Why is the Building and Construction Industry Payments Act 2014 (BCIPA) so divisive?

Michael Chesterman September 20, 2017
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Before I attempt to answer that question, I would like to outline my past 17-year involvement in BCIPA.

During the period 2001–2004, I undertook research into Security of Payment (SOP) developments, which ultimately resulted in me being a driving force in the introduction of BCIPA in 2004.

From 2004 until March 2017, I was the inaugural Adjudication Registrar under the Building and Construction Industry Payments Act 2004 (BCIPA).

The former General Manager of the Queensland Building Services Authority, Ian Jennings in confirming the crucial role played by me in initially undertaking SOP research and then developing, implementing and administrating the BCIPA, says:

I recognised that Michael, because of the experience and knowledge he gained as the BSA’s Compliance Manager, has a very good understanding of the issues that cause contractors to collapse or fail to meet their financial obligations in a timely manner.”

The answer to this question:

Because BCIPA deliberately places claimants in a very favourable position in their pursuit to get paid for work done.

How does BCIPA do this?

BCIPA provides a person with an entitlement to receive, and an ability to recover, progress payments if they undertake to carry out construction work, or supply related goods and services, under a construction contract. It establishes a procedure for making and responding to payment claims within short statutory timeframes and for disputed or unpaid claims to be referred to adjudication for a rapid decision, which is capable of being converted into a judgement debt of a court if not complied with.

While an adjudication decision is considered to be of an interim nature because all parties preserve their legal and contractual rights, the fact of the matter is that it is a very powerful statutory dispute tool that can only be activated by persons like subcontractors who carry out construction work or supply related goods or services. On the flip side, a builder who has engaged a subcontractor cannot utilise BCIPA if they have a performance issue with the work.

Why did the Government in 2004 decide such drastic action was required to assist subcontractors get paid?

Because traditional legal and contractual dispute resolution processes by their very nature favour parties that can afford legal advice and who can also rely on the inherent slow nature of such processes to work in their favour. In other words, a tactic of some parties responsible for paying for construction work done was, and still is, to “ out wait and outspend” parties like subcontractors. By comparison, BCIPA works very quickly and the costs are comparatively reasonable.

How effective has BCIPA been?

During the time I was the Adjudication Registrar a total of 7367 adjudication decisions were quickly handed down and where claimants (approximately 65% subcontractors) were awarded approximately $1.3 Billion. Prior to the advent of BCIPA, parties pursuing payment for work done or services provided would have had to commence costly and lengthy legal proceedings or just not chase the money owed to them.

In addition to such adjudication outcomes, it is impossible to estimate how many disputes were resolved without the need for a party to proceed to adjudication, purely as a result of the power of the BCIPA endorsement requirement. For example, a subcontractor taking the positive step to ‘contract into BCIPA’ by appropriately endorsing their payment claim, sends a very strong message to a builder that they are serious about wanting to get paid, resulting in countless builders who had no justified reason to withhold payment, to reconsider their position and pay the subcontractor.

The evolution of BCIPA

The evolution of BCIPA can be categorised into 3 stages, namely:

Stage 1- 2004–2014 (BCIPA 2004). BCIPA 2004 was passed with the unanimous support of all members of parliament and very quickly became an effective option for the resolution of payment disputes. However, a number of concerns around its operation emerged, including the timeframes for submitting payment claims and payment schedules, qualifications and the appointment process of adjudicators and the independence of authorised nominating authorities. The Minister for Housing and Public Works released a discussion paper in December 2012 entitled ‘Payment dispute resolution in the Queensland building and construction industry’ to seek industry stakeholder feedback on the operations of the Act. Subsequently, Andrew Wallace, then barrister, was engaged as an independent consultant to review and assess the submissions received in response to the discussion paper and liaise with relevant stakeholders to clarify or seek further information on the issues being considered. Andrew Wallace submitted a report to the Minister dated 24 May 2013 in which he made 49 reform recommendations.

Stage 2- 2014- August 2017 (BCIPA 2014). Based on Andrew Wallace’s report the Government introduced BCIPA 2014. The explanatory notes and second reading speech by the Minister for Housing and Public Works outlines in detail the reforms and the reasons for them, with three key areas of reforms, namely:

  1. The establishment of a single adjudication registry within the Queensland Building and Construction Commission (the Commission) to monitor performance and appoint adjudicators based on skills, knowledge and experience. The role of Authorised Nominating Authorities in this appointment process were dispensed with, removing the perception of conflicts of interest and bias in the appointment of adjudicators.
  2. A dual model regime established to ensure a fairer system to address complex claims (>$750,000) was established.
  3. For complex claims, the respondent being able to include in its adjudication response all relevant reasons for withholding payment, whether or not these matters were raised in the payment schedule.

The Bill was passed along party lines.

Stage 3- August 2017. Proposed repealing of BCIPA and incorporating its key provisions in the Building Industry Fairness (Security of Payment) Bill 2017 (BIF Bill).

Why has BCIPA become so controversial in recent years?

Principally because subcontractors as claimants and builders as respondents have very different views as to the extent BCIPA should favour claimants. The need for BCIPA to operate in a positive manner for claimants as I have previously outlined is now widely accepted by a broad cross-section of the industry as necessary. What is up for continuous debate is the extent the “dial” should be adjusted in favour of claimants.

  • After 10 years of operations, BCIPA 2004 was viewed by the Government as problematical because after undertaking an extensive review and consultation process, they formed the view that it was operating in a way which was excessively in favour of claimants, resulting in respondents not have a fair chance to defend their position.
  • BCIPA 2014 sought to address these issues. However, it was seen by many subcontractors (main category of claimants) as unfairly adjusting things too far in favour of builders (main category of respondents).

In response to these subcontractor concerns the Government tabled the BIF Bill on 22 August 2017, in which the explanatory notes state:

“The Bill provides for a more level playing field for subcontractors through improvements to the progress payment claims. The Building and Construction Industry Payments Act 2004 (BCIPA) will be repealed and its provisions placed into the new Act. New progress payment claims provisions will reduce opportunities for head contractors to delay payment and allow subcontractors to take action to resolve payment issues faster. Amendments also enhance the independence and operation of the Adjudication Registry within the QBCC, and streamline the adjudication process for greater ease of use.”

In other words, the payment claim and adjudication process is being pitched back in favour of claimants, but in a number of key aspects, it goes much further than BCIPA 2004.

Two of the three key 2014 BCIPA areas of reforms have been reaffirmed under the BIF Bill, namely:

  1. the retention of an Adjudication Registry in the Commission; and
  2. the need to retain a complex and standard payment regime.

In a subsequent article, I will unpack in detail the proposed changes outlined in the BIF Bill as it relates to the current operations of BCIPA.

Should you have any queries in relation the issues raised in this article or wish to obtain advice concerning the current operations of BCIPA or the proposed new payment and adjudication regime under the BIF Bill, please feel free to contact Michael Chesterman at michael@helix.legal or Earl Tan at earl@helix.legal.

Not intended as legal advice. Read full disclaimer.
Michael Chesterman September 20, 2017

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