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Inside track: Local Government

21 April 2021

#Local Government

Published by:

Divya Chaddha

Inside track: Local Government

Security of Payment claims – how not to get caught out

Councils, as significant asset owners across a variety of asset classes, are, at any given time, engaged in a multitude of building projects with a range of contractors and field an array of progress claims for construction works or services. Where progress claims are made as payment claims under the Building and Construction Industry Security of Payment Act 1999 (SOP Act), contractors are equipped with the ability to have any claim that is unpaid or disputed by a council decided under an expedited adjudication process which determines how much of the claim must be paid on an interim basis, with few opportunities for appeal.

Councils need to be aware of the implications of this process and the requirements to be met to meaningfully participate in it.

Given that the objective of the SOP Act is to improve cash flow to contractors, it is little wonder that the prevailing view is that it favours them. It certainly has no built-in tolerance for the budgeting and approval constraints of councils. Within the process, contractors have the opportunity to organise their alleged entitlements and build their case well in advance, choosing their timing to deploy, whereas by contrast, responding councils have a very limited timeframe to respond.

This article identifies some traps for councils and tips when preparing responses (payment schedules) to payment claims under the SOP Act.

The traps

Given the precariously short timeframe to prepare a payment schedule (10 business days), in circumstances where there may be limited resources to respond to each and every claim, it may be a tempting default for councils to reject payment claims on the basis that:

  • there is no supporting statement as required by section 13(7) of the SOP Act; or
  • the contractor has failed to provide supporting evidence to the claim, as may be required under the terms of the contract.    

However, it was decided by the Court of Appeal in 2020[1] that the absence of (or deficiencies in) a supporting statement does not invalidate a payment claim under the SOP Act.

In addition, it is settled law that a failure to provide supporting evidence pursuant to a contractual term that imposes a “condition precedent” upon a contractor’s entitlement to make a progress claim is of no relevance to its entitlement to make a payment claim under the SOP Act. 

Consequently, these default settings should not be seen as the silver bullet to deal with unexpected (in amount) or otherwise unmeritorious payment claims. It is paramount that councils’ project management officers use the limited timeframe available to respond to the claim to fully address the merits. Often the key to this is as simple as getting the payment claim to the project management officers promptly (more on that below).

The payment schedule must be comprehensive and detail every reason for withholding payment, including alternative reasons, as new reasons cannot be introduced in the adjudication response.

Above all, timing is everything under the SOP Act. It is imperative that councils serve payment schedules within the time limits prescribed by the Act (usually 10 business days from receipt of the claim), otherwise, the contractor is entitled to recover the payment claim in full, in court, as a debt due against the council. In these circumstances, councils are prohibited from bringing any cross-claim or raising any matters arising under the contract in its defence. 

In other words, if councils are not aware of and are engaged in the process, they run the risk of being required to make payment, albeit on an interim basis. If councils intend to withhold money or reject payment claims entirely, they must be diligent in the observance of the requirements under the SOP Act, in particular, to preserve the ability to argue issues in an adjudication.

Tips

1. Think ahead

Contractors typically refer their final or penultimate claim on a project to adjudication, so preparations should be made in the lead up to receipt of the final and penultimate payment claims.  Councils will have a sense, well ahead of time, of the long-standing issues that are likely to surface towards the end of the project payment claim and adjudication. 

Councils should have (at minimum) the basic outline of their proposed response prepared ahead of time, on a ‘just in case’ basis, and ideally also have (at least) arrangements in place to obtain, or already have obtained, additional supporting evidence that may be required from external experts.  This may include reports regarding defects and cost of rectification, delay analysis or costings.

Councils should also consider whether statutory declarations may be needed from staff and plan in advance around the impact of attrition and leave. On the subject of leave, it is also a temptation for payment claims to be served to take advantage of key staff unavailability over holiday periods.

2. Checklist

Councils should be able to quickly assess whether the SOP Act applies, to include such arguments in payment schedules. Consider the following:

  • as to entitlement: Is this construction work? Is it related goods and services? Is there a construction contract with this contractor? Is there any other arrangement?
  • as to timing: When was work last carried out?  (The payment claim must be issued within 12 months to be valid.)
  • does the payment claim contain a written endorsement that it is made under the SOP Act? Without it, the payment claim would be invalid[2]
  • is there a date entitlement to issue the payment claim? For contracts entered into after 21 October 2019, contractors are only entitled to issue one claim per month
  • did the council terminate the contract with the contractor? If so, only one payment claim may be served from termination.

3. Upskill staff

Payment claims don’t always get sent to or are received by the right person, and one can see how the strict time limits in the SOP Act may tempt contractors to be artful in choosing how and where to deliver payment claims and adjudication applications. 

Often these claims ‘land’ in accounts payable departments where they are entered into an accounts process that is not designed with the SOP Act in mind. Because of the strict time limits under the SOP Act, account payable staff in particular (and not just contract managers) and also front of house staff should be trained as to the implications of the Act and how to spot a payment claim and activate an escalation process to get the documents to those who can deal with them. For toxic contracts nearing the final or penultimate claim, staff should be on high alert for the arrival of payments claims on adjudication applications.

