount claimed in the payment claim and not to the amount
which is actually in dispute between the parties. For example, a
payment claim seeking $1,000,000 will always be a complex claim
(and attract the longer time frames prescribed by the Act),
notwithstanding that the respondent may well admit $900,000 of the
amount which is claimed.
5. – 5 –
Service
Time for serving payment claims
The 6 month deadline in sections 17A(2) and (3) was, prior to the
2014 amendments, 12 months.
Claimants should be mindful of the new time bar, particularly since
the transitional provisions previously provided for by section 117 of
the Act expired on 15 June 2015.
6. – 6 –
Payment Schedules
Consequences for non-delivery of a payment schedule have been
curtailed.
Claimants must now issue a second chance notice (s20A) before
being able to recover a progress claim as a debt for non-delivery of
a payment schedule or proceed to adjudication.
Claimants must carefully calculate the due date for payment in order
to comply with the 20 business day period in s20A(3)(a), which has
caused issues.
7. – 7 –
Reasons for
withholding payment
For Standard Payment Claims a respondent is still precluded from
relying on a reason for withholding payment in its adjudication response
which was not included in its payment schedule.
For Complex Payment Claims, a respondent is expressly entitled to
raise in an adjudication response any reasons for withholding payment
whatsoever, whether included in a payment schedule or not (s24(5)). A
respondent may now tactically elect whether to put “all its cards on the
table” early in the dispute process or not. However, potential
consequences of deciding not to do so include:
the right of the claimant to provide a reply to any new reasons raised in
the adjudication response under section 24B; and
the risk of being ordered to pay the adjudicator’s fees and expenses,
even if the respondent is ultimately successful (section 24(4)).
8. – 8 –
Adjudication
timeframes
Standard payment claims
Timeframe for filing an adjudication application is unchanged.
Time for delivery of the adjudication response is extended by a week - (10
business days instead of the previous 5 business days).
Complex payment claims
Now 15 business days to deliver the adjudication response, with the adjudicator
able to extend that period by up to a further 15 business days if a request is
made within later of:
5 business days of receiving the adjudication application; or
2 business days of the appointment of the adjudicator.
Prior to the 2014 amendments, many complained that the Act operated unfairly
in relation to large and complex disputes.
All up, a dispute can now take more than 5 months to resolve.
Extended Christmas Shutdown: the 3 week Christmas blackout further extends the
timeframes
9. – 9 –
Step Old Scheme
(business days)
Standard Payment
Claim (business
days)
Complex Payment Claim (business days)
Payment Schedule (from receiving the Payment
Claim)
10 10 15 –<90 days of reference date
30 – if >90 days of reference date
Adjudication Application (from receiving the
Payment Schedule)
10 10 10
Adjudication Response (from receiving the
Adjudication Application)
5 10 15
(the Adjudicator can extend time by up to a
further 15 business days)
Reply No reply No reply 15 business days
Claimant must advise the adjudicator within 5
business days of receiving the Adjudication
Response
(the Adjudicator can extend time by up to a
further 15 business days)
Adjudication Decision (from receiving the
Adjudication Response)
10
(Can be extended by
agreement of both
parties)
10
(Can be extended by
agreement of both
parties)
15
(Can be extended by agreement. If the
Adjudicator requests an extension and it is
refused, the Adjudicator can extend time by 5
business days)
Total time 35 40 55 – 120 business days, longer with
consent of both parties
10. – 10 –
Overview
In summary, the Act remains an essential tool for claimants to obtain
payment under construction contracts, particularly for amounts
under $750,000.
For larger claims however, the extended time frames, potentially
greater expense and the ultimately provisional nature of an award
under the Act must now all be considered by a claimant before
embarking on the adjudication process.
In some cases, a dispute may well be better suited to resolution by
arbitration or other dispute resolution mechanisms provided for by
the contract, or by litigation in the courts where a successful
claimant would be expected to also recover its costs of the process.
11. – 11 –
Adjudicators
Referral of applications to be conducted by the Adjudication Registry
instead of by Authorised Nominating Authorities
Adjudicator Grading and Referral Policy 2015
The Registry has graded adjudicators registered under BCIPA.
There are three grade categories:
Adjudicator (grade 1),
Advanced Adjudicator (grade 2)
Senior Adjudicator (grade 3).
The grade of adjudicators is determined by three criteria:
experience, qualifications and skill.
12. – 12 –
Adjudicator
Appointment
Suitable adjudicators to are shortlisted. If there is more than one
suitable adjudicator shortlisted, the Registrar has the discretion to
consider the last occasion that the adjudicators were referred an
application in order to fairly distribute the referral of applications.
