Who is Right, the Lawyer or the QS?

Wednesday, 11 November 2009

The lawyer's view - Avendra Singh, Colin, Biggers & Paisley
The SA construction industry must push for security of payment legislation that avoids NSW's mistakes if it wants to achieve a framework that is fair for all, warns a leading Sydney construction lawyer. With passage of the SA Security of Payment Bill suspended while government senators consider amendments ‘to improve the bill’, Avendra Singh, construction partner at Colin Biggers & Paisley lawyers has urged local industry players to push for changes to ensure the bill avoids the worst excesses of the NSW legislation on which it is modelled.

“The original purpose of the Act was to fix the problem of builders not being paid for work done. But in NSW the balance has tipped so far in favour of claimants that respondents such as developers and head contractors are now at a significant disadvantage,” said Singh. “The tight 10-day timeframe for responding to payment claims clearly gives claimants the upper hand. They are able to leisurely prepare a thorough claim yet can ambush payers by forcing them to respond in a matter of days. Some claims have been known to be in the tens of millions of dollars involving complex calculations and issues of fact and law. It is doubtful this is what the legislators had in mind. As payers become immediately liable for the full amount claimed if they miss the deadline, this is a very big risk indeed for developers and head contractors”.

Singh highlighted that the adjudication process for payment claims was also skewed in favour of claimants and had created a very powerful group of people – namely adjudicators – who were not all necessarily objective or appropriately qualified. “If there’s a sure-fire way of bringing the security of payments process into disrepute, it is by stacking it with biased and unqualified adjudicators. In NSW as well as under the SA Bill, it is claimants who appoint the adjudicator to hear a dispute. In NSW this has led to an unhealthy proliferation of adjudicators who are perceived to be "claimant-friendly".

“Moreover there’s no certification process for adjudicators to ensure they meet consistent minimum qualifications. An engineer may hang out a shingle because he can assess the value of building work but is he capable of resolving complex legal issues that arise?” added Singh. He emphasised that overall, the legislation had very strong merits and would be of great benefit to the SA construction industry provided local legislators took on board the lessons learnt from the other states – especially NSW and Victoria - who have had the security of payment regime in place for some years.

“South Australians deserve more than just a cookie-cutter approach. They have the luxury to choose the best elements of the existing regimes and should not squander this opportunity to create a first rate law,” said Singh. He also noted that it was not too early for the SA construction industry to begin preparing for the new security of payment (SoP) legislation. “The requirements of the Bill and timeframes for action are very different to current industry practices and will have a dramatic impact on the industry’s contracting culture. Companies that begin their transition planning now will ensure they are on the front foot when the rules inevitably come into force,” he said.

Top tips to ensure your company is SoP-ready

  • Review contractual terms and timeframes to ensure they are in line with the legislation.
  • Ensure relevant staff have a high level of awareness of the legislation and internal processes are geared to meet strict new timeframes.
  • On the claimant side, ensure you have a claim form that complies with the legislation. Claims must set out a proper basis for the claim, otherwise adjudication may only be carried out on a limited basis and not do justice to the claim.
  • On the payer side, ensure you understand what makes a claim invalid and that you have an efficient process for thoroughly responding to claims with a payment schedule within 10 days.


The Quantity surveyors view - John Lowry, AIQSANA
Mr Singh is correct in that security of payment legislation, now effectively in operation throughout Australia, New Zealand, Singapore, Malaysia and the UK was enacted to deal with a problem that the construction industry has grappled with for 200 years.  It is regarded as largely successful.

Like many others, Mr Singh focusses on the dispute resolution provisions, whilst these Acts primarily establish a reasonable legislative framework for the process of giving and receiving, negotiating and paying of progress payment claims.  The dispute resolution provisions are available where parties can not agree on a payment or refuse to meet their obligations with respect to the payment process.  

There is a strong incentive in these Acts for parties, both claimant's and respondents to institute proper management controls and systems to deal with contract administration in a timely manner.  A 10 business day response time to dispute a payment claim must be understood in the context of normal monthly payment terms, or default terms under the Acts, usually 10 business days.    If respondents are managing their contracts properly, they should have no problem meeting their obligations.  Experience tells us that most problems arise when parties attempt to administer large (and small) contracts by skating through on the smell of an oily rag, either by design or ignorance and when trouble arises, resorting to old-fashioned bullying and cheque-book diplomacy.  It  has been an industry that feeds on itself.  That is not a sensible strategy for a profitable, sustainable, thriving, innovative construction industry.

Most adjudicators would be insulted to be referred to as unqualified and biased.  Who is better qualified to "decide the amount of a progress payment", taking into account "the provisions of the construction contract", as required by these Acts.  Is it an experienced quantity surveyor or engineer who had spent his/her life administering construction contracts and valuing progress payments, or a person who has never administered a contract or valued a progress payment in his/her life?  It does not take Einstein to answer that question.

With respect to bias, whilst it is fashionable to complain about "claimant-friendly" adjudicators, a review of government adjudication statistics does not bear out the claim that any adjudicators or ANA's are more or less biased towards one party or the other.  Adjudicators, in our experience, understand their role, have a thorough knowledge of the Act and its operation and take their job very seriously.  Further, and just as importantly, many adjudicators are experienced industry experts, with a lifetime of practice administering contractual clauses.  To suggest that these are "complex matters of law", that may be beyond the ken of such people is an extraordinary outburst.

In fact, most disputes escalate out of proportion to the value of claims when parties, usually respondents, attempt to frustrate the operation of the Act on technical legal grounds.  Of course, it must be pointed out that a progress payment does not prevent a respondent from pursuing its contractual and legal rights for recovery if it wishes to do so.  We do find however, that many respondents will go to extraordinary lengths to avoid making a payment.

ANA's, including the Australian Institute of Quantity Surveyors and the Institute of Arbitrators and Mediators, Australia, take their role of training and professional development for adjudicators very seriously.  They are primarily standards-based training organisations.   In Queensland adjudicators are also required to be certified by the ANA and registered by the Authority that administers the Act.  The Registrar takes a keen interest in the quality of adjudications.

The South Australian construction industry should embrace the opportunity to step up to best practice payment practices to help build a healthy, profitable, sustainable construction industry that we will all be proud to introduce our sons and daughters to.

The AIQS Authorised Nominating Authority provides training for contractors, suppliers, developers and clients, architects, engineers and quantity surveyors in developing systems and process to meet security of payment obligations and ensuring that their entitlements are protected.

John Lowry
Australian Institute of Quantity Surveyors Nominating Authority.