Security of payment – Qld

Progress payments

Understanding the definition of construction work and related goods and services is the single most important element in determining whether Chapter 3 of the Act applies to the contract. Both of these terms are broadly defined under the Act and apply to a number of categories.

Chapter 3 of the Act entitles a person who has carried out construction work or supplied related goods and services to make progress claims and establishes a procedure that:

• requires the person who is or may be liable to make payment to provide a payment schedule in response
• allows a claimant to recover any unpaid amount owed to it (being an amount certified in a payment schedule or an amount claimed where no payment schedule) as a debt owing to it in a court of competent jurisdiction or through adjudication, and
• allows a claimant to refer a disputed progress claim to an independent adjudicator.

The Act does not apply to:

• a construction contract that forms part of a loan agreement, a guarantee or an insurance contract
• a construction contract for the carrying out of domestic building work on such part of a premises in which the owner resides or intends to reside and where the resident owner is a party to the contract, or
• a construction contract where payment is to be calculated otherwise than by reference to the value of the work carried out.

Legal advice

This note provides an overview of Chapter 3 of the Act and is not a substitute for legal advice. Legal advice may be required because:

• the time limits involved for compliance are tight
• the procedures are complex and certain formalities must be observed, and
• developing case law will progressively clarify some uncertainties in the legislation and uncover others.

How is the Act invoked?

The Act is invoked by a person who has carried out construction work or supplied related goods and services making a 'payment claim' on the person who is or may be liable to make payment.

The claimant can make a payment claim from each 'reference date', being:

• a date in the relevant contract, or
• the last day of each month in which construction work is carried out or related goods and services are supplied

up until the period worked out under the contract (if any) or within six months of the construction work (or related goods and services) being done, whichever is the latest.

A payment claim must:

• identify the construction work or related goods or services to which the claim relates
• state the amount of the payment sought
• request payment of the claimed amount (an invoice is satisfactory), and
• include any other information prescribed by regulation (if any).

The claim must be accompanied by a ‘supporting statement’ that declares that all subcontractors have been paid (although a failure to provide a supporting statement does not affect the validity of a payment claim).

How must a respondent respond to a payment claim?

After receiving a payment claim, a respondent has the time set out in the contract, or 15 business days, whichever is sooner, to give the claimant a payment schedule, which:

• identifies the relevant payment claim
• states the amount that the respondent will pay (if any)
• if the amount proposed to be paid is less than the amount stated in the payment claim, state why the amount proposed to be paid is less, including the respondent’s reasons for withholding any payment, and
• include any other information prescribed by regulation (if any).

The person who is or may be liable to make payment is responsible for serving a payment schedule on the claimant under the Act. However, the relevant contract may state that a payment schedule issued by an independent certifier, superintendent or architect is a payment schedule issued by the respondent for the purpose of the Act.

If the respondent does not give the payment schedule to the claimant within time, the Act imposes significant penalties on the respondent, discussed below under the heading 'Consequences of failure to follow the procedure'.

The respondent cannot rely on a pay-when-paid provision in a contract.

Date for payment

The due date for a progress payment is:

• according to the time period set out in the contract (except if it is a pay-when-paid provision or contravenes the Queensland Building and Construction Commission Act 1991 (Qld)), or
• if the contract does not make provision for it, within 10 business days after a payment claim is made.

The respondent is liable to pay interest on late payments. The rate payable is the higher of:

• the rate set out in the contract, or
• the rate prescribed under section 59(3) of the Civil Proceedings Act 2011 (Qld) for a money order debt.

Consequences of failure to follow the procedure

If the respondent does not give a payment schedule in time (being the shorter of 15 business days or the time period under the contract), the respondent becomes liable to pay the entire claimed amount.

If the respondent does not pay by the due date for a progress payment:

• the whole amount of the payment claim where the respondent has failed to give a payment schedule within the required time, or
• the amount scheduled by the respondent where the respondent has given a payment schedule in time

the claimant can:

• suspend the work (two business days after serving a notice of intention to suspend work), and
• either:
  • bring a court action to recover the unpaid amount as a debt due to the claimant (and the court cannot consider whether the claim or the amount of the claim was justified or take into account any set off or counterclaim or other defences otherwise available to the respondent under the contract), or
  • apply for adjudication.

Adjudication of disputes

Under Chapter 3 of the Act, adjudication is the process for the resolution of a dispute relating to the payment of a claim.

A claimant can apply to have a payment claim adjudicated where the respondent:

1. does not provide a payment schedule and does not pay the full amount within the required time
2. provides a payment schedule but not for the full amount of the payment claim, or
3. having given a payment schedule stating it intends to pay, then does not pay the amount on the payment schedule within the required time.