The adjudicator is required to complete forms relating to conflict of
interest, rate agreement, delivery of application, and if applicable,
agent nomination in order to accept the referral.
13. – 13 –
Adjudicator
functions
Essentially unchanged (sections 25 and 26 BCIPA)
Note the key issue remains - the adjudicator must identify a
contractual basis of entitlement to payment that arose before the
relevant reference date:
BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd and
Ors [2012] QSC 346
BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd [2013]
QCA 394
14. – 14 –
Some new issues
for Adjudicators
Fees
s 35(5) now provides that if an adjudicator determines that they do
not have jurisdiction to hear the dispute, the adjudicator is still
entitled to be paid for their time to conclude that they have no
jurisdiction to adjudicate the application.
Previously adjudicators were not entitled to payment for concluding
that they did not have jurisdiction.
An adjudicator is also entitled to be paid fees and expenses where
the adjudication application is withdrawn.
15. – 15 –
Some new issues
for Adjudicators
Fees continued
An anomaly exists with respect to lodgement fees.
While the Adjudicator can determine which party pays their fees
BCIPA does not provide a power for the adjudicator to determine
who pays application fees.
This could be up to $5,000 on complex disputes.
16. – 16 –
Some new issues
for Adjudicators
In complex claim the respondent may include any (new) reasons for
withholding payment whether or not those reasons were included in
the payment schedule when served on the claimant (s24(5)).
Claimant may reply to new reasons for withholding payment: s24B.
However, the reply should be confined to addressing the new
reasons for withholding payment and should not be a reply at large.
Adjudicators will need to decide what in truth are new reasons for
withholding payment and what are the limits of a reply to those new
reasons.
17. – 17 –
Registry
QBCC has a dedicated Deputy Registrar and Adjudication Registry.
Responsible for training.
Appoints adjudicators. No further involvement until the decision is
made.
Decisions must be notified to the Registry and a copy of the decision
is published on the QBCC Website.
18. – 18 –
Lodgement
Applications can be lodged at the Registry over the counter at any
QBCC office, by mail, by fax and online.
To date approximately 55% online, 33% in person and the balance
by mail and fax.
For s111(2)(c)(i), an adjudication application must be lodged
between 8:00am and 5:00 pm on a business day. An application
lodged after 5:00 pm is taken to have been lodged on the following
business day.
19. – 19 –
Lodgement
The new process represents a substantial change to the earlier
practice where a number of ANAs would accept lodgement after
business hours by prior arrangement.
The practicalities associated with lodging a voluminous application
other than personally must be born in mind.
“in the door by 5.00pm” in practice.
Note the prescribed adjudication application coversheet and
payment of the Application Fee at lodgment.
20. – 20 –
Appointment and
Notification
QBCC appears to be mandating the use of Adjudicator Agents.
In practice, appointment of the adjudicator is notified by the
Adjudicator Agent. Initially this caused some confusion as some
ANAs rebranded themselves Adjudicator Agents.
Query whether this is consistent with the intention of projecting an
independent registry is now managing appointments.
21. – 21 –
Fees
Adjudicators are entitled to be paid an amount that is reasonable
having regard to the work done and expenses incurred by the
adjudicator.
The Registry developed a schedule of recommended fees, which
vary depending on the claim amount and how the adjudicator is
graded. The fees represent the upper scale of what may be
considered reasonable for an adjudicator to charge. The fees were
determined based on industry consultation and an analysis of fees
historically charged for adjudications.
22. – 22 –
Fees
For Payment Claims up to $25,000 there is a sliding scale of fixed
fees and thereafter a three tiered scale of hourly rates based on
grade.
The difficulty may be that a small claim can still be very complex but
the adjudicator is still limited to what represents only a few hours
work at hourly rates for a professional.
23. – 23 –
Effect on
adjudications
Of the first 422 applications made under the new scheme, 402 have
been standard claims and the remaining 20 have been complex
claims.
One factor may be the resurgence of arbitration for large claims.
25. – 25 –
Statistics to date
$0
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
Adjudication Amounts Claimed vs Awarded
Claimed - Adj
Awarded - Adj
QBCC Reports 2012-June 2015
26. – 26 –
Statistics to date
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
Percentage of Claim Awarded
% of Claim Awarded
QBCC Reports 2012-June 2015
27. – 27 –
Challenges to
decisions
Of the 151 decisions made and released to July 2015 the QBCC had
received notification that four decisions are being challenged in the
Supreme Court.
