BIF Act Guide: Your Legal Payment Rights in Construction
- John Merlo
- Sep 1
- 12 min read
For contractors and subcontractors operating in Queensland's building industry, the risk of non-payment is a significant commercial threat. When payments are delayed, disputed, or withheld by principals, it can jeopardise cash flow, business viability, and operational stability.
In recognition of this systemic issue, the Queensland government introduced the Building Industry Fairness (Security of Payment) Act 2017 (BIF Act). This legislation fundamentally reformed payment practices within the building industry by establishing robust mechanisms to ensure contractors and subcontractors are paid in full and on time.
This document provides a comprehensive overview of Queensland's building industry payment laws, from fundamental rights to complex dispute resolution procedures. It outlines the practical knowledge required for head contractors, subcontractors, and other building professionals to understand their obligations and protect their commercial interests.
What Is the Building Industry Fairness Act?
The Building Industry Fairness (Security of Payment) Act 2017 is a significant legislative reform designed to address the problem of delayed and non-payment in the construction sector. The BIF Act establishes a comprehensive framework based on three core pillars: the mandatory use of statutory trust accounts to protect funds, streamlined procedures for claiming and receiving progress payments, and an effective, fast-track adjudication process for resolving disputes.
Who Must Comply with the BIF Act?
The BIF Act applies primarily to contracts that necessitate the establishment of project trusts. The eligibility criteria and thresholds for these trusts are specific:
State and Hospital and Health Service contracts valued at $1 million or more.
Other contracts, including those in the private sector and with local governments, valued at $10 million or more.
State authority contracts valued at $1 million or more where the authority has elected to require a trust.
For a project trust to be required, the contract must also meet additional criteria, namely that more than 50% of the contract price is for "project trust work" and the contracted party enters into at least one subcontract.
Certain exemptions apply, including small-scale residential construction work involving fewer than three living units, contracts for maintenance work only, and contracts solely for professional design or advisory services. Consultation with legal professionals experienced in building and construction law is advisable to determine specific obligations under the BIF Act.
Key Benefits for Building Industry Professionals
The payment protection mechanisms under the BIF Act provide several critical advantages. The requirement for trust accounts enhances cash flow security by legally protecting payments from a principal's insolvency or financial distress. The adjudication process delivers binding decisions within a short timeframe, typically 10 business days, which is significantly faster than traditional litigation. The legislation also establishes statutory rights to suspend work, claim interest on overdue payments, and pursue multiple enforcement options. Consequently, these streamlined procedures can reduce the time and expense associated with resolving payment disputes.
Project Trusts: The First Line of Defence
Project trusts are a powerful protection under the BIF Act. When a building contract meets the eligibility criteria, the head contractor must establish a project trust account to hold all progress payments before their distribution down the contracting chain.
The process requires the building owner to pay all progress payments directly into the project trust account. The head contractor, acting as a trustee, is then legally obligated to distribute these funds to subcontractors and suppliers according to their contractual entitlements. This arrangement legally separates progress payments from the head contractor's operational funds, thereby protecting the money from creditors should the head contractor experience financial difficulty.
Project trust requirements include:
Adherence to contract thresholds: $1 million or more for State/HHS contracts, or $10 million or more for others.
Account establishment within 20 business days of entering into the first subcontract.
Notification to the Queensland Building and Construction Commission (QBCC) of the trust account details.
Maintenance of detailed transaction records.
Regular reporting to the QBCC as required.
Retention Trusts: Safeguarding Withheld Amounts
Under the BIF Act, any eligible retention money must be held in a separate retention trust account. Unlike project trusts, there is no minimum monetary threshold for retention trusts. Any retention amount withheld under a contract that requires a project trust must be deposited into a retention trust account.
Head contractors must establish retention trust accounts for any contract that requires a project trust. The retention trust framework ensures that money withheld from progress payments remains secure and available for release upon completion of contractual obligations.
Obligations for setting up retention trusts include:
Opening a dedicated account, separate from all other business accounts.
Notifying the QBCC of the account details within the required timeframes.
Depositing all withheld amounts within five business days.
Maintaining records of all deposits, withdrawals, and any interest earned.
Following prescribed procedures for the release of retention money.
Trust Account Compliance and Penalties
The QBCC actively monitors trust account compliance through audits and investigations. Non-compliance can lead to severe penalties, which are based on current penalty unit values.
Financial penalties: Up to 100 penalty units for individuals and significantly higher amounts for corporations.
Licence sanctions: Suspension or cancellation of QBCC licences.
Director penalties: Personal liability for company directors.
Criminal charges: Potential criminal charges in cases of serious misconduct.
A thorough understanding of trust account obligations is crucial for maintaining a QBCC licence and avoiding significant penalties.
Progress Payment Claims: The Right to Timely Payment
Making Valid Payment Claims
The BIF Act provides a statutory right to claim progress payments for work completed. Making a valid payment claim is essential for protecting cash flow and preserving legal rights.
Every progress payment claim must include the following essential elements:
A detailed description of the work completed or goods supplied.
The specific amount being claimed.
The reference date to which the claim relates.
The due date for payment.
