Wednesday, December 8, 2010

Queensland Supreme Court fixes identical payment claims

One of the main reasons given by some consultants in Queensland for not using the legislated payment process as the preferred business as usual process was the risk that a claimant may not be able to serve a subsequent payment claim at a later date if the first claim had a simple procedural error, or the claimant simply allowed the due date to pass without taking action to dispute or recover the progress claim.  
Claimants were advised to get into trouble first and then seek advice about using the Act, on the grounds that they might lose their entitlement to claim later.  It has the effect of avoiding the intention of the Act to encourage a transparent, logical payment process as the industry's business as usual process.
The Queensland Supreme Court has clarified the situation of serving later identical payment claims under the Building and Construction Industry Payments Act 2004 (Qld) in a recent decision, Spankie & Ors v James Trowse Constructions Pty Ltd & Ors [2010] QSC 336 (Spankie).
The Court in Spankie disagreed with earlier judgements and determined that an identical payment claim can be served from a later reference date. 
However this decision does not detract from the principle that a claimant cannot claim under the BCIPA an amount which has been the subject of an earlier valid adjudicator's decision.
The state of play (at least in Queensland) following Spankie is:
  1. A payment claim will not be invalid because it is identical to an earlier payment claim.
  2. A claimant is not entitled to claim under the BCIPA an amount which has been the subject of an earlier valid adjudicator's decision.
This is an important clarification and a very wise interpretation of the Act. It will have the effect of:
  • Encouraging all parties to use the Act a the preferred business-as-usual payment process;
  • Allowing claimant's more time to negotiate disputed payments before forcing them into adjudication or other recovery mechanisms.
  • Taking out the main excuse for advising claimants to avoid using the process of the Act as it was intended.
Any minor inconvenience to respondents issuing similar payment schedules in subsequent months is well worth the benefit.

Thursday, November 18, 2010

Security of Payment Registrar supports process over disputes

Michael Chersteman, the BCIPA (Qld) registrar, in an address at the BDPS (Building Dispute Practitioners Society) annual dinner, talked about his views of the Top 10 criticisms of the Queensland security of payment act.  These criticisms are:

  • The pendulum has swung too far towards claimants,
  • It is not intended for payment disputes between large parties,
  • The lawyers have hi-jacked it,
  • It is too complicated,
  • Claimants use the Act to "ambush" respondents,
  • it is not intended for delay claims,
  • Some ANA's are "claimant friendly",
  • Adjudicators ignore contract provisions,
  • it is unfair that claimants can not respond if they have not served a payment schedule;
  • Adjudicators are a bunch of dopes,

Essentially, he does not swallow any of them, but he made a strong point that the Act primarily establishes an orderly payment process and that adjudicators should act more like certifiers than quasi-judges.  

He also talked about the rise of 'creative' contract clauses, designed to impede the operation of the Act, including "look around the corner" provisions, popular with major State government subcontracts.

Most of the current advice in relation to the Act is from legal and claims firms who, quite correctly, concentrate on the collection process and the litigation that surrounds adjudication.  After all, this is their end of the business.

Sadly, there are few champions of the substantial benefits of the payment process established  by the Act.  The professions with the most to gain are accountants and quantity surveyors and they have been ambivalent about driving the process.

State government departments are not championing the Payments Act process in the way that they could and should.

The benefits of the process are:
  • it protects entitlements to payment;
  • it creates a consistent, transparent payment process;
  • it establishes reasonable terms of trade, especially for SME's,
  • it builds trust and business relationships;
  • it creates "bankable" security;
  • it prepares parties for rapid collection in the event of default, and
  • it prepares parties for rapid adjudication of disputed payment claims.

It is time for the professions, Accountants, architects, engineers and quantity surveyors to step up and champion the excellent process that governments around the country have gone to the trouble of establishing for the sustainability of the construction industry.

Subcontractors - Manage Your Debtors

Understand the Correct Process for Handling Variations Under Your Contract - If you are working for a builder or head contractor make sure you know how a variation may be requested, accepted and approved. Find out who is authorised to issue instructions to you, who is responsible for agreeing to any variations you request due to latent conditions or other unexpected costs and who is responsible for paying for the variations. Make sure you comply with any time frames and other strict requirements under your contract and don't take any short cuts.

