Construction Claims Article Series – Progress claims: the backbone of the project lifecycle

Construction Claims Article Series

This series has covered a variety of construction claim topics, including change and variation claims, delay, disruption and prolongation claims, price acceleration claims and different site condition claims. This article on progress claims explores the nature of progress claims and the legal framework that supports contracted parties’ ability to seek payment of progress claims through an abbreviated adjudication process rather than long-form Court litigation. This article will be followed by an article on damages claims that will mark the end of our Construction Contract Claims Article Series.

Introduction

Progress claims (also known as payment claims, particularly in the context of the legislation discussed below) are essential to the continuation of cashflow in the construction industry. They are the basis by which contractors and subcontractors seek, and receive, payment for the work completed during a project. Most of the other claims discussed in this article series are aimed at defining the parties’ entitlements to payment – which is then claimed for in a progress claim. For example, when a contractor makes a variation claim and the principal approves that variation claim, that affects the amount which the contractor is entitled to be paid by the principal – but that payment will only be made once the contractor claims for that amount in a progress claim. In that manner, progress claims act as the backbone of the project life cycle.

The contract and the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act)

Construction contracts usually include requirements for how much the contracted party is to be paid through the course of a project, how the contracted party is to claim such payment, the details the contracted party needs to include with each of those claims, and the times when those claims can be made. Those contractual requirements affect the parties’ rights at law, so they should be complied with to the fullest extent possible. In the absence of any other relevant legislation though, if a contracted party submitted a claim in accordance with the requirements of the contract but the parties disagreed about the amount which should be paid to the contracted party, the contracted party’s only option would be to commence litigation in Court against the contracting party. That kind of litigation is often costly, and can take years.

For that reason, in Queensland the Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) sets out an additional statutory entitlement for contracted parties (head contractors and subcontractors) to submit payment claims for progress payments and, if the contracting party (whether that is a principal or head contractor) disagrees with the amount the contracted party is to be paid, have an adjudicator determine what amount the contracted party is entitled to. That adjudicator’s determination can then be enforced as if it is a Court judgment, without the contracted party needing to proceed through lengthy and complex Court litigation. The BIF Act is “designed to improve cashflow for contractors”.[1] Similar (but not identical) legislation sets out similar processes in other Australian states and territories.

Importantly, while the BIF Act provides the contractor/subcontractor with the statutory ability to enforce its claim via adjudication, the requirements of that process are set out in the BIF Act with reference to the relevant contract, and with the adjudicator required to value the progress payment in accordance with the contract (to the extent the contract provides for such valuation). For that reason, parties need to understand both the BIF Act and the terms of the relevant contract.

Making payment claims under the BIF Act

The BIF Act provides a statutory right to contracted parties to make claims for payment (referred to in the BIF Act as ‘payment claims’ rather than progress claims). That right exists whether or not it is explicitly stated in the contract. Contracted parties can have an adjudicator determine the amount they are entitled to be paid in respect of payment claims submitted in accordance with the BIF Act, if the amount is disputed by the contracting party and the following requirements are met.

1. The payment claim must be submitted in respect of a ‘construction contract’ as defined in the BIF Act. Generally, this means the contract (whether it is written or oral) must be for construction work (defined in BIF Act s65), related goods and services, or work done in anticipation of construction (e.g. design consultancy services) in Queensland. The adjudication process under the BIF Act is not available for contracts for domestic building work where a resident owner is party to the contract.

2. The payment claim must be made on or after a valid reference date (note that they cannot be made in advance for an upcoming reference date). Reference dates arise either on:

• the dates stated in the construction contract[2] – commonly stated to be a particular day of each month, but occasionally stated by reference to particular milestones being met; or
• if the construction contract does not provide for the matter, the last day of each month starting from the month when the work was first carried out.

If the construction contract is terminated and the contract does not provide for a reference date surviving beyond termination, then the final reference date for the contract is the date the contract is terminated.