Furthermore, all payment claims must be in writing and served on the correct person at the address specified in the contract. Claims should be accompanied by supporting documentation, such as invoices, delivery dockets, or progress certificates. The contract typically specifies the timing of claims, which is generally on a monthly basis.
Payment Schedules: The Principal's Response
Upon receiving a payment claim, the principal must respond with a payment schedule within 15 business days. The schedule must state whether the claim is accepted in full or in part, and if any portion is rejected or disputed, it must provide detailed reasons for the rejection or dispute.
Failure by the principal to provide a payment schedule within the statutory timeframe has serious consequences. The full amount of the payment claim becomes immediately due and payable, the claimant gains the right to suspend work until payment is made, and the principal is barred from raising any disputes in a subsequent adjudication.
Calculating Interest on Overdue Payments
The BIF Act provides an entitlement to interest on overdue progress payments. The applicable rate is 10% per annum plus the Reserve Bank of Australia's rate for 90-day bills. Interest is calculated on a simple basis from the payment due date until the date payment is made. This entitlement is automatic and does not need to be specifically claimed.
For example, for a $50,000 payment that is 45 days overdue, with an RBA 90-day bill rate of 3.61%, the interest payable would be calculated based on a total interest rate of 13.61% per annum.
Adjudication offers a rapid, binding resolution for payment disputes, avoiding the time and expense of traditional litigation. It is a statutory mechanism designed to ensure cash flow within the construction industry.
Grounds for Adjudication
Adjudication should be considered when a payment dispute arises in several common scenarios, including when:
A payment schedule disputes a claim or reduces the payable amount.
No payment schedule is provided by the principal in response to a payment claim.
Payment is overdue despite an accepted payment schedule.
Disputes arise concerning the valuation of variations, the cost of defect rectification, or other contractual interpretations affecting payment.
Key Features of Adjudication
Adjudication under the BIF Act provides a faster and more cost-effective alternative to court proceedings. Adjudicators are industry experts who understand construction practices, and the process is designed for speed, with decisions for standard claims typically made within 10 business days of the response date. The primary advantage is the restoration of cash flow through an enforceable determination, whereas litigation can tie up funds for an extended period.
The Adjudication Process
The process is governed by strict procedural requirements and timeframes. Claimants must ensure their application is jurisdictionally sound and procedurally compliant, as errors may render the application invalid.
1. Lodging the Adjudication Application
The application must be lodged with the QBCC Adjudication Registrar using the approved form within strict timeframes. It must be accompanied by the prescribed fee and a submission detailing the claim.
Application Components: An application consists of the completed form, supporting documentation (such as the payment claim, contract, and payment schedule), and a written submission. For claims of $25,000 or less, the submission is restricted to 10 pages.
Lodgement Timeframes: The deadline for lodging an application depends on the circumstances. For example, if a payment schedule is received but disputed, the claimant has 30 business days to apply. If no payment schedule is received, the claimant has 30 business days from when the payment was due or the schedule was required.
The claimant must serve a copy of the entire application on the respondent as soon as practicable after lodging it.
2. The Adjudication Response
A respondent may only submit a response if they provided a payment schedule within the statutory timeframe. The response must not introduce new reasons for withholding payment that were not in the original payment schedule.
Response Timeframes:
For standard claims (up to $750,000), the response is due within 10 business days of receiving the application or 7 business days of receiving the adjudicator's notice of acceptance.
For complex claims (over $750,000), these timeframes are extended to 15 and 12 business days, respectively.
3. The Adjudicator's Decision
The Registrar appoints an adjudicator who assesses the application and response. The adjudicator must issue a written decision, including reasons, within a set timeframe.
Decision Timeframes:
For standard claims, the decision must be made within 10 business days of the response date.
For complex claims, this is extended to 15 business days.
4. Payment and Enforcement of the Decision
An adjudicator's decision is binding and immediately enforceable. The respondent must pay the adjudicated amount within five business days of receiving the decision, or by a later date set by the adjudicator. Failure to pay by the due date is an offence under the BIF Act and can result in prosecution or disciplinary action by the QBCC.
If the adjudicated amount is not paid, the claimant has several powerful enforcement options:
Lodge the Adjudication Certificate in Court: The claimant can file the certificate as a judgment debt, allowing for standard court enforcement mechanisms such as garnishee orders or seizure of property.
Suspend Work: The claimant may issue a written notice of intention to suspend work under the contract.
Payment Withholding Request: A claimant can require a party higher up the contractual chain (e.g., the principal or developer) to withhold payment from the respondent.
Register a Charge Over Property: The claimant can register a statutory charge over the property where the work was performed.
Work Suspension Rights: Protecting a Commercial Position
When Work Can Be Suspended
The BIF Act provides a statutory right to suspend work in specific circumstances, which can be a powerful tool to secure payment without being in breach of contract.
Grounds for work suspension include:
An unpaid adjudication determination five business days after payment was required.
An accepted payment claim 10 business days after payment was due.
The expiry of the payment schedule period without a response from the principal.
Before suspending work, a written notice must be provided. This notice must state the intention to suspend work, the grounds for the suspension under the BIF Act, the amount owed, and the date and time the suspension will commence.