Corresponding with the above numbering, the claimant's adjudication application has to be made within the following times:

1. if the respondent does not provide a payment schedule and does not pay the full amount, within 30 business days after the later of the following:
   • the last day of the due date for the progress payment, and
   • the last day that the respondent could have given a payment schedule
2.  if the payment schedule is for a lesser amount than the payment claim, within 30 business days after receiving the schedule, and
3. if the respondent does not pay the scheduled amount within time, within 20 business days after the due date for payment.

The adjudication application must:

• be in the approved form
• identify the payment claim and payment schedule (if any) to which the application relates
• be accompanied by the fee prescribed by regulation for the application
• include any submissions relevant to the application (if the claimant chooses), and
• be served onto the respondent within four business days.

When the claimant applies for adjudication, the claimant will apply directly to registrar of the Queensland Building and Construction Commission (QBCC). If the application is valid, the registrar, will then refer the adjudication application on to an adjudicator within four business days. The adjudicator must accept or reject the referral within four business days after receiving the referral (unless they have a reasonable excuse).

The parties may be equally liable (or the adjudicator may determine that either party is solely liable) for any fees incurred by the parties in having an adjudicator appointed and the adjudicator's costs per hour.

Response to adjudication

Once an adjudicator has been appointed, the respondent may give the adjudicator and the claimant an adjudication response in writing to the claimant's application (the response). Where the payment claim is for an amount of less than $750,000 (ie a 'standard' payment claim), the response must be submitted within the later of:

• 10 business days after receiving a copy of the application, and
• seven business days after the adjudicator gives notice that it accepts the application.

Where a payment claim is for an amount more than $750,000 (ie a 'complex' payment claim'), the response must be submitted within the later of:

• 15 business days after receiving a copy of the application, and
• 12 business days after the adjudicator gives notice that it accepts the application.

Where responding to a complex payment claim, the respondent may also apply for an extension of time for up to 15 additional business days.

The response:

• must be in writing
• must identify the adjudication application to which it relates, and
• may include submissions about the reasons why the respondent says all or part of the payment claim is not payable.

However, the respondent can only submit a response to the adjudication application when the respondent has submitted a payment schedule to the claimant within time. Further, the adjudication response cannot include any reasons for withholding payment unless they were included in the payment schedule provided.

Adjudicator's decision

The adjudicator has to make a decision as soon as possible but cannot make a decision before the end of the period that the respondent may give an adjudication response, unless the adjudicator determines they do not have jurisdiction to adjudicate the application, or the application is frivolous or vexatious.

The adjudicator must decide an adjudication application:

• for a standard payment claim, within 10 business days after the response date (being the date that the adjudicator receives or should have received a response), or
• for a complex payment claim, within 15 business days after the response date, or
• within such further time as the parties may agree.

Before making the decision, the adjudicator can ask the parties for further written submissions, call a conference of the parties (without lawyers being present unless the adjudicator agrees) or inspect the site.

In making a decision, the adjudicator can only consider:

• the provisions of Chapter 3 of the Act and Part 4A of the Queensland Building and Construction Commission Act 1991 (Qld)
• the provisions of the relevant construction contract
• the payment claim and all submissions and documents properly made by the claimant in support of the claim
• the payment schedule and all submissions and documents properly made by the respondent in support of the claim, and
• the results of any inspection of the site.

The adjudicator must decide the amount of the progress payment to be paid (if any), the due date for payment and the rate of interest payable on the claim. The adjudicator's decision has to be in writing and include reasons.

Consequences of the adjudicator's decision

The respondent has to pay the claimant any adjudicated amount within five business days after the respondent receives the adjudicator's decision or by such other date that the adjudicator decides.

If the respondent fails to pay the adjudicated amount in time:

• the claimant can serve notice of the claimant's intention to suspend the works
• the respondent may be liable for a maximum penalty of 200 penalty units
• the claimant can apply to enforce the adjudication certificate provided by the QBCC following the adjudication decision in a court as a judgment debt (and the respondent is prevented from taking a number of actions resisting the judgment debt, such as bringing cross-claims against the claimant or raising defences arising under the construction contract)
• the claimant can register a charge over relevant property, and/or
• the claimant can require a higher party to withhold payment to the respondent.

Where an adjudicator has determined a value of construction work or related goods and services, and there is a further adjudication, the subsequent adjudicator must arrive at the same valuation, unless one of the parties can establish that the value of the work has changed since the previous determination.

The adjudicator's decision determines the parties' interim payment entitlements and cannot be reviewed by a court unless the adjudicator has made a jurisdictional error or denied natural justice.

Adjudication and settling disputes under the contract

Leaving aside court action, of concern to architects administering the contract is how the adjudication affects the contract's dispute resolution procedures, if at all.

A claimant is likely to favour using the adjudication process under the Act because it is conducted relatively quickly. Unfortunately the costs of adjudication are not as low as they once were.