Importantly, only one payment claim can be issued for each reference date.

3. The payment claim must meet the definition of a payment claim under section 68 of the BIF Act. This means that it must:

• identify the construction work or related goods and services to which it relates (which must only include claims for construction work or related goods and services completed up to and including the reference date for which the payment claim is made);
• state the amount of the progress payment that the contracted party claims is payable by the contracting party;
• request payment of the claimed amount; and
• include the other information prescribed by regulation (currently nothing is prescribed).

Our September 2024 article linked here provides more detail about what does and does not meet the requirements of a payment claim under the BIF Act.

In several other states, the relevant legislation requires that a payment claim says that it is made under that piece of legislation (this is commonly referred to as an ‘endorsement’). Queensland’s BIF Act does not include such a requirement, so the threshold for a document being a payment claim is lower in that respect. This is vital for contracted parties to be aware of lest they inadvertently submit a payment claim and ‘use up’ the reference date available to them at that time, and for contracting parties to be aware of since it affects whether or not they should issue a payment schedule in response to a payment claim.

4. The payment claim must be made before the end of the time periods stated in section 75 of the BIF Act. Those periods are:

(a) for payment claims which are not for the final payment under the contract, the later of:

• the period (if any) worked out under the construction contract; or
• 6 months from the date on which the work to which the claim relates was last carried out; or

(b) for claims which relate to the final payment under the contract, the later of:

• the period (if any) worked out under the construction contract;
• 28 days after the end of the last defects liability period for the construction contract;
• 6 months after the completion of all construction work to be carried out under the construction contract; or
• 6 months after the complete supply of related goods and services to be supplied under the construction contract.

Payment claims also must be accompanied by supporting statements which declare that all subcontractors have been paid, or detail any amounts which are unpaid to subcontractors, the reasons for such non-payment, and other related details. Failure to provide a supporting statement does not affect the validity of a payment claim, but can result in penalty by the QBCC.

What happens after a payment claim is issued

After receiving a payment claim made for a valid reference date, the contracting party can either:

1. pay the amount claimed by the due date; or

2. send the contracted party a payment schedule by the earlier of:

• the period (if any) stated in the construction contract within which the contracting party must give a payment schedule; or
• 15 business days after the payment claim is given by the contracted party.
•  

A payment schedule must:

• identify the payment claim to which it responds;
• state the amount of the payment (if any) which the contracting party proposes to make;
• if that amount is less than what the contracted party claimed, state the reasons why; and
• include the other information prescribed by regulation (currently nothing is prescribed).

If a payment schedule is not given in the required time, the contracting party is taken to be liable to pay the amount claimed in the payment claim on the due date for that payment, and the contracting party will not be entitled to submit an adjudication response in answer to any adjudication application made by the contracted party for that payment claim.

Contracting parties are also limited, in any adjudication response which is required, to arguing only the reasons for non-payment which were stated in their associated payment schedule.

For both of those reasons, it is vital that if a contracting party disagrees with the amount claimed by a contracted party, the contracting party issues a robust payment schedule within the time it is required to do so.

Adjudication Processes

Where a payment claim and payment schedule differ on the amount which the contracted party is to be paid, or where no payment schedule is given and/or the contracting party does not pay the amount owed to the contracted party by the due date, the contracted party can then submit an adjudication application within the particular timeframe specified in the BIF Act. The contracting party can then (if they submitted a payment schedule) respond with an adjudication response, and an adjudicator will decide what amount the contracting party needs to pay to the contracted party.

The details of those adjudication processes are not the focus of this article, but should you require any further information or assistance in relation to adjudication processes, please feel free to contact our office.

Importantly for the purposes of this article, note that the adjudicator’s job is to decide what amount the contracted party is entitled to be paid under the contract (if the contract provides for the matter). Section 71 of the BIF Act specifically states that the amount of a progress payment to which a contracted party is entitled is:

(a) if the contract provides for the matter—the amount calculated in accordance with the contract; or

(b) if the contract does not provide for the matter—the amount calculated on the basis of the value of construction work carried out, or related goods and services supplied, by the person in accordance with the contract.”