It is not unheard of for payment claims or adjudication applications to be served at satellite council locations, such as libraries. A clear line of escalation to relevant personnel should be in place to mitigate the risk of claim documents going ignored and councils losing the opportunity to engage meaningfully in the process.

Above all, when in doubt, seek help – we’re happy to assist. 

Authors: Christine Jones & Divya Chaddha

[1] TFM Epping Land Pty Ltd v Decon Australia Pty Ltd [2020] NSWCA 93.
[2] For contracts entered into after 21 October 2019.

In the media

Queensland

Koalas tracked within Redlands' 'protected' wetlands, where up to 3,600 apartments are slated
Toondah Harbour in the Redlands, east of Brisbane, is listed a Priority Development Area but local community groups who have campaigned for years against the impact on protected wetlands say koala habitats are also at risk (08 April 2021).  More...

Brisbane City Council to face court fight over Boggo Road Gaol plans
The $25 million project was approved in early March for the state-owned and heritage-listed site amid community objections and warnings of a court appeal (08 April 2021).  More...

Palaszczuk Government to help upgrade small landfills
The Queensland Government has invested $1 million to help local governments upgrade their landfill infrastructure (01 April 2021).  More...

Catholic church unveils Brisbane office block plan
Plans for an eight-storey commercial building neighbouring one of Brisbane’s oldest churches have been lodged with the Brisbane City Council (30 March 2021).  More...

In practice and courts

Reimagining our economic powerhouses: How to turn CBDs into central experience districts
EY; Property Council of Australia: 31 March 2021.
The report finds that 82 per cent of Australians are confident their nearest CBD will continue to evolve and presents six ideas to start that evolution. The report recommends that government, employers and landlords work together to facilitate the return of people to the CBD via a series a targeted measures. Read more here.

Queensland

PCA: Brisbane City Council development assessment update
Council will be implementing a project to improve the technology used by staff and customers to lodge and assess development services applications, plans and documents throughout a development lifecycle. At present a procurement process is underway to find an implementation partner for this work and pilots are expected to commence in early 2022. Industry feedback is being actively sought at the moment. Click here to read more (01 April 2021).

State Infrastructure Strategy announcement
A new State Infrastructure Strategy will be released in conjunction with seven regional infrastructure plans in aid of supporting our post COVID-19 economic recovery. This follows the recent announcement of the formation of a Growth Areas Delivery Team to address land supply issues in SEQ. To find out more about the strategy, please click here. You can share your views via the survey. Consultation closes on 31 May 2021.

Cases

Queensland

E.J. Cooper & Son Pty Ltd v Townsville City Council & Anor [2021] QPEC 20
PLANNING AND ENVIRONMENT – APPEAL – appeal against refusal of a development application under the Integrated Planning Act 1997 – application for a preliminary approval for a material change of use to develop a large rural holding into a master planned residential community supported by other uses – where the development application also sought a variation to the planning scheme – the operation of statutory provisions in relation to such applications – whether the application for a preliminary approval for the material change of use must be assessed against the provisions of the Planning Scheme sought to be varied – what weight should be given to the more recent planning documents – whether proposal should be refused having regard to the nature of the proposed uses, its likely impact on amenity, potential for reverse amenity impacts, infrastructure requirements, traffic impacts or having regard to issues of flooding or stormwater quality – whether the proposal conflicts with the planning documents – whether the application ought be approved having regard to grounds/matters in favour of the proposal – whether there is a need sufficient to support approval – likely benefits in times of flood – benefits from stabilizing and rehabilitating eroded parts of the site – other matters in favour – whether the development should be approved in part – whether the variations component of the application should be approved.
Integrated Planning Act 1997 Qld ss 1.3.2, 3.1.6, 3.5.5, 3.5.5A, 3.5.14, 3.5.14A, 4.1.50(1), 4.1.52(1), 4.1.52(2).
Integrated and Other Legislation Amendments Act 2003 Qld; Planning Act 2016 Qld ss 289(2), 311.
Sustainable Planning Act 2009 Qld ss 242, 326, 329, 802, 819.

Noosa Shire Council v 64 Gateway Drive Pty Ltd [2021] QPEC 19
PLANNING AND ENVIRONMENT – APPLICATION – MATERIAL CHANGE OF USE – where the respondent lodged development application number MCU19/0-081 on 10 July 2019 seeking development approval for 16 “Ancillary Dwelling Units” – where development application number MCU19/0-081 was assessed and refused by Council – where the respondent lodged an appeal against Council’s decision on 9 October 2019 – where the applicant has sought a declaration that the use the subject of development application MCU19/0-081 is not for Ancillary Dwelling Units as that term is defined in the Noosa Plan 2006.
Integrated Planning Act 1997 Qld; Planning Act 2016 Qld; Planning and Environment Court Act 2016 Qld.

Vanriet Development Pty Ltd v Brisbane City Council [2021] QPEC 17
PLANNING AND ENVIRONMENT COURT – JURISDICTION – whether the Planning and Environment Court has the jurisdiction to hear and determine on the merits an appeal against an amended infrastructure charge notice issued by the respondent counsel.
Planning Act 2016 Qld s 137, 229 & Schedule 1; Planning and Environment Court Act 2016 Qld s 6.

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Divya Chaddha

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