The Building Industry Fairness (BIF) laws came into place from 17 December 2018. It’s essential to fine-tune your business processes so you know you’re meeting your obligations and ensuring you will get paid.
The laws apply to payment claims given on or after 17 December 2018. Penalties in this space are severe, so you need to get it right.
And the best place to start is to ensure you use the right contract. Master Builders recommends any work you do be covered by a contract – it’s the best way of protecting yourself and ensuring you are paid the money you are owed.
Engaging with subcontractors
The way a builder, subcontractor or sub-subcontractor engages with their subcontractors is like the foundations for a new building project and getting it right and compliant is an important step to getting all of your processes right.
There are a number of ways for builders to engage subcontractors, or subcontractors to engage sub-subcontractors, that comply with the legislative requirements: agreed hourly rates, getting quotes each time, having a period subcontract in place in conjunction with work orders, or signing a separate contract for every job.
- Have a suite of standard contracts in place – purchase orders, terms & conditions, subcontractor and period subcontractor agreements
- Develop a subcontractor engagement process, which you follow for all new subcontractors
- Use Master Builders contracts – online with eDocs or in hardcopy
- Include a clause in your contract that says when payment claims can be made and when they are due to be paid.
- Fail to use a written contract
- Get fined $10K (max) or 4 demerit points by the QBCC for not having the following things in writing:
- Name and licence number of the contractor doing the work
- Address of the site
- Contract price (or how to calculate it)
- Date for completion (or how to calculate it)
- Whether any retention or security applies to the contract, and
- Scope of the work to be carried out.
- Have contracts that contain provisions that are not legal – QBCC Act includes a number of provisions that are not enforceable e.g. max times for payment, max retentions, when retentions are to be released. Make sure your contract complies.
Sending invoices to clients (payment claims)
The laws are very specific about the requirements for sending invoices – what you need to do and when. A payment claim is a written request for payment to the person or business that owes you money.
- Payment claims must be in writing, be given on or after a reference date, and include a description of the work or services that the claim relates to, how much you want to be paid, and a request for payment
- Develop a clear process for issuing payment claims (invoices) including how they are to be given e.g. payment claims to be submitted by email to email@example.com
- Ensure your contract terms & conditions include these details and that you understand them
- Remember! Only one payment claim can be given for each reference date
- Consider using an estimating and job management software that helps you keep track of invoices
- TIP! Make sure you turn off the auto-reminders from your accounts package e.g. MYOB or XERO, as these could inadvertently become payment claims that use up a reference date. Follow up any outstanding payments manually so you know when/how the reminder has been sent
- Remember! Payment claims do not need to be an invoice or even a tax invoice so make sure that you don’t send a payment claim without realising that you did. You will use up a reference date and may not have another one if you need to take action to get paid.
Receiving invoices from subcontractors (payment schedules)
With security of payment a real issue, it is critical to get this right.
When you are issued with a payment claim, you must pay the amount in full by the due date for payment or issue a payment schedule within the earlier of the time specified in your contract or 15 business days after receiving a payment claim.
A payment schedule must refer to the payment claim, state how much you propose to pay, and if it is less than the amount claimed, why it is less. You must include all reasons for withholding payment because they are the only ones you can rely on if a dispute arises.
- Develop a compliant process and timeframes for receiving and responding to payment claims and ensure everyone in your business understands and uses it
- Ensure you understand when a payment schedule is to be given or payment is to be made.
- Fail to recognise that you received a payment claim because it went to your email junk folder or you were expecting the payment claim to be an invoice
- Respond saying that the claim doesn’t comply with ATO laws without first assessing the claim itself. If it doesn’t comply, raise this in the payment schedule along with any other reasons for not paying the amount claimed
- Get fined $13K (max) or disciplinary action by the QBCC for not giving a payment schedule (unless you make payment in full by the due date for payment)
- Become liable for the full amount of the payment claim simply because you did not issue a compliant payment schedule on time.
Receiving invoices from suppliers (payment schedules)
The laws also apply to invoices from suppliers. This wasn’t the intent of the government and we are currently working with them to have this fixed. However, until that happens, you must treat invoices from suppliers in the same way you treat invoices from subbies, or risk facing hefty fines and penalties for every offence.
- Remember! Every supplier invoice that meets the definition of a payment claim now requires a payment schedule or to be paid in full by the due date for payment – this might be every invoice
- Make sure you have an agreement in writing in your contract with your suppliers about when they can send you an invoice
- Consider your business model and whether you can reduce the number of times that you engage suppliers.
- Assume that the end of month statement is the payment claim – it's likely that each invoice you receive throughout the month is a payment claim that needs to be responded to
- Assume that the payment is due by the end of the month – this must be in writing in your contract not just the invoice/statement otherwise it will be due 10 business days after the payment claim is given.
Due date for payment of invoices
If your contract provides a due date for payment in writing, and that provision is legal, then the payment claim is due on that day. However, if your contract does not say when payment is due, or has an illegal provision, then it is 10 business days after the payment claim is given. The rules are the same for all types of payment claims – suppliers,
- Get payment terms in writing in your contracts
- Read your contract and make sure you understand the maximum times for payment in the QBCC Act:
- Head contracts with owners/principals – 15 business days
- Subcontracts with builders/subcontractors – 25 business days
- Make sure that payment is made to their account by the due date and not just payment out of your account.
- Assume the due date on the invoice is the due date under the BIF laws.
With serious penalties, this is not one to get wrong.
- Give a notice using the approved QBCC form of when the end of the defects liability period is, how much retention is expected to be released, and when. The notice must be given within 10 business days of the end of the DLP (max $13k fine). (This notice must also be given for security like bank guarantees)
- Read your contract and make sure you understand when retention is to be released
- Make sure you release retention in accordance with your contract (max $26k fine or one year in jail)
- Change your contracts to include a requirement for the subcontractor to submit a tax invoice for the retention if that is what you want.
- Assume that you don’t have to release retention unless you get a tax invoice or a payment claim
- Link the release of the subcontract retention to practical completion under the head contract.
The BIF laws apply alongside the federal ATO laws. It is important that you comply with both sets of laws. This means that if you do not get a payment claim that complies with the ATO laws and are required to withhold PAYG tax for example, then you must issue a payment schedule stating this and deal with the tax as required by the ATO laws.
We recommend that you seek the advice of an accountant who is familiar with the construction industry so that you get advice on how to comply with both sets of laws.
Not sure of the next steps to ensuring your processes are compliant? Give us a call on 1300 30 50 10 and we can help.