  1. Know What Paperwork Must be Completed - If the other party doesn't have anything, you need a document of your own. Make sure your document with a homeowner complies with your legal obligations under the Domestic Building Contracts Act 2000.(Contact Ledger Guard for a practical 1 page Variation to Original Quote/Contract Form).
  2. Nothing Verbal, Everything in Writing - Insist that the customer/ builder/head contractor put their request for additional work or changes to the original quote/contract in writing. Despite a good relationship at the start of the project, verbal instructions can be forgotten or denied when it comes to payment time and cashflow is tight. Under the QBSA Act your builder or head contractor is legally required to give you a direction in writing within 3 days of your request so don't feel pressured to start the variation work without instructions in writing. Take a note of any conversations in regard to a variation whether requested by you or the other party so you can verify what was said, by whom, on what date and at what time. You can't rely on your word against the other party.
  3. Claim for any Variation Work in the month it is completed or within the timeframe stipulated in your contract. Don't wait until the end of the job or your variation claim may not be valid. Dealing with variations promptly will also reduce the possibility of forgetting any details of the work and what needs to be claimed.
  4. Keep Copies of Everything and make sure your paperwork and site records are accurate and up to date. It pays to be more thorough than you think you need to be in case a dispute goes to arbitration or you need to take legal action.
    Courtesy of Ledger Guard - Ledger Guard is a licensed debt collection agency specialising in recovering business to business debt.
    Excellent advice - but sometimes it is not so simple to achieve. Thepowertool takes the pain out of payment and keeps track of site issues with no disruption to your work.

Thursday, October 21, 2010

What do statistics tell us?

The BCIPA (Qld) has just released its 2009 - 2010 adjudication statistics.  They make interesting reading, but what do they mean?

68% of claimants are subcontractors and a whopping 85% of respondents are contractors or head contractors.

Contractors, even the biggest, are just are not getting it.  The Payments Act is designed to improve payment processes and reduce disputes.  It is high time the industry took its focus off disputes and made a real attempt to "get it right".

16% of Claimants are contractors, but only 5% of respondents are clients.  It indicates that most disputes are inside the industry - contractor to contractor.

The average claim was $253,000 and the average decision was $232,000, indicating that, on average, claims were over 90% successful.  This is an amazing statistic and indicates very clearly that contractors are failing badly with contract and payment management processes.  The industry must engage properly with the Act as a business-as-usual practice if these statistics are to improve.

Consultants (11%) and suppliers (5%) are starting to use the Act to collect disputed payments.  Suppliers are still largely unaware of their rights under the Act and are mostly tied to accounting systems that are not conducive to making the Act part of their business practice.

999 applications were lodged in the year, a rise of around 100 over the previous year, indicating more awareness and a willingness to use the Act to recover debt.  The total value of claims was $224 million, consistent with last year.

The largest claim was double the previous year, at $32.7 million.

Small claims did well, with 82.4% of claims up to $5,000 awarded in full.  From experience, we would say this is largely due to very poor contract / payment management on the part of contractors.

Claims over $500,000 were less successful
with 9.4% paid in full, indicating that respondents are much more prepared to fight off a large claim.

You can significantly improve your chance of succeeding by using proper , complying processes for contract and payment management.  Thepowertool empowers everyone in your organisation to contribute to securing your entitlement to payment.

Wednesday, October 20, 2010

Your production (site) workers are your eyes and ears

Did anyone see Domino Pizza ceo, Don Meij, on Undercover Boss, Australia? If not, it's worth re-capping. Meij demonstrated a highly effective, but not always used, management strategy. He understands that the role of management is to support people at the workface, the ONLY people in the company actually generating revenue and interacting with customers all the time. By empowering and supporting the people on the ground, he knows that the company will thrive through their commitment and skill.

Many of us think of management as a pyramid, with the ceo at the top, being supported by the workers. It's an easy trap to fall into from the top floor of head office. Good management is better seen as an inverted pyramid, with the ceo at the bottom, supporting production teams with systems and resources to do their job efficiently and effectively.
Construction workers (trades and labour) can be cast in a very one-dimensional role,  performing electrical, plumbing, tiling, carpentry etc. It is a risky view for a business. Your workers at site are your eyes and ears. They know exactly what is happening and where your money is going. Management can ignore the richest source of job intelligence and attempt to stay informed by other means that are costly and ineffective. Trickle-up information flows are too slow in modern contracting environments. You can lose a payment entitlement in a week.  The alternative is to support and empower site workers to gather and report site intelligence as it happens.
Production workers can be empowered by instructing them on, and giving them responsibility for, reporting on contract management issues as they arise. This includes delays, variations, defects, coordination, WH&S, deliveries and a host of other issues.
With onerous time frames imposed by modern subcontracts, subcontractors can not afford to lose half a day waiting for business information from site. Providing for production workers to deliver "task-ready" advice from site is simple, efficient and cost-effective using tools like thepowertool mobile Site Diary.

Thursday, October 7, 2010

What's happening?

Been away from the desk for a bit, but good and interesting things keep happening.

