October 23, 2023
The Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) seeks to protect building and construction by ensuring contractors get paid in full, on time and every time. However, to be afforded these protections contractors must ensure they are actively complying with its requirements.
If contractors are thinking of cutting corners in preparing their payment claims in an effort to save time and money – think again. To avoid the risk of not getting paid or lodging an adjudication application only for it to be invalid on jurisdictional grounds, contractors must ensure they are serving valid payment claims by satisfying the three-test requirement under the BIF Act.
Requirements under the BIF Act
Section 68(1) of the BIF Act provides:
“A “payment claim”, for a progress payment, is a written document that –
- Identifies the construction work or relates goods and services to which the progress payment relates; and
- States the amount (the “claimed amount”) of the progress payment that the claimant claims is payable by the respondent; and
- Requests payment of the claimed amount; and
- Includes the other information prescribed by regulation.”
Identifying the construction work
The Supreme Court of Queensland decision in KDV Sport Pty Ltd v Muggeridge Constructions Pty Ltd[1] provides guidance on the first limb and key requirement of a payment claim – what is needed to sufficiently ‘identify the construction work’.
Muggeridge Constructions Pty Ltd (Muggeridge) served a payment claim on KDV Sport Pty Ltd (KDV) for $2.36 million in relation to the construction of student accommodation. The payment claim:
- Was one page in length and comprised of six (6) columns;
- Referenced a “Trade Breakdown Schedule” describing the categories of work completed (however provided no particulars of the works completed within each trade breakdown);
- Provided a “total claim to date” column identifying percentages of each category of work alleged to be completed;
- Claimed payment for variation claims that Muggeridge had not submitted or described; and
- Was not supplemented by any supporting documentation.
KDV responded to Muggeridge contending the validity of the purported payment claim and certifying $nil in its payment schedule. Subsequently, Muggeridge applied for adjudication under the Building and Construction Industry Payments Act 2004 (Qld) (BCIPA) (now the BIF Act) and was awarded $802,198.59 by the adjudicator.
KDV applied to the Supreme Court to set aside the adjudicators decision, asserting that the payment claim was invalid because it did not sufficiently identify the construction work to which it related pursuant to s 17(2) of the BCIPA (now s 68(1) of the BIF Act).
In the Supreme Court, Brown J held that the test for determining whether a payment claim sufficiently identifies construction work is an objective one from the perspective of a reasonable person in the recipient’s position, however, does not need to be limited to only the content of the payment claim and contract. Brown J at [15] stated:
The assessment is not made only by reference to the terms of the claim itself. As White J commented in Neumann Contractors Pty Ltd v Peet Beachton Syndicate Ltd, ‘[t]he evaluation of the sufficiency of the identification takes into account the background knowledge of each of the parties derived from their past dealings and exchanges of documentation’[2]
…
The focus must remain on the objective circumstances, not on the subjective intentions of the parties, although it is not wrong to examine the issue from the vantage point of the parties to the particular contract.
Therefore, consideration can be given to the correspondence between the parties around the time of the payment claim, previous payment claims and schedules and anything which contains objective facts known to both parties which may rationally inform the understanding of the payment claim.
Notwithstanding the above, Brown J found in favour of KDV finding that the payment claim was invalid as it was not comprehensible to a reasonable principal, because:
- It did not contain enough information for parties with background knowledge of the Trade Breakdown Schedule to identify the actual work, understand the claim and respond;
- A reference to a completed percentage of a category of work alone does not sufficiently identify the actual work to which the claim relates;
- The percentage issue was compounded by the recipient’s (and the Court’s) inability to reconcile various amounts of work claimed and costs thereof; and
- Muggeridge’s variation claims were not submitted or supported with further information nor was the work relating to the variation described.
As a result, the adjudication decision was set aside as the payment claim did not sufficiently identify the construction work.
This decision has been recently followed in Denbrook Constructions Pty Ltd v CBO Developments Pty Ltd[3], where the Queensland District Court dismissed an application to recover an unpaid amount finding the payment claim invalid because it failed to sufficiently identify which works or related goods and services it was claiming payment for.
What to consider when preparing a payment claim?
While the validity of every payment claim is based on its own facts, to ensure a payment claim is compliant with s 68(1) of the BIF Act, contractors should review and consider whether the payment claim:
- Describes the actual work competed (including variation work an annex any supporting information);
- Distinguishes between labour and materials costs;
- Describes when the work was said to be carried out;
- Describes the basis on which amounts are claimed (i.e., % of contract performed, schedule of rates/ lump sum etc.);
- Describes where the work is said to have been carried out (i.e., name of site/project, if units/apartments identify the floor level or apartment number etc); and
- If possible, support the claim with evidence of the amount due (i.e., breakdowns of variation costs, quotes, third party invoices and photographs).
Lamont Project and Construction Lawyers
Failing to properly prepare a payment claim or adequately describe the work complete can have significant consequences. When submitting payment claims for significant progress payments or where a dispute is anticipated such that an adjudication is likely to follow, parties should seek legal advice to assist in the preparation of such claims and ensure they are complying with the requirements of the BIF Act.
Our team have extensive experience in the security of payment legislation to assist both principals and contractors in all major projects and payment disputes.
The contents of this article is for information purposes only; it does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.
Contact: Peter Lamont or Stephanie Purser
Email: [email protected] or [email protected]
Phone: (07) 3248 8500
Address: Suite 1, Level 1, 349 Coronation Drive, Milton Qld 4064
Postal Address: PO Box 1133, Milton Qld 4064
[1] (2019) QSC 178.
[2] [2011] 1 Qd R 17 at [25].
[3] [2022] QDC 184.