As the new state government in Queensland draws toward the end of its first year in office, controversy over changes to payment laws within the construction sector introduced by the previous government is growing, with critics calling for the changes to be reversed but building industry lobby groups saying the amendments were necessary to address fundamental flaws a previously dysfunctional system.
Introduced last year by the Newman Liberal government, amendments to the Queensland Building and Construction Industry Payments Act 2004 extended time frames for respondents to payment claims to provide payment schedule and subsequent adjudication response for complex claims. The amendments also allowed respondents to provide additional reasons for withholding part or all of the claimed payment subsequent to the forwarding of payment schedules, and overhauled administrative arrangements relating to the adjudication process.
Under the changes, time frames which respondents have in regard to payment schedules and adjudication responses are determined according to a two-tiered system. This is based on whether the claim is a standard claim or a complex claim, with the latter being claims worth more than $750,000 or relating to either a latent condition or a time related cost.
Not a lot has changed in the case of standard claims, except that respondents now have 10 business days instead of five in which to provide an adjudication response upon receiving notice of an adjudication. In the case of complex claims, the amount of time a respondent has to provide a payment schedule after receiving a claim has been increased from 10 working days to 15 and the amount of time which they are allowed in which to provide an adjudication response has increased from five business days to 15.
Furthermore, respondents can now (and typically do) request an extra 15 days' extension to provide an adjudication response - a request unlikely to be denied amid a desire on the part of adjudicators to avoid accusations that they did not allow respondents sufficient time to adequately prepare their case.
Moreover, respondents to complex claims are also now allowed to introduce new reasons in addition to those outlined in the original payment schedule as part of their justification for withholding some or all of the amount claimed. Where this happens, claimants are then given 10 business days to respond to these new reasons.
As a result of all this, the amount of time taken from the point of a claim being made to that of making a decision has ballooned from roughly six weeks to several months.
In addition, changes to the adjudication process have effectively seen the end of the involvement of outfits known as authorised nominating authorities (ANAs). Under the old system, these parties were responsible for referring cases to adjudicators and providing an interface between the parties and the adjudicator, along with support and advice to both parties surrounding the administrative aspects of the process. In their place, adjudicators are now appointed by the Queensland Building and Construction Commission (QBCC).
Upon the changes being introduced, the Newman government argued that the existing rules at the time specifying similar response time frames irrespective of the size or complexity of payment claims made little sense, while having claimants approach an authorised nominating authority who would appoint an adjudicator on their behalf created perceptions about conflicts of interest.
Critics, however, are up in arms. The blow-out of time frames associated with decisions runs contrary to the concept of rapid payment for which adjudication was largely created, they say, and allows unscrupulous head contractors to bleed subcontractors dry by drawing out the adjudication process. Allowing respondents to ‘make up’ new reasons for withholding payment other than those outlined in the payment schedule is ludicrous, they say; if a claim for payment is rejected, surely the respondent would understand reasons for taking this action at the time they do so.
Further, forcing claimants to respond to these new reasons adds to costs they incur in terms of expert help. Finally, critics say removal of the role of ANAs leaves claimants without any help or support regarding the administrative aspects of their claim, and is even resulting in claims failing due to administrative errors on the part of the claimant such as late submission or mistakes on forms. The QBCC, it is claimed, merely appoints adjudicators and does not provide support in this area.
Bob Gaussen, managing director of authorised nominating authority outfit Adjudicate Today, says the changes have neutered the effect of the adjudication process, while the additional time and cost involved as well as the lack of support has seen a number of claimants no longer bother with adjudication. As a result, a large number of applications end up being withdrawn prior to a decision because the process simply ends up taking too long. Since the new laws have come into effect, Gaussen says, 75 per cent of adjudication claims have ‘fallen over’ and been withdrawn prior to a decision being reached.
“What the Newman government did was destroy the Act and strip it of its effectiveness for all large contracts,” Gaussen said.
