New Protections for Contractors – Security of Payment Update

By 8 October 2020Property
New-Protections-For-Contractors

On 1 October 2020, changes to the Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) came into effect in Queensland.

These changes provide enhanced protection to subcontractors where a principal or contractor higher in the contractual chain fails to pay an adjudication amount awarded to the contractor under the BIF Act by:

  • For all contractors, introducing payment withholding requests (PWR) to secure payment; and
  • For head-contractors, permitting the lodging of a statutory charge over the project property to secure the adjudicated debt owing to the head-contractor.

Payment Withholding Requests (PWR)

After a successful adjudication claim by a contractor under the BIF Act, and should the adjudicated amount not be paid to the contractor by the due date specified in the adjudicated decision, then:

  • A head contractor can lodge a PWR against their principal’s financier (e.g. bank); and
  • Any other contractor (or subcontractor) can lodge a PWR on the next higher party in the contractual chain.

The issuing of a PWR by a contractor means the financier or higher party in the contractual chain must withhold money (which would otherwise be payable to the principal or contractor) to the value of the adjudicated amount in order to secure the payment of the adjudicated amount to the contractor.

If the financier or higher party fails to retain sufficient money, the financier or higher party becomes jointly and severally liable with the principal or contractor for the adjudicated amount owed to the subcontractor.

So, for example, a subcontractor can give a PWR to its principal, and a head contractor can give a PWR to its principal’s financier, to secure payment of the adjudicated amount owing.

Not surprisingly, a PWR cannot be issued against a resident owner.

Charge over the project property – head contractors

If the successful claimant for an adjudication amount under the BIF Act process is a head contractor, and the respondent principal does not pay the adjudicated amount within the time allowed, the head contractor may request the Queensland Titles Office to register a charge over the relevant project property.

In order to do so, the head contractor must:

  • Have lodged the adjudication certificate as a judgment debt in the relevant Court; and
  • Ensure that the principal (company or individual), or a related entity to the principal, is the registered owner of the project property upon which construction work was carried out or related goods and services supplied by the head contractor.

Once registered, the charge remains over the project property for a period of 24 months (unless, for example, the charge is extended or set aside).

A head contractor may then apply for a Court order that the project property be sold to satisfy the adjudication debt owed by the principal. Of course, any recovery of money by the head contractor pursuant to its charge, and via the sale of the property, will depend upon the amount of equity available in the project property after the claims of any secured lenders (for example, banks under their registered mortgage) are first taken into account.

That is because the charge will rank in priority behind other earlier registered security interests in the project property.

Take Away

While both of the newly introduced protection measures have their limitations, the overall effect is to better protect payment to contractors in the Queensland building industry.

If you are a contractor involved in the Queensland building industry and are experiencing problems with the recovery of money owed to you, or would like more information or advice about the matters raised above, please contact our litigation experts at Murdoch Lawyers on (07) 4616 9898.

This publication has been carefully prepared, but it has been written in brief and general terms and should be viewed as broad guidance only. It does not purport to be comprehensive or to render advice. No one should rely on the information contained in this publication without first obtaining professional advice relevant to their own specific situation.

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