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.

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 >>;

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.

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.

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).

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.

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 john.lowry@thepowertool.com.au for more information on setting up an effective payment schedule for your project.

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 www.thepowertool.com.au