28. – 28 –
Amendments and
dispute resolution
strategy
Longer
More expensive?
Management of concurrent complex claims
Attractiveness of other dispute resolution options
Strategic decision to deliver a payment schedule? What reasons to
include?
29. – 29 –
Predictions
Delivery of payment schedules
Management of complex claims
Adoption by other jurisdictions?
Original Act 2004
These are the first major changes.
Followed consultation and report – Andrew Wallace
Although we are not addressing it today they also come in conjunction with a time of significant reform in the construction industry generally, with anew QBCC Act, recent harmonisation of WH&S laws and changes to the state and national codes of practice for the construction industries. With a seemingly revolving door in boith Federal and State politics at the moment we may not have seen the last of these changes either.
Address concerns:
ambush payment claims – particularly Major Contractors who felt they were targeted because they had deep pockets
Lack of time for respondents to respond to claims
Perceived bias towards claimants
Concern from the mining and resources sectors that they had been unfairly included
Results:
Balance tipped back towards respondents
Potentially longer, more expensive process
Substantial differences now to NSW / other states
Remains to be seen if the BCIPA remains as popular and we will look at some of the figures today.
ORIGINALLY, the amendments intended that complex claims could also include any claim even under $750,000 that involved LATENT CONDITIONS or ANY TIME RELATED CLAIMS
BUT NOT PROCEEDED WITH.
SO only criteria for complex claims is now the $750,000 monetary threshold.
IMPORTANT To Note that it is based on the amount of the claim, not the amount in dispute. SO EXAMPLE, claim for $1m, $900,000 admitted in payment schedule, balance claim for $100,000 will be a complex claim,
There has in our experience been some very calculated delivery of payment claims to take advantage of this distinction.
The two ways that I have seen are firstly reducing claims. This is done two ways. There is the process of claims splitting – including work only up to $750,000 in a given payment claim to ensure the shorter timeframes for assessment. Provided that the claim relates to work previously done and not previously adjudicated this can be done.
The second way is by simply discounting. I am aware of at least one instance where a variation was not pursued in order to keep the claim under $750,000. The rationale being that it is better to get a quick turnaround and result than hold on longer for marginally more money.
Another clever tactic is to issue a claim that is inclusive of GST and just over $750,000 but which of course is under the threshold when GST is excluded. Presumably the purpose is to have the respondent think it is a complex claim and therefore that they have a longer timeframe in which to respond and therefore miss the deadline and unwittingly lose rights to respond.
Payment Claims served prior to amendments – now run their course but these should all be done now.
The principal applies to both interim payment claims and the final payment claims. Slightly different in their application.
For interim payment claims
The later of:
The period set out in the construction contract; or
6 months after the construction work / related goods and services to which the claim relates were last carried out / supplied (previously 12 months)
For final payment claims (s 17A(3))
The later of:
The period specified under the construction contract;
28 days after the end of the last defects liability period; or
6 months after completion of the construction work / supply of related goods and services under the construction contract
Also:
Transitional – s117
Long stop deadline for payment claims:
For contracts entered into before the amendments
The 6 month deadline is extended to 12 months,
but only up until 17 June 2015.
SO, if the last work was done after 17 December 2014, the 6 month limit applies
OR, if the last work was done before 17 December 2014, then the time runs out on 17 June 2015 regardless.
This is an issue that warrants some discussion. AS was previously the case, the first issue for adjudicators to determine is whether or not there is standing to actually undertake the adjudication – has the application been made correctly. Non- compliance with clause 20A has cause over 20% of application to fail at this first hurdle.
We must remember that this applies only at the payment schedule stage (not adjudication response – for that a failure to provide a response within time is still critical).
This applies where either there is no payment schedule served or the respondent fails to pay the whole or any part of the claimed amount before the due date for the progress payment.
There then a number of further things to consider.
Before a claimant can commence proceedings to recover (essentially an application for a judgment debt) or apply for adjudication then the claimant must give a notice of the intention to do so. That is the easy part but even then this is not always complied with. Section 20A (3) specifies that the notice must specifically state that it is made under the act and state that the respondent may serve a payment schedule within 5 business days after receiving the notice. If these are not included it will not be a valid notice.
The notice must be given within 20 Business Days (there is the first Hurdle make sure it is business days not calendar days) immediately following the due date for payment. Now we have two further issues that people fall foul of.
Firstly it is 20 business days following the due date for payment. It is the period after the date for payment that is relevant, not the date that the payment claim was issued. You cannot give the notice before the date for payment arises. To do so is invalid.