Practical Considerations for Work Suspension
While the right to suspend work is a legal entitlement, practical factors warrant consideration. These include the potential impact of the suspension on the overall project timeline and other trades, the preservation of long-term commercial relationships, and the need to ensure the suspension does not create safety hazards. Detailed records of the suspension period must be maintained.
Work must resume within two business days of the outstanding amount being paid, the dispute being resolved, or adequate security for payment being provided. A failure to resume work promptly may constitute a breach of contract.
Subcontractor Charges: Direct Payment Rights
Subcontractor charges are a powerful payment protection mechanism under the BIF Act. The process allows a subcontractor to claim payment directly from the building owner, thereby "leapfrogging" a head contractor who has failed to make a payment. The building owner must then pay the subcontractor directly, and this amount is set off against what the owner owes the head contractor.
For a subcontractor charge to be valid, there must be an outstanding payment claim that has been accepted or determined by adjudication, and proper notice must be served on both the head contractor and the building owner in compliance with strict procedural requirements.
The process involves serving a written notice on the head contractor demanding payment within 10 business days. If payment is not made, a notice is then served on the building owner demanding direct payment. The owner may pay the amount, dispute the charge, or seek court orders to determine its validity. If the owner does not respond appropriately, the charge becomes enforceable as a debt.
Property Charges: Securing Payment Against Real Estate
Property charges provide a head contractor with security against the building owner's property for unpaid contract amounts. This ensures that if the building owner becomes insolvent, the contractor has a secured interest in the property itself.
A property charge can secure payment for construction work, materials supplied, and related design or project management services. The process requires lodging the charge with the Titles Office against the property title and serving notice on the owner.
Property charges generally rank in priority behind prior registered mortgages and statutory charges but ahead of subsequent mortgages and the claims of unsecured creditors in a bankruptcy or liquidation scenario. Enforcement can occur through court proceedings to seek an order for the sale of the property or by using the charge as leverage in settlement negotiations. The charge must be discharged once the underlying debt is paid or a settlement is reached.
Conclusion: Protecting a Business Under the BIF Act
The Building Industry Fairness (Security of Payment) Act 2017 provides a comprehensive framework for payment protection in Queensland's building industry. The mechanisms of trust accounts, rapid payment procedures, and effective dispute resolution offer significant security for contractors and subcontractors.
The legislation provides multiple layers of protection through trust accounts and subcontractor charges, reducing the risk of non-payment. The adjudication process offers faster and more cost-effective dispute resolution than traditional litigation, while enforcement powers such as work suspension rights and property charges provide tools to secure payment and maintain cash flow.
Success under the BIF Act requires proactive compliance, a thorough understanding of statutory rights and obligations, and access to professional support when disputes arise. The framework established by the BIF Act promotes fair and timely payment throughout Queensland's building industry, and investment in compliance can lead to improved cash flow security and stronger commercial relationships.
Frequently Asked Questions
Does the BIF Act apply to residential building contracts?
Generally, no. The BIF Act excludes most residential building contracts under the Queensland Building and Construction Commission Act. However, mixed-use buildings with commercial elements or large residential projects exceeding certain thresholds may be covered. If you're unsure about your specific situation, seek professional advice.
What happens if I make a payment claim but don't receive a payment schedule?
If no payment schedule is provided within 15 business days, the claimed amount becomes immediately due and payable. You can suspend work, pursue debt recovery, and the principal cannot raise disputes in subsequent adjudication proceedings. This makes payment schedules critically important for principals.
How long do I have to apply for adjudication after a payment dispute?
The timeframes are strict and depend on the specific situation. There are three main pathways:
If you receive a payment schedule you disagree with: You have 30 business days from receiving the schedule to apply.
If you receive a payment schedule you agree with, but the principal fails to pay: You have 20 business days from the payment due date to apply.
If you do not receive a payment schedule at all: You have 30 business days from the later of either the payment due date or the last day the principal could have provided a schedule.
Missing these deadlines will prevent you from using adjudication for that claim.
What are the contract thresholds for BIF Act coverage?
The BIF Act applies to contracts requiring project trusts: $1 million or more for State and Hospital & Health Service contracts, and $10 million or more for other contracts. More than 50% of the contract price must be for project trust work, and there must be at least one subcontract.
Can adjudication decisions be appealed or overturned?
Adjudication determinations are binding and immediately enforceable, but they're interim decisions only. Either party can pursue final resolution through court proceedings, but they must pay the adjudicated amount first. Appeals are limited to jurisdictional issues or serious procedural breaches.
When must project trust accounts be established?
Project trust accounts must be established within 20 business days of entering into the first subcontract for contracts meeting the eligibility criteria. The head contractor must notify QBCC and ensure all progress payments flow through the trust account.
What interest rate applies to overdue progress payments?
Overdue payments attract interest at 10% per annum plus the Reserve Bank of Australia rate for 90-day bills. This rate applies automatically from the due date until payment is made, providing significant incentive for timely payment and compensation for cash flow impacts.
This guide is for informational purposes only and does not constitute legal advice. For advice tailored to your specific circumstances, please contact Merlo Law.
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