Because the adjudication only decides the parties’ interim payment entitlements, a different final result may be achieved through final dispute resolution. Your client should obtain legal advice in relation to disputes under the contract.

However, amounts to be paid to the claimant according to adjudication are, when paid, advances toward the contract price (as adjusted). In other words, the adjudication process is not intended to undermine the bargain the parties have struck when entering into the contract. Even so, it is conceivable that the cost of variations and other adjustments may be determined by the adjudication process even though the determination differs from the architect's assessment (which must still occur under the contractual obligations between the parties).

In order to finally determine the rights of the respondent and claimant, it is possible for the respondent to start the dispute resolution procedures under the contract. This may lead to a court action. These processes are not affected by the Act. If the claimant has applied for an adjudication in the meantime, the claimant may arrive at court having already been paid and any ongoing court action may be resolved by the consent of both parties.

Tips for architects administering a contract

The architect should follow the requirements of the Act and contract in assessing and responding to each and every progress claim, irrespective of when they are received by the architect. The architect should be mindful that if progress claims are submitted at the wrong time by the claimant, this could lead to that progress claim being invalid for the purposes of the contract, the Act, or both.

Because the Act does not remove rights under the contract, the architect could be obliged to carry out duplicated or more frequent assessments and certificates. As some claimants consider that putting the architect under pressure is to their advantage, some claimants might seek to bring this situation about.

Conclusion

The provisions of Chapter 3 of the Act are complex and there are still questions over the procedures set down. Architects should remember that the obligations under each Act are on the person who is or may be liable to make payment. The architect's role is to assist that person in meeting those obligations, but not to advise about specific procedures where this could amount to providing legal advice. Respondents should obtain their own legal advice if faced with a claim under the Act.

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Statutory trusts

Project trust accounts

A project trust account is a bank account at an approved financial institution which is set up by a head contractor and used to pay the head contractor itself and its subcontractors.

Chapter 2 of the Act requires that a project trust account be used for particular types of building contracts, being a contract where:

• more than 50% of the contract price is for building work within the meaning of 'project trust work'
• either:
  • the contracting party is the State or a hospital and health service and the contract price is $1m or more, or
  • the contracting party is not the State or a hospital and health service and the contract price is $10m or more, and
• at least one subcontractor is engaged for all or part of the work.

'Project trust work' is broadly defined in section 8A of the Act. Certain works are excluded.

It is anticipated that:

• from 1 March 2025, the contract value threshold for a project trust account will reduce to $3m for all entities, and
• from 1 October 2025, the contract value threshold for a project trust account will reduce to $1m for all entities.

A project trust account is not required for:

• a subcontract (unless the subcontractor is a related entity)
• a contract for residential construction work which consists of less than three living units
• a contract for maintenance work
• a contract for design, advisory or contract administration work, or
• a contract which is to reach practical completion within 90 days.

If a project trust account is required, the principal must deposit all amounts paid to the head contractor in connection with the relevant contract into the project trust account (and not to the head contractor directly).

The head contractor must pay all subcontractors from the project trust account (even if it has insufficient funds). The head contractor has a 'top up' obligation.

Retention trust accounts

A retention trust account is a bank account at an approved financial institution for retention amounts withheld in the form of cash under particular contracts.

Chapter 2 of the Act requires that a retention trust account be used where there is a head contract which is eligible for a project trust account and:

• the principal withholds cash retention amounts from the head contractor
• the head contractor withholds cash retention amounts from a subcontractor, or
• a subcontractor which is a related party of the head contractor withholds cash retention amounts from a sub-subcontractor.

It is anticipated that from 1 October 2025, retention trust accounts will be required for the entire contractual chain.

The head contractor can only make withdrawals from a retention trust account for the purpose of:

• paying a subcontractor beneficiary
• paying itself, as head contractor, for the purpose of correcting defects or omissions or otherwise securing the performance of a contract, after the end of the defects liability period, or
• paying another person for the purpose of correcting defects or omissions.

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Subcontractors’ charges

Where a subcontractor has not been paid, the subcontractor may decide to lodge a charge against money payable by an owner or principal to the head contractor under its building contract by utilising Chapter 4 of the Act.

To lodge a charge, the subcontractor must:

• provide a notice of claim to the person obliged to pay money under the higher contract (ie a owner, principal or developer) in the approved form
• give the head contractor a copy of the notice of claim
• state the amount of the claim
• describe the work that was carried out, and
• ensure the claim is certified by a qualified person.

The subcontractor can only enforce the charge by commencing legal proceedings against the person who is obliged to pay money to the head contractor (generally within one month).

The owner or principal who receives a notice of claim by a subcontractor must retain a sufficient amount of the money that may become payable under the contract until a court makes an order. Failure to retain the money that may become payable means the owner will become personally liable to pay the subcontractor the amount claimed.

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Related courses - Available via Online CPD

• Update: Security of Payment - QLD

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