Changes to Payment Matters

This blog is attached to thepowertool and myloop sites.  We will use it from now on to post tips and trick for using these technologies.

General posts on  contract management and security of payment will continue at the new Payment (really) Matters blog.

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.

More detailed article here

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.

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.

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.

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.  Thepowertool.com.au 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.