Key Takeaways

• A valid payment schedule must clearly identify the reasons for withholding payment; however, the BIF Act does not mandate any particular form or structure for expressing those reasons. The key question is whether the payment schedule sufficiently informs the subcontractor of the basis for the contractor’s assessment and delineates the scope of the dispute.
• Contractors should ensure their payment schedules clearly and directly address the amounts claimed. Failure to do so may create ambiguity about whether valid reasons have been given for withholding payment, increasing the risk of a finding of non‑compliance.

Background

Contractors will be familiar with their obligation under section 76 of the BIF Act, which requires them to respond to a payment claim by issuing a payment schedule within the prescribed timeframe. Section 69 of the BIF Act sets out the necessary factual elements that must be included for a contractor’s response to constitute a valid payment schedule.

In CPB Constructions, the contractors (including CPB Contractors Pty Ltd, BAM International Australia Pty Ltd, Ghella Pty Ltd and UGL Engineering Pty Ltd) had formed an unincorporated joint venture (Joint Venture) to carry out underground construction works for the Cross River Rail Project. MSS Projects (NSW) Pty Ltd (MSS Steel) supplied steel to the Joint Venture under a subcontract.

MSS Steel issued a payment claim under the BIF Act for $2,557,707.59 (Payment Claim). The Joint Venture responded with a payment schedule assessing the amount payable as $227,925.58 (Payment Schedule).

MSS Steel subsequently applied for adjudication under Part 4 of the BIF Act. The Joint Venture lodged an adjudication response. The Adjudicator determined that:

• The Payment Schedule did not comply with section 69(c) of the BIF Act, as it did not adequately state the reasons for withholding payment; and
• He was prohibited from considering the Joint Venture’s reasons in its adjudication response because, in his view, the Joint Venture had failed to give a valid payment schedule.[2]

As a consequence of the Adjudicator’s decision, the Joint Venture was required to pay MSS Steel over $2.7 million, being the full amount of the Payment Claim plus interest and fees.

The Joint Venture applied to the Supreme Court, seeking a determination as to whether its Payment Schedule met the requirements of section 69 of the BIF Act. The parties agreed that if the Court found the Payment Schedule to be valid (contrary to the Adjudicator’s view), the entire adjudication decision should be declared void and set aside, requiring MSS Steel to repay the Joint Venture the sum of approximately $2.7 million.

Court’s Findings

The Court considered the proper interpretation of section 69(c) of the BIF Act and confirmed that the section requires only that, if a contractor proposes to pay less than the amount claimed, the payment schedule must state the reason or reasons with sufficient clarity to define the parameters of the dispute. The BIF Act does not require reasons to be provided in any particular form,[3] nor does it prescribe any standard of quality or detail beyond what is necessary to adequately inform the subcontractor of the basis for withholding payment.[4]

The Court concluded that the Joint Venture’s Payment Schedule met the requirements of section 69(c) and was therefore a valid payment schedule for the purposes of the BIF Act. As a result, the adjudication decision was declared void and set aside, and MSS Steel was ordered to repay the amounts it had received under the adjudication decision (totalling over $2.7 million).

It is important to note that if the Adjudicator had been correct in finding the Payment Schedule invalid, the Joint Venture would have been liable under section 77 of the BIF Act to pay the full amount claimed in the Payment Claim, and all of its reasons for withholding payment would have been legitimately disregarded in the adjudication.

Further information / assistance regarding the issues raised in this article is available from the authors, Michael Gill, Partner, Nicholas Revere, Senior Associate, or your usual contact at Moray & Agnew.