Last week we were delighted that thepowertool was granted an Australian Innovation Patent over its software systems and processes.  We knew we were special, but it's nice to have it confirmed.  Also comforting to have our software process protected, especially our new mobile Site Diary app, which is now more valuable than ever after the "Chase v Hamo"case in NSW reinforced the need to be right on top of your payment process.

iPhone and iPad applications are exploding in the construction industry as people start to leverage the benefits of working at site.  Check out the very interesting discussion on iPad applications at the Linkedin Group Linking Construction.  (You may have to register to see the discussion, but its worth it).  Here's my 2 cents worth - "We need to consider what data must be gathered at, and disseminated to, the field and how to effectively interface the gathered intelligence with management and technical systems.  There is a temptation to adopt technology just because it can.....  After 30 years in practice, we know that one of the primary inhibitors to preserving contractual entitlement, and subsequent payment, is the failure to gather information and intelligence (directions, variations, delay and disruption, acceptance of sub-bases, deliveries etc.,) as it occurs and pass the data in a timely manner to management for appropriate action.  It is especially important with tight contractual notice provisions. iPhone app (patented) allows site personnel to record site data by note, voice, photo, mark up or sketch and pass it to management for action, with due dates.  It feeds the data into a payment claim system that complies with Australian, New Zealand and some Asian security of payment legislation, thus preserving contractual entitlement".  Thepowertool is driving new thinking about the way site intelligence is gathered and used to leverage your contract management effectiveness and protect your contractual entitlements.

One last thing - a recent NSW Supreme Court case has reinforced the importance of making sure that your payment process is spot-on with timings and complying with the Act.  Essentially, from now on, if you want the protection of the Payments Act you must get the process right.  An adjudicator can't help you if you get it wrong.  Read more about this case here >>;

To help out in our local area we have started the Gold Coast Sub-contractors Meetup Group. This is a NEW informal meeting and discussion group for the construction industry on the Gold Coast to discuss business trends in the industry.

The objective of this group is to discuss and discover the best practices being used to run a construction business. Whats out there, whats good and whats not.  if you would like to join the group, please feel free to register on Facebook to get an invitation.  The first meetup is at the Parkwood Tavern on Tuesday 19th October 2010 at 4:30 pm.

You MUST get the process right in order to protect your entitlement

A recent Supreme Court case in NSW (Chase Oyster Bar (Chase) v Hamo Industries (Hamo) [2010] NSWCA 1) has made it clear that parties to an adjudication must get the payment process right if they are to take advantage of the protection that Security of Payments Acts in Australia offer contractors and subcontractors.  The Courts can now overturn an adjudication decision if the timings for payment claims, payment schedules, notices, applications and responses are not correct. 

Re-starting the process is costly, time-consuming and uncertain.  It always happens at the worst possible time, when you need it most.  Thepowertool can help you to manage your payment process and make sure you do not miss your timings.

If you would like a more detailed examination of this case you can read it here >>;

Thursday, September 9, 2010

Dream the impossible dream - manageing the unmanegable

Getting your systems and processes right is important, but........

Don't sign anything 'til you've calculated the risk.

Have you signed up to this smoking gun in a contract recently?

1) The managing contractor may extend your completion date for any reason;

2) Delay by the managing contractor in giving access is not a breach of the subcontract and you acknowledge that this is likely to happen;

3) You may claim extensions of time (but you must meet the strict notice provisions to be entitled to an eot);

4) You are not entitled to claim the cost of delays for any reason;

5) Extensions of time are limited to extensions of time granted to the head contractor;

6) You are liable for any payment (including delay costs) paid to another contractor by the managing contractor, whether the managing contractor is legally or contractually obliged to pay or not. (ie., at the whim of the managing contractor); and finally.....

wait for it.........

7)  Damages for late completion up to $180,000 per day (that's $1.3 million per week and $5.5 million per month).

If so, you have signed up to pay the cost of something that is mostly or entirely outside your ability to manage or control.  Program delays and disruption occur for all kinds of reasons.  The most common are design changes; late design / documentation; late completion of activities or areas that you are dependent on.  Even if you manage your contract perfectly,  you will still be heavily penalised for the mistakes, delays and inefficiencies of the many other people and businesses you depend on. 

Do you have the ability to build this unknown, unquantifiable and unmanageable risk into your contract price?  What is it worth to assume this risk?  10 - 20% of the contract value? More?

If you can not price or manage a serious risk, you are well advised to consider whether you should sign up to such terms or take a cold bath and look for a better contract.

Thursday, September 2, 2010

Identifying change - Easy to Say, but you have to do it!

Most subcontracts commonly in use place the responsibility to identify change (variations and program) on the subcontractor.  Typically the requirement is:

If you identify any change as a result of an instruction (or anything else) you MUST notify the managing contractor within 5 days of the instruction (or becoming aware of the change) of the change, whether it is a variation, your estimate of the cost (or time, in the case of an eot).

You MUST NOT start work on the instruction or change until you have written approval from the managing contractor of your claim for a variation or eot.

If you do not fulfill these requirements WITHIN THE TIME FOR NOTICES you will lose your entitlements.  Our legal advice is that these clauses will stand up.

If you are operating under these or similar conditions, you absolutely must have processes in place to capture issues at site and in the office and to quickly engage a watertight process to ensure that you meet your obligations, before doing any work.  The process will pass through at least 5 people on your organisation (or 5 processes for you, if you are small).