Anthony Igra, managing director of Sydney-based debt collection outfit Contractors Debt Recovery, says the changes imposed an unfair burden upon claimants. He says the inclusion of claims relating to latent conditions or time related costs as complex claims meant even contractors engaged for relatively modest scale jobs could find themselves caught up in the new regime regarding this type of claim. Those who were doing a small amount of trenching on a $30,000 contract, for example, and were claiming $5,000 for the balance of the contract as well as damages of $8,000 by virtue of being delayed as a result of actions by the client could find their $13,000 claim is a ‘complex claim’ as it is time-related. So too might a contractor who was doing $9,000 worth of work and whose claim included a $3,000 latent defect claim because the machine came across a piece of old buried silt pipe which had to be removed.
“You can tell this has not been thought through properly, because the changes are giving rise to a long list of unintended consequences,” he said.
“[In addition,] it has made the Act cumbersome and unnecessarily complicated. It has also made it more expensive. If anything, the adjudicator’s fees coming out of the QBCC are actually higher than they were before the changes. This is the kind of thing one would expect to see in an episode of 'Yes Minister.'”
Such sentiments may well find backing from the current government, which when in opposition promised to review the legislation if elected and which has indicated an intention to do so. Gaussen is worried, however, about what are understood to be calls from officials within the Department of Housing and Public Works for the review to be conducted internally. In a submission regarding the review, he argued that the Department and the QBCC were closely related and that an independent review was needed.
Not all, however, agree that the changes have been detrimental.
Master Builders Association of Queensland director of construction policy John Crittall says the previous system imposed an unfair burden upon respondents and adjudicators, was open to abuse and was delivering decisions which were having to be made without adequate time for proper consideration or for the respondent to adequately prepare and present their case. Builders, he points out, typically have between 20 and 40 sub-contractors each making monthly payments on any given job, meaning that a contractor with 10 jobs on the go was responding to several hundred claims each month. Forcing them to bang out a payment schedule for each and every one of these claims within 10 days and then restricting them to reasons outlined in that schedule in that claim without opportunity to add new reasons – as was the case under the old system – was unfair and unreasonable, he said.
“Before we had the new system, multi-million dollar claims were being decided by the adjudicator with 10 days based on a payment schedule that a respondent had put in not even knowing whether or not the payment schedule was going to go to adjudication," Crittall said.
“It was profoundly unfair that respondents were getting hit with multi-million dollar claims to rely on whatever they put in that schedule in response to the claim and then that being disputed and going to an adjudicator and then that having to be decided within 10 days. So from the outset we said that the system was designed to encourage the hijacking of claims where people could take six months, get expert reports and then put folder upon folder upon folder of evidence and an adjudicator being given 10 days to decide multi-million dollar complex claims with hundreds of variations. This we believe was patently unfair.”
Crittall says Master Builders supported the removal of ANAs amid concerns they were charging up to 30 per cent of the administrator’s fee for basic general administration. He adds that there were also allegations ANAs were interfering in some processes and that some ANAs were making misrepresentations and advertising for positive results. In general, he says, the former system promoted a conflict of interest. Gaussen, meanwhile, says ANAs did not assist any party in improving the merits of their case and simply provided administrative support only.
By contrast, having adjudicators appointed by the QBCC from a registrar meant the appointment process was more standardised, Crittall says, with adjudicators being all being trained the same way and appointed in accordance with their skills.
Crittall is frustrated by the notion that his organisation was simply representing the big end of town.
“Business failure is catastrophic to the industry, so anyone who thinks that Master Builders is on the side of the builders or whatever, it’s nonsense,” he said. “We are on the side of a fair payment system that protects everybody.
“We are being accused of just looking after the builder’s interests. It’s just not true. We’ve got thousands of subcontractor members and we want a system that protects them being paid just like we want a system that protects the builder being paid.
“There is a nonsense rumour going around that we are only interested in the big end of town. It’s just nonsense.”