(emphasis added)

In that critical respect, again, while the BIF Act provides the legislative mechanism and process by which amounts can be claimed via adjudication by the contracted party, it is the contract itself which (if it provides for the matter) specifies how much the contracted party is entitled to be paid.

Common mistakes in payment claims

Some common issues that can arise when making payment claims include:

• not submitting payment claims on or after a valid reference date;
• claiming amounts for work completed after the reference date for which the payment claim is made;
• not adequately identifying the construction work or related goods and services to which the payment claim relates; and
• not making the payment claim within the times specified by section 75 of the BIF Act (the most relevant is often the 6 month period from the completion of the work to which the payment claim relates).

Common mistakes in payment schedules

Some common issues that can arise when issuing (or not issuing) payment schedules include:

• not issuing a payment schedule in time – resulting in the amount claimed being taken to be owed to the contracted party, and stopping the contracting party from being able to issue an adjudication response in answer to an adjudication application for that claim; and
• not including all the reasons for non-payment – thereby restricting the reasons for non-payment which can be argued in an adjudication response.

Importance of documentation

The procedural errors described above are relevant and important for parties to be aware of. However, by far the biggest difficulties we see parties have in supporting their asserted positions are due to failures to keep detailed documentary evidence throughout the course of a project. For both parties, the importance of proper documentation cannot be overstated. Keep detailed records of things like:

• what work has been completed;
• what variation claims have been made, approved/not approved, the amounts for which they have been approved (if any), and the bases for each of their approvals/non-approvals and valuations (these are very common contentious matters in adjudication processes);
• what acceleration claims have been made, approved/not approved, the amounts for which they have been approved (if any), and the bases for each of their approvals/non-approvals and valuations;
• what EOT claims, delay claims, disruption or prolongation claims have been made, approved/not approved, the amounts for which they have been approved (if any), and the bases for each of their approvals/non-approvals and valuations (these are also very commonly contentious, particularly in the context of contracting parties levelling liquidated damages back against contracted parties by way of set-off);
• what site condition claims have been made, approved/not approved, the amounts for which they have been approved (if any), and the bases for each of their approvals/non-approvals and valuations;
• any correspondences related to any of the above; and
• any approvals or modifications from the original contract.

These records are essential in supporting either a claim for payment, or the denial of such claims (often including by way of set-off, depending on the contract).

Conclusion

Progress claims are a critical part of the construction industry in Queensland, ensuring that contracted parties are paid in a timely manner for their work, which in turn means cash can continue to flow down the line to any subcontracted parties. The BIF Act provides a statutory framework to enable contracted parties to claim for payment, and for those claims to be adjudicated if necessary, in a quicker manner than long-form Court litigation. While the BIF Act sets out these claim and adjudication processes, many parts of those processes (including, vitally, the valuation of the amounts to be paid) are directly dependent on the terms of the relevant contract.

For both contracted parties and contracting parties, understanding your contract’s terms and the BIF Act, and maintaining robust and accurate documentation are essential for maintaining cash flow and minimising the risk and effect of disputes. By the parties engaging with these processes effectively, construction projects can proceed smoothly, ensuring that payments are made fairly and promptly, which ultimately benefits all parties involved.

While every care has been taken in the preparation of this article, it is not intended as a full and complete description of every relevant legal requirement under the BIF Act, or as advice which applies to every situation. If you need further information about any of the matters discussed in this article, please seek legal advice.

Please don’t hesitate to contact us if you have any queries about progress claims, payment claims under the BIF Act, or construction contracts generally.

[1] Taringa Property Group Pty Ltd v Kenik Pty Ltd [2024] QSC 327, [17].

[2] This is one key manner in which parties need to have regard to both the wording of the BIF Act and the specific terms of the contract.