There is collaborative technology to help facilitate this process.  Fro example a Google (or similar) shared spreadsheet could help speed the process of estimating and approval.

Here is a simple example of a free collaborative spreadsheet form that you can use to manage this process:

It is much more difficult to gather the first information in a pressure-cooker construction environment, so that costly items don't "fall between the cracks" and become costly mistakes.

Thepowertool facilitates gathering of site and office data and more importantly creating instant action tasks for anyone in your organisation, as well as streamlining your payment claim process.

You can not operate successfully in today's environment with outdated systems.

If you want more advice on the above collaborative spreadsheet, contact me.

Monday, August 16, 2010

Getting the Payment Process Right and adding time is a Win/Win deal

Major contractors are struggling with the concept and the process of security of payment acts, including the Queensland BCIPA Act 2004.  The problem is they see the process as a precursor to dispute, rather than an effective, cost and time-saving process.  Fear takes over.  As a result, to circumvent the Act, they have come up with a non-compliant (but probably not illegal) process that puts contractors, subcontractors and quantity surveyors under enormous pressure to prepare and evaluate payment claims in 5 working days.  A complying process would allow up to 5 weeks.

Payment claim process for large contracts
View more presentations from MyCorporateCoach.

Adding thepowertool to your payment process not only turbocharges your business processes, but protects your valuable entitlements with the mobile Site Diary (pat. applied).

Sunday, August 8, 2010

Variations - snakes in the woodpile

90% of variations do not come packaged with the label, "We would like to make a change; please tell us how much you will charge." Variations mostly arrive as instructions to do something, or in the form of changed drawings or specifications. Upstream clients (we will call them C) rarely take full responsibility for identifying and managing the cost of change before it happens. This is partly because it takes extra resources and good processes to do so and partly because, if they do not tell you, you might just miss it and they avoid the cost altogether.

The responsibility and liability is squarely on your shoulders to manage variations, whether you generated the change or not.

Strict contract conditions can make it very hard to get paid for variations. Here is a good example of a popular real-life subcontract:

1) The head contractor can issue drawings, instructions or directions that you must comply with within the time instructed.
2) If an instruction (including a direction, drawing or spec) involves a variation not identified by C, you MUST:

  • Give written notice within 5 days of receiving the instruction, and
  • Wait for a written, clearly identified, variation notice BEFORE starting the work.
If you do not do these things, you are not entitled to claim the variation.

Do you have procedures in place to identify variations from instructions, drawings and spec changes and notify C of a variation within 5 days of receiving an instruction?
Do you have a process to stop your site staff from implementing any instruction until you are satisfied that you have received a written variation notice from C?

What do you do if the instruction will hold up your work while you are waiting for a variation notice?

Do you identify with this scenario? -

The Engineer gives your supervisor an oral instruction on Wednesday (with a quick sketch) to make some changes to your work as a result of a coordination issue. C's site foreman confirms the instruction and tells you to get on with it, otherwise the program will be delayed. You have a team working in the area and your supervisor does not want to delay the work, so he instructs the tradesmen to prepare for the change. They start work.

1. Your site supervisor, makes a note in his site diary and raises it at his weekly management meeting on Monday.

2. The engineer changes and C issues the amended drawing, under an instruction, the following Monday via the Aconex system, so you get it the same day.
3. Your engineer notes the change and passes it to the drafters for making manufacturing changes. On Wednesday they tell the engineer that there will be variation costs.
4. The engineer mentions at the next coordination meeting (Friday morning) that the instruction might involve a variation.
5. The work is urgent, so the drawings have been passed to the workshop, where the change is underway.
6. Your project manager drafts a variation notice and issues it on Monday.
7. The engineer (and C) are reluctant to issue a variation notice. They say detail design is your responsibility. You will need to demonstrate to them why this is a variation.

You are now at least 5 days past your last date for giving notice of a variation and you have started work on the change before receiving a written variation notice. You have lost your entitlement to claim the variation. By now you are entirely at the mercy of C and the engineer.

It is not realistically possible to maintain your site momentum and meet these extremely tight notice deadlines using normal business communications and business meeting cycles in a construction environment. You must have a system to collect and transfer site intelligence instantly for quick action from the responsible parties.

Systems like thepowertool Site Diary allow you to gather critical time-sensitive information at site with text, voice and marked-up photos, synchronised to the office as a task (with deadlines) for immediate action.

Subcontractors who accept conditions that are difficult to meet must ensure that they have fast, foolproof communications and systems to manage their contractual responsibilities.

Friday, July 23, 2010

A week may be a long time in politics, but is it enough in construction?

Subcontract conditions being used for major projects in Queensland can be extremely difficult to comply with; and the consequences of failure to meet them are dire.

