What is happening under the Building Industry Fairness (Security of Payment) Act 2017 QLD?

This paper has been prepared by Stuart Wood, a civil engineer with over 45 years experience in the building and construction industry. Stuart is a Senior Adjudicator with Adjudicate Today and is registered and adjudicates in most States of Australia.

In his Review of Security of Payment Laws report of December 2017, Mr John Murray concluded, amongst other things, that since the introduction of security of payment legislation across the States of Australia in the early 2000’s, there have been some improvements in payment practices within the construction industry. However, Mr Murray also concluded that the legislative regimes are unduly complex and this has discouraged their usage and caused confusion, while he also questioned the variable quality of adjudication decisions.

Statistics available on industry use of the various security of payment laws across Australia indicate that the number of adjudicator determinations/decisions has been relatively stable [+ or – 10%] over the past 4 to 5 years, with the exception of Queensland. Based on data published in the annual reports of the Queensland Building and Construction Commission [QBCC], the number of applications/decisions has reduced by around 50% and 21% respectively, with a very high number of these being “no jurisdiction” decisions:

I have been registered with the QBCC as an Adjudicator under the Building and Construction Industry Payments Act 2004 (Qld) [BCIPA] and then subsequently the Building Industry Fairness (Security of Payment) Act 2017 QLD [BIFA] since August 2013.

Recently, I had cause to analyse the industry’s utilisation of the BIFA over a period of the last eighteen months and to correspond with the QBCC Adjudication Registrar on the allocation of adjudication application referrals in that period. For this eighteen month period, I have compiled the following statistics from a review of the Queensland adjudication decisions published on the QBCC website:

Based on the above data, of the 246 “decisions”, 66 or 26.8% were “no jurisdiction” decisions. The total in progress payments claimed across these particular unsuccessful adjudication applications represents almost 37% of the total of all amounts claimed in the payment claims adjudicated, likely having an impact on the solvency of the builders [and their subcontractors] effected by the high level of “no jurisdiction” decisions in Queensland.

One must then question why so many “no jurisdiction” decisions are having to be made, and at what cost to the industry [see further consideration below].

For the purposes of adjudication, the BIFA commenced in Queensland on 17 December 2018, along with the phasing out of the BCIPA. Announcing the BIFA, the Minister for Housing and Public Works said that the new requirements of the BIFA were designed to deliver a faster and fairer payment and adjudication system.

One wonders then why the number of applications and decisions have markedly reduced under the BIFA in comparison with those made under the original BCIPA regime in Queensland, and have statistically reduced in comparison with the other States.

The recent correspondence with the QBCC Adjudication Registrar has revealed that there are now 175 adjudicators registered under the BIFA, roughly evenly split between Grade 1 and 2. The Registrar confirmed that the supply of adjudicators in Queensland is now exceeding the industry demand for adjudications.

To emphasise the magnitude of the problem faced by the QBCC Adjudication Registrar, my review of the 246 adjudication decisions mentioned above [including the “no jurisdiction” decisions] revealed some startling statistics, as follows, about the recent referrals to the adjudicators registered under the BIFA:

• 84 adjudicators had the opportunity to complete just one decision in the period;
• 37 adjudicators completed two decisions each;
• 22 adjudicators delivered 3 decisions each;
• 3 adjudicators delivered 4 decisions each; and
• 2 adjudicators delivered 5 decisions each.

This means that of the 175 registered adjudicators, 148 registered adjudicators received a referral and gave a “decision” under the BIFA in this period, leaving some 27 adjudicators who received none. It is possible that those remaining may be new adjudicators and/or those registered but not available to adjudicate in this period.

Surprisingly, the legislation does not allow the QBCC Adjudication Registrar to cap the number of adjudicators, nor does it allow the Registrar to seek approval to a moratorium to temporarily restrict the number of adjudicators. Training of new adjudicators is continuing while the Registrar is faced with an increasing number of adjudicators, without any corresponding increase in the number of adjudication applications.

It is possible that the above issues in Queensland are leading to some of the problems identified by Mr Murray, particularly the variable quality of adjudication decisions. Even though the legislation provides for mandatory Continuing Professional Development [CPD] of adjudicators, the fact that most adjudicators may only adjudicate an application under the BIFA once every eighteen or so months, must lead to a considerable loss of efficiency and effectiveness for adjudicators when carrying out an adjudication, and likely cause an increase in fee costs per adjudication. In my opinion, in addition to ongoing CPD, the best “practice” for an adjudicator is the regular undertaking of adjudications.

Another important issue to be considered is the process costs incurred by the builder claimants in proceeding to adjudication under the BIFA. While I don’t have access to the actual fee costs incurred by the claimants in respect of the large number of “no jurisdiction” decision matters, it is possible that the cumulative fee costs lost to them would be at least $30,000 in fees paid to the QBCC Adjudication Registry [refer to the QBCC’s Annual Reports for this data], some $300,000 to $600,000, or more, paid in adjudicators’ fees, and who knows how much in fee costs paid to legal and other professional advisers for the preparation of the failed adjudication applications.

As for the costs to the registered adjudicators themselves, it can cost of the order of $3,500 or more to train and register to be an adjudicator under the BIFA. These costs do not include travel, accommodation or the costs of preparation for the training and/or the opportunity cost of undergoing the training. There is then the ongoing cost of maintaining registration and CPD training. These costs can be of the order of $1000 to $1500 or more per annum. These costs are not off-set by any fees recouped from adjudicating, unless perhaps an adjudicator is one of the 27 or so adjudicators favoured with more than 2 adjudication referrals per year.

An independent observer might conceivably conclude that it is wrong for the QBCC to continue to encourage interested professional persons and other capable industry persons, to spend their time and money on training and registration to become an adjudicator under the BIFA, for no valid purpose other than perhaps industry recognition of their registration. In a paper presented by the Hon. Peter Vickery QC, in August 2018, commenting on Mr Murray’s report, while noting that the security of payment legislation is a very important component of the construction industry across Australia, he also applauded Mr Murray for recommending that simplicity, both conceptual and textual, be the basis of the drafting of security of payment legislation. He said that, “To be effective, it is important to address the law to the category of people who will read and use it.”

It may then be concluded from the above that the BIFA has not proven to meet the standards of simplicity required for the industry to use it, it is not favoured by the building and construction industry in Queensland, and the system under which the BIFA is required to be managed, is failing.

In view of the above, there is now a strong case to improve the QBCC’s management practices applicable to the BIFA, and to simplify the BIFA.

I therefore suggest that it is time for Queensland to follow the lead of the other States, adopt the applicable recommendations of Mr Murray, and implement the successes of other States.