Payment disputes start and end with the terms of the relevant construction contract. Construction contracts are commonly drafted to accommodate and manage payment disputes. Payment clauses should be drafted to align with security of payment legislation, that is, timing for issue of responses to payment claims and due dates for payment.
This ensures contractual mechanisms for the issue of payment claims and payment schedules are consistent, irrespective of whether a payment claim for work performed is pursued contractually or under security of payment legislation, which provides certainty for the contracting parties when preparing and responding to payment claims.
The mechanics of issuing claims for payment for work performed are typically set out in the payment clause of the construction contract. As to when payment claims can be made, reference dates (or claim dates) stated in the construction contract establish a claimants’ entitlement to claim payment for work performed.
To assist claimants maintaining cashflow on a project, claimants generally bargain for more frequent contractual reference dates, allowing more frequent submission of claims for payment (eg. weekly, fortnightly). To the extent no reference or claim dates are stated in a construction contract, security of payment legislation provides as a default, an entitlement to monthly payment claims for work performed under the contract.
As to what work can be claimed in a payment claim, the construction contract may stipulate that all work performed up to the reference date (or some other date) may be claimed. Again, contractual payment terms are often aligned with security of payment legislation, so that a payment claim can only validly claim payment for work performed up to the relevant reference date or claim date and not after. For the purposes of security of payment legislation, any work claimed in a payment claim after a reference date (and before the next reference date arises) is not validly claimed.
Security of payment legislation does the same and requires that the payment claim includes a description of the work claimed with a degree of particularisation. A reasonable attempt to specify the work claimed is usually sufficient. Payment claims that fail to provide sufficient particulars of the work claimed are invalid for the purposes of security of payment legislation.
By way of example, the KDV Sport principle (arising from a Qld Supreme Court decision in 2019) applies to payment claims identifying work performed by reference to % complete for trade or work items. The principle established that merely describing progressive % complete of a trade list or list of claim items is insufficient to particularise the work claimed.
It is a requirement of a valid payment claim under the security of payment legislation (BIF Act in Qld), that details of the further work undertaken for each claim or trade item since the previous payment claim are outlined in a subsequent payment claim in addition to the estimation of % complete.
For example, if 50% of a trade item was claimed in the previous month and 70% is claimed for that same trade item in the subsequent month, sufficient particulars of the nature and extent of the work performed that comprises the additional 20% for that trade item is required to be specified in the subsequent payment claim, so that the recipient of the payment claim can properly understand and assess the work claimed.
How a payment claim is issued by a claimant and who is capable of receiving it are important considerations often addressed by the terms of the construction contract.
Claimants need to be aware of these contractual obligations and where no person is specified in the construction contract for the purposes of security of payment legislation, be guided by the legislation itself.
The mechanics of responding to payment claims are also typically set out in the payment clause of the construction contract. The timing of responses (i.e. payment certificates or payment schedules) stipulated by the construction contract are critical.
If the timing of responses in the payment clause of the contract has not been aligned with security of payment legislation, it is particularly important for respondents to be aware of the contractual timing and whether it is less, or exceeds, the time stipulated for payment schedules in security of payment legislation.
If the response time permitted by the contract for issue of a payment schedule exceeds that under the legislation, then the response time provided by security of payment legislation applies. In Qld, that is 15 business days from receipt of the payment claim.
Alternatively, if the construction contract specifies a time period less than 15 business days from receipt of the payment claim, the time period under the construction contract will apply for issue of a payment schedule. Because of this, respondents need to be acutely aware of the response time stated in the construction contract.
The content of payment certificates or payment schedules are also very important. For the purposes of security of payment legislation, where any claim amount in a payment claim is disputed, full reasons must be given in the payment schedule as to why that amount is withheld from payment. The payment schedule must also respond to each claim item in the payment claim. Reasons given in a payment schedule can include matters that the payment claim itself is invalid because a reference date is not available or that the work is not sufficiently particularised.
In the security of payment legislation context, these issues are often referred to as ‘jurisdictional matters’ (i.e. they go to the validity of the payment claim itself and the jurisdiction of an adjudicator to assess the value of that payment claim) although as a matter of law, despite they are not strictly ‘reasons for withholding payment’, they are matters that should be included in a payment schedule in response to a payment claim to properly identify all matters in dispute.
Like payment claims, how a payment schedule is issued and who is capable of receiving it are important considerations often addressed by the terms of the construction contract. Contracts typically specify which persons are authorised to issue payment schedules (superintendents) and accept payment schedules (contractor representative), including for the purposes of security of payment legislation. Respondents need to be aware of these contractual obligations and where no person is specified in the construction contract for the purposes of security of payment legislation, be guided by the legislation itself.
Respondents also need to be aware of the effective due date for payment of a payment claim. In Qld there are limitations on the time periods for payment regulated by the QBCC Act, that is no more than 15 business days from receipt of payment claims for head contracts and no more than 25 business days from receipt of payment claims for subcontracts.
If contractual due dates for payment exceed these limits, the default time period of 10 business days stipulated by the BIF Act will apply, which may mean that (depending on the time for issue of the payment schedule stated in the construction contract) the due date for payment may fall in advance of the time for issue of the payment schedule.
Troy Legal are specialist construction lawyers in Brisbane with extensive experience in resolving payment disputes. Contact us today for advice.