Subcontractors must give the main contractor written notice of a delay to the construction program, and its effect, within 5 days of the start of the delay, followed by weekly updates. This notice is a strict condition precedent to being granted an extension of time. Liquidated damages for late completion are high, up to $60,000 per DAY. How many subcontractors could realistically sustain NO payment for delays and extensions of time, for any reason, with severe penalties for delay, at the whim of the head contractor, laid at their door?

Do you identify with this scenario?
Something happens on site on Wednesday to cause a delay to your work. Perhaps a critical work area is not ready to commence or some other cause of delay beyond your control -
1) The tradesman mentions it to the site supervisor, who takes a note in his site diary.
2) Your site supervisor (SS) makes a note in his diary and talks to the head contractor's site supervisor about the problem, who promises to get back to him, but redirects your team to another work area for the moment. (SS notes the change in his diary).
3) SS raises it at his weekly management meeting on Monday.
4) After the meeting your project manager asks your (contract) programmer to check the delay when he is doing his weekly progress update, which he does on a Friday.
5) Programmer looks at the issue after his weekly status. He emails the PM Monday to tell him that the effect on your critical path is 3 days.
6) You are now 3 days past your last date for giving notice of delay and you have lost your entitlement to claim an EOT. You must either accelerate the job at your own cost or face $180,000 in liquidated damages, plus the disruption cost of moving a team and re-programming your work.

It is not possible in practice to meet these extremely tight notice deadlines using normal business communications and business meeting cycles in a construction environment. You must have a system to collect and transfer site intelligence instantly for quick action from the responsible parties.

Systems like thepowertool Site Diary allow you to gather critical time-sensitive information at site with text, voice and marked-up photos, synchronised to the office as a task (with deadlines) for immediate action.

Subcontractors who accept conditions that are difficult to meet must ensure that they have fast, foolproof communications and systems to manage their contractual responsibilities.

Monday, July 12, 2010

Who is responsible for your payment?

Security of payment acts give you an entitlement to payment, but you must protect your entitlement as contracts move through the construction phase with the inevitable variations and other contractual claims. Notices and time bars must be strictly adhered to and you must record everything that might affect your costs on site.

Getting paid is a team effort. Here is the list of staff who need to be involved in your payment processes:

Site supervisors and site operatives
- These are the people "on the ground". They are the most likely to see and experience day-to-day activity that needs recording, including oral instructions for extra work, access issues, delay and disruption, completed work, defects, workplace health & safety, environmental protection and industrial relations. They need to be given the authority and means to collect site intelligence as things happen;

Manufacturing staff
are well placed to identify delays and changes to their workflow due to delays and document changes;

Contract managers must be aware of time constraints and other contractual requirements, check incoming documents and instructions for completeness, accuracy and change and convert gathered "intelligence" into contract processes;

Accounts departments must have a clear understanding of contract terminology and procedures and how they interface with corporate accounting and be alert to late payment and the recovery procedures under security of payments acts.

Management must ensure that all relevant information is gathered and available at all times to allow them to quickly negotiate differences and act quickly to collect overdue payments. facilitates the division of work, the payment process under security of payment legislation and the collection of site data with its unique mobile applications that synchronise site issues, complete with text, photos, drawings and recorded data, direct to the job account.

Saturday, June 19, 2010

Claiming Retention under security of payment

The Queensland BCIPA (Payments Act) provides for including cash retention in a payment claim and damages that arise as a result of suspending work under the contract [section 17(3)]. This means that a retention amount can be included in an adjudication application. Other security of payment acts are similar. This does not extends to releasing bank guarantees. Security of payment acts can not be used to force the release of securities that are secured by bank guarantees and similar financial instruments.

In Queensland, claimants have strong protection under the Qld Building Services Act (QBSA) from respondents wrongly withholding retention (or the release of guarantees), under section 67J, that requires 28 days notice before deducting a retention amount. If notice has not been given, the "set-off" would not be allowed in an adjudication. Of course you must make a claim under 67J to an adjudicator. an adjudicator is not expected to, and will not, go hunting to find what you are entitled to.

The AIQS Dispute Resolution Centre can advise you in relation to your entitlements under security of payment. Call us today if you need advice.

Thepowertool protects your entitlement to payment by properly calculating retention amounts when they are due. Check thepowertool today.

Monday, May 31, 2010

Apples and Oranges - Payment Claims and Tax Invoices

It is common practice to amalgamate Payment Claims and Tax Invoices into one document.  This practice can lead to errors, may jeopardise your entitlement to a payment when you need it and creates unnecessary extra paperwork.

Payment Claims and Tax Invoices are similar business documents with different compliance functions.  A Payment Claim must comply with the requirements of the BCIPA (Payment's Act) and a Tax Invoice complies with taxation, particularly GST requirements.

By its nature, a Payment Claim is open to review and agreement.  The contractor makes a payment claim that the respondent is required to either accept, amend  or reject.  They either agree on the claimed amount, the scheduled amount or they submit to the adjudication process for a decision on the amount.