Secondly you need to make a determination of the due date for payment. This is again a complex issue. The contract can specify a due date for payment and provided that it does not breach any statutory requirements then that will be the relevant date. However claimants must bare in mind that in Qld where it is building work, as defined under the QBCC Act then , then section 67W and 67U of that Act apply to set mandatory maximum payment periods – 15 Business days for payments to contractors and 25 business days for payments to Subcontractors. A provision that allows a longer period for payment will be void.
Where a payment provision that is void or the contract is silent then a default payment term applies as set out in section 15(1)(b) of BCIPA – whereby payment must be made within 10 business days after a payment claim.
So getting the due date for payment correct may not be a simple as first thought but it is fundamental to compliance with section 20A.
Lastly the claimant must actually allow the 5 business days for the respondent to provide a payment schedule, to have expired before it applies for the adjudication.
Unless each of these requirements is met then the payment claim for that reference date will not be enforceable under BCIPA and the claimant will need to wait for the next reference date.
This section also gives rise to an interesting tactical opportunity for respondents. In all claims, whether standard or complex a respondent can gain significant extra time in which to prepare a schedule simply by not putting in a schedule. This is a true second chance option.
For example if under a subcontract, there is a 25 business day period in which to make payment and the respondent does not issue a schedule within the 10 business days, then the subcontractor claimant must wait another 15 business days before issuing the section 20A notice, and then the respondent has a further 5 business days in which to respond. That is a minimum 4 extra weeks and if the respondent does not immediately issue after the due date for payment, but sometime within the next 20 Business days it could be even longer.
This is a legitimate use of the process within the act that can allow even standard claims, a significantly longer period in which to respond. Care will of course need to be taken as some contracts have deeming provisions where, if not payment certificate or schedule is issued in response to a payment claim, then the whole claim is deemed payable. Respondent will certainly want to avoid getting benefit under bthe act but losing it under the express terms of the contract.
Again tactical considerations are coming to light.
We have already talked about keeping claims under $750,000 and the benefits in the turnaround times that can outweigh proceeding with a bigger claim.
There are also some tactical issues for the respondent in the complex payment claims. The payment schedule is no longer the be all and end all. There is the opportunity to put additional issues on the table in the adjudication response.
From the perspective of a respondent this can allow essentially a complete denial of payment without justification, knowing that there is an opportunity to respond fully later. This does at least three things. Firstly it obviously keeps the element of surprise in favour of the respondent but it also allows the respondent more time to prepare its position. This could be an opportunity to get expert reports, statements and so on.
Lastly and perhaps most politically, by not paying there is more pressure on the applicant financially – this may give some leverage to a respondent if there are any negotiations on foot. The reality is that even while adjudication processes are underway there is nothing stopping the p[arties negotiating and if there is financial pressure available it can be used to win a more favourable deal.
Pursuant to section 35 of the BCIPA the adjudicator is entitled to be paid an amount that is reasonable having regard to the work done and expenses incurred by the adjudicator.
To provide guidance to adjudicators about what may constitute a ‘reasonable’ amount, the Registry has developed a schedule of recommended fees, which vary depending on the claim amount and how the adjudicator is graded. The fees represent the upper scale of what may be considered reasonable for an adjudicator to charge. The fees were determined based on industry consultation and an analysis of fees historically charged for adjudications.
For applications with a payment claim value up to $25,000 (ex. GST), the Registry recommends maximum reasonable fees predicated on the claim amount.
Claim Amount (ex GST)
Reasonable Fee Inc. Disbursements
If claim amount is $5,000 or less - $610
If claim amount is more than $5,000 but not more than $15,000 - $900
If claim amount is more than $15,000 but not more than $20,000 - $1800
If claim amount is more than $20,000 but not more than $25,000 - $2000
For applications with a payment claim value above $25,000 (ex. GST), the Registry recommends the maximum reasonable hourly rates predicated on the adjudicator’s grade.
Adjudicator Grade Reasonable Hourly Fee Inc. Disbursements
Adjudicator - Not more than $260
Advanced Adjudicator - Not more than $325
Senior Adjudicator - Not more than $385
Full details of the Registry’s schedule of recommended reasonable fees are contained in the Adjudicator Grading and Referral Policy 2015, which is available on the QBCC website.
This would on its face seem like vindication for the amendments.
However we must remember that, as noted earlier there have been a significant number of adjudications that failed through non-compliance with the requirements of section 20A of the Act.
This may be a teething issue, we are yet to see.
We are also yet to see if there will be more challenges with respect to complex claims as they start to draw to a conclusion. It is of course more likely that parties will challenge decisions when there is more money at stake.