A Tax invoice, on the other hand, is a much more definitive document and can be much more difficult to unwind.  If a payment claim / tax invoice is amended (either by agreement, or by adjudication), it is an adjustment event for GST purposes and it must be "unwound".

If the amendment is made in the same Tax (BAS) period as the invoice, this can be done by cancelling the original invoice and re-issuing a new one.  The supplier and the recipient should attribute the GST and the input tax credit in accordance with the corrected invoice.

If the adjustment is made in the next BAS period and it is a reduction (most likely), an "Adjustment Note" must be issued by the supplier.  An Adjustment note must include the Australian Business Number (ABN) of the entity that issues it; be in the approved form; must show prominently the following words -  'Adjustment note' (You may also include the words 'credit' or 'debit', for example, 'credit adjustment note', 'debit adjustment note', 'adjustment credit note' or 'adjustment debit note'); or 'Tax invoice' (You can use these words where the adjustment to the price is shown as a negative or credit amount to the recipient).  An adjustment note must also include the following - the name of the supplier or the agent of the supplier; the name of the recipient or the agent of the recipient; the address or ABN of the recipient or the agent of the recipient; the issue date of the adjustment note;       The difference between the price of the supply or supplies before the adjustment event and the new price of the supply or supplies; a brief explanation of the reason for the adjustment, for example, 'discount', 'refund', 'rebate', 'return' or a code by which the reason is readily ascertained, such as REF for a refund; and the amount of the adjustment to the GST payable or a statement to the effect that the difference in the price of the taxable supply or supplies includes GST. (GST Ruling 2000/1).

Of course, both parties to the transaction must also make the adjustment in you next BAS statement, in accordance with GST Ruling 2000/19.  (This is not tax advice.  Refer to your accountant or bookkeeper for detailed advice on these processes).

It's a lot of extra work.

This is the reason that some head contractors adopt the "Recipient Created Tax Invoice" regime, where a "reverse" Tax Invoice is created and sent with the payment, thereby making sure that these notices and reversals are not a regular occurrence.

Often tax invoices generated by standard accounting systems, such as MYOB and Quickbooks, do not roll unpaid amounts forward. This puts claimants in a very vulnerable position, because it means that you must either dispute each and every invoice separately, or create a new payment claim when you least want to wait another month.

Tax invoices often do not show sufficient detail or information for your client to serve an informed payment schedule. This can go against the claimant in an adjudication application.

Standard accounting system invoices also often result in the overpayment of GST on retentions, where they apply.

There is another incompatibility.  A Payment Claim can be made once per month (unless otherwise agreed) after a "reference date", which is a date nominated in the contract (or the last day of the month). 

It is common for the reference date to be mid-way through the month to allow for payments to be processed before the end of the month.  This may not be compatible with your invoicing cycle.

If you are a supplier of goods, your system may issue a tax invoice with every delivery, or at intervals that are shorter than one month.  But under the Payments Act you may not issue more than one Payment Claim for each reference date under the contract, or after the last day of the month if there is no reference date in the contract.

Here is our recommendation for dealing with Payment Claims and Tax Invoices where you are not dealing with a contractor who issues Recipient Created Tax Invoices.

1) If you are a contractor, sub-contractor, consultant who is invoicing periodically (usually monthly) against a contract price or purchase order,

First send a Payment Claim.  The Payment Claim can be sent at any time after the reference date.  It is always best to include ALL the work you have done (and claim) on the contract and DEDUCT payments made.  This way you do not confuse or lose payments that have been adjusted.  

INCLUDE GST in the Payment Claim.

Wait for the PAYMENT SCHEDULE from your customer.

If you agree with the Payment Schedule, issue a Tax Invoice for the scheduled amount.

If you decide to apply for an adjudication of your Payment Claim, for any reason, wait until the adjudicators decision and payment before issuing a Tax Invoice.

2) Suppliers operate in different ways, depending on their accounting methods, but there are some typical approaches to billing.

A supplier may offer a fixed "price per unit" quotation for a particular project.  It will then  generate a tax invoice for every purchase order, based on the contents of the order (with or without a price agreement).  Otherwise, invoices are generated with every purchase or order, at the list price.

Invoices are amalgamated at the end of the billing period into a monthly Statement and customers are required to pay the amount of the statement within the terms of the agreement.

We recommend that the your Statement either doubles as your payment claim or is accompanies by a Payment Claim for the same amount.

It is unlikely that suppliers would want to change their tax invoicing arrangements, as described above, and most would have a regular credit note regime.  There is also less opportunity than with contractors and sub-contractors to disagree with claimed amounts, so the above recommendations for contractors may not apply, unless adjusting invoices is a regular and burdensome process.

If a supplier's terms are  payment on Invoice, the Tax Invoice may double as a Payment Claim, or adopt the contractor's method recommended above.

 The only proviso is that you may not issue more than one payment claim per payment period (usually monthly).

We do not suggest invoking the Payments Act after you are in trouble.
  This alerts the recipient to a pending adjudication claim and it extends the collection time quite dramatically.

The payment's Act is primarily a legislated credit management system.  We recommend that ALL contractors, sub-contractors, suppliers and consultants invoke the Act as a matter of standard business practice.  You are not required to call on adjudication to settle a debt, but when you need to, it can be done very quickly, in as little as 12 business days from the due date for payment and no longer than 15.

The payment's Act is not invoked by including it in a contract or terms and conditions of business.  It is invoked entirely at the discretion of the contractor or supplier of work done in Queensland by the issue of a Payment Claim that includes the details of the work. the amount claimed, AND the words - "This is a payment claim under the Building and construction Industry Payment's Act 2004 (Qld).

Thepowertool facilitates the preparation of payment claims and payment schedules that fully comply with security of payment provisions, saving everyone time and work. It helps to ensure that you get paid on time, every time.
If you want regular information about the Payments Act, you can subscribe to my newsletter here>>

Creating an Effective Schedule of Items for your Payment Claims

It is important to use an accurate schedule of contract items for claiming progress payments because it gives your client sufficient information to make a proper assessment and it is much more difficult to have your claim cut down or brushed off. If it is, you want to be able to challenge it immediately.

Bills of Quantities or bid take-off is often used as the basis for a schedule of items for progress payment claims. The bill of quantities is an important tool in the contractual interface between the parties, but it is not the right cost breakdown for claiming payment for a number of reasons, namely:

1) The BQ is not related to the flow of work, so relating completed work to each item is something of a guess;

2) It is too detailed for the purpose. Inspections for progress claims should be able to be done quickly. Adding % complete to the many labour and sundry items in a bill of quantities is time-wasting and of no benefit.

The value of the bill of quantities is in contract establishment and valuing variations.

The correct cost breakdown structure for valuing progress payments is the construction program or schedule. Bill of quantities items can be easily allocated to program activities. Most estimating programs have a facility to allocate bq items to other codes, including activity codes. Alternatively it can be done using a spreadsheet matrix.

Spreadsheets can be quickly imported into the powertool to create a meaningful schedule of items for quick site assessment of the value of work in progress (earned value). Using a hand held device, such as iPhone or iPad, linked to the powertool makes this a very efficient process.

Thepowertool automatically builds and serves your Payment Claim to comply with Australian (and NZ, Singapore and Malaysian) security of payment legislation. The schedule can also be used to update progress on your construction program.

Contact for more information on setting up an effective payment schedule for your project.

Wednesday, May 19, 2010

Look out for Icebergs? - The Dangers of meddling with the Payment's Act when you do not understand the process

A recent Qld Supreme court decision is a clear warning to the construction industry that it is a high-risk strategy to amend clauses in standard contracts without aligning them to the legislated payment processes under the Payment's Act and without a clear understanding of the operation or intent of the Act. Contractors and subcontractors should be wary of signing agreements or being involved in informal processes that attempt to establish an entirely unnecessary "pre-agreement" to the legislated payment process.

[Simcorp Developments and Constructions P/L v Gold Coast Titans Property P/L; Gold Coast Titans Property P/L v Simcorp Developments and Constructions P/L [2010] QSC 162 (18 May 2010)]
An adjudication decision published on 14th May was overturned in what may be record time on 18th May 2010.

From reading the judgement of Douglas J, starting at [5] it is obvious that the drafting of amendments to the contract show little or no understanding of the intent or operation or the Payment's Act, by the clumsy effort to essentially bring the Superintendent's certificate into play in a way that, in effect, is designed to circumvent the payment process established by the Act. It is clear that the drafter has misunderstood the intent of the Act in relation to payment claims, payment schedules and tax invoices and the interface with contract provisions, including certificates.

Simcorp exacerbated its problems by misconstruing the reference date in its submissions [6] (ie., the date from which the claimant can claim for work done up to that date). Had the submissions been put more concisely and correctly to the Court, his honour might well have been led to the conclusion that the payment terms under the contract exceeded the maximum terms under the Act, that the convoluted "certificate" process might well have fallen foul of s.99 of the Act (contracting out) and that the payment claim was properly served under the Act.

As it was, the submissions clearly led his honour to the conclusion that the reference date was triggered by a certificate due on the 30th of the Month following the submission of a payment claim, and the payment claim was therefore made before the reference date, which he decided was 30th April instead of 23rd (or the 28th) February. In practice this would only be the case if the payment claim included work (or charges, such as interest on overdue amounts) after 23rd February, which amounts an adjudicator would have excluded from his decision.

His honour makes the point that the amended clauses did not add clarity to the process. What an understatement!

With respect to the argument that there was more than one payment claim in relation to a reference date, his honour reinforces earlier decisions (eg., Doolan & Rubikcon) in reading s17(5) of the Act to mean that where a payment claim that includes all the work of an earlier, rejected payment claim, it may not be re-submitted in a subsequent payment claim. If his Honour's interpretation is correct, then it forces a claimant to dispute an item rejected in a payment schedule, rather than accepting it for now and leaving it on the table for negotiation, whilst not foregoing the claimant's rights to ultimately have the matter adjudicated. His Honour's interpretation must lead to more adjudicated claims in order for claimants to preserve their right to ultimately dispute a rejected claim. It is a matter that may need clarification in the Act.

With respect to the claim that the adjudication application at the time that the court proceeding is on foot is an abuse of process, His Honour hints that it might indeed be the case, but does not decide the matter on the basis that it was clear Simcorp were seeking a discontinuance. It is a pity that this matter was not decided, since it leaves adjudicators in the invidious position of having to complete an adjudication decision in these circumstances, since there is nothing in the Act to prevent or curtail the adjudication in the event of a concurrent action.

This decision is a clear warning to the construction industry that it is a high-risk strategy to amend clauses in standard contracts without aligning them to the legislated payment processes under the Payment's Act and without a clear understanding of the operation or intent of the Act. Contractors and subcontractors should be wary of signing agreements or being involved in informal processes that attempt to establish an entirely unnecessary pre-approval process to the legislated payment process.

Thepowertool is designed to ensure that parties to a contract serve fully complying payment claims and payment schedules. It takes the work and risk out of payment in the construction industry; because payment really matters. More information at

Thursday, May 13, 2010

Timeframes under the Queensland Payments Act (BCIPA) [others are the same or similar]

Timeframes under the Payments Act are strict and must be strictly adhered to if the parties are to protect their respective entitlements in relation to payment.

Payment claim

The payment claim must be served on the reference date (or after the reference date but not
before) specified in the contract or the last day of the month if no reference date is specified in
the contract.

In a recent case the claimant faxed a payment claim (a tax invoice) which did not
include the copies of invoices and the time sheets referred in the payment claim. The
claimant, however, did confirm the payment claim, including the supporting documents, by post.
The judge found that the facsimile transmission was incomplete. The payment claim was
served when the respondent received the payment claim along with the supporting documents
sent via post.

Payment schedule

The respondent is required to serve a payment schedule within 10 business days of the date
the payment claim was served.

Adjudication application

If the respondent serves a payment schedule within the timeframe referred in the Act then the
claimant must lodge an adjudication application within 10 business days of the date the
payment schedule was served. If the claimant fails to lodge the adjudication application
within the prescribed timeframe then the adjudication application will be out of time and the
adjudicator may not have jurisdiction to decide the matter under the Act.

Notice of intention to lodge adjudication application

If the respondent does not serve a payment schedule within the prescribed timeframe then the
claimant must serve a notice of its intention to apply for adjudication within 20 business days
immediately following the due date for payment.

The notice must state that the respondent
may serve a payment schedule on the claimant within 5 business days after receiving the
claimant’s notice.

The claimant must lodge the adjudication application within 10 business days after the end of
the 5 day period referred in the notice.

The claimant must comply with the 20 business day timeframe failing which the adjudication
application may be invalid and the adjudicator may not have the jurisdiction to determine the

Notice of Intention to Suspend Work

If the claimant fails to pay the claimed amount where there is no payment schedule, or the scheduled amount, where there is a payment schedule, by the due date for payment, the claimant may immediately (on the next day) serve a notice of its intention to suspend work on the site.

If the respondent does not pay the amount due on the due date, the claimant may serve a notice to suspend work. The claimant may stop work after 2 business days of serving the notice.

When the respondent pays the amount due, the claimant must return to the site within 3 business days of receiving payment.

(Example: The due date for payment is Monday; Claimant issues a notice to suspend on Tuesday morning; Claimant stops work on Thursday morning. - Respondent pays the amount due on Monday; Claimant must start work on Friday morning.)
Ranjit Khosla, AIQSANA Adjudicator

Thepowertool helps the parties maintain the strict time schedules under the Act with calendar reminders for key dates in the payment process and by encouraging the parties to act via the simple and efficient online forms and notifications.

Wednesday, May 12, 2010

Welcome to thepowertool

Welcome to thepowertool blog. We developed thepowertool for the construction industry because we know that payment really matters. When you work hard, outlay for materials and take the risks of business it really hurts when you don't get paid in full and on time. we developed the powertool to facilitate the highly regulated payment process under Australian, New Zealand, Singapore and Malaysian security of payment legislation. Thepowertool can quickly and efficiently create fully complying payment claims and payment schedules to ensure that you get what you are entitled to.

Even with the powertool, you must protect your entitlement to payment with good contract management. The aim of this blog is to assist parties to get the best value from thepowertool with tips and tricks to ensure that you keep your entitlement intact and recover your progress payments in full, on time.