When parties to a construction contract fall into dispute over the nature or value of construction work performed, or related goods and services supplied, (together with a general breakdown of the relationship) there is a natural tendency for both parties to engage in a race to expand the issues in dispute, rather than narrow them.
For BIF Act claimants, this often materialises in an increased number of claims, claim items and claim amounts. For BIF Act respondents, this often materialises in more reasons for withholding payment, including broader deductions and set-off amounts.
The structure of the BIF Act and the importance of the timing and content of BIF Act payment schedules in response to BIF Act payment claims in setting the parameters for dispute, to some extent, drives these tendencies. Initial BIF Act mechanisms may be the starting point for broader litigation on expanding issues in dispute on the project.
However, construction contracts also commonly provide various mechanisms for descoping and removal of work, that have the potential for dispute minimisation. Where used selectively, these mechanisms can intervene and minimise the issues in dispute, rather than expanding them.
For example, if defective or incomplete (delayed) construction work are in issue, the circumstances may give rise to an argument that a claimant contractor is in substantial breach of the contract. Commonly, construction contracts (Australian Standard contracts) provide for a show cause or breach regime, whereby the respondent principal or head contractor, may give a show cause notice to the claimant contractor in relation to that defective or incomplete work.
The time allowed for claimants to remedy breaches in the show cause context is short, often 5 or 10 business days. If breaches are not remedied within that time, the regime grants the respondent the option of either taking all or part of the works out of the hands of the claimant contractor, or terminating the contract.
For the reasons outlined below, when adopted carefully, taking work out of the hands of a claimant contractor in this way may provide a useful tool to respondents to minimise the scope for dispute.
The timing of respondents initiating the show cause regime is critical, particularly if a BIF Act payment claim is already in play, or the respondent is on notice that such a claim will soon be in play.
When work is taken out of hands of a claimant contractor under a show cause regime, it typically (subject to amendment) has the effect of suspending the claimant’s rights to payment under the BIF Act (depending on the contract wording –either on issue of the show cause notice itself or upon taking work out of its hands), which renders any subsequent BIF Act payment claim given by the claimant invalid.
The show cause regime and the impact on claimant’s BIF Act payment rights was addressed in detail in the QLD Supreme Court decision in York Property Holdings Pty Ltd v Tomkins Commercial & Industrial Builders Pty Ltd [2025] QSC 44 (following earlier NSW Supreme Court authority). The Court held that payment rights in respect of prior BIF Act reference dates and payment claims given could not be suspended by a respondent's subsequent election to take work out of hands of a claimant, rather a claimant’s right to payment under the BIF Act is only suspended in relation to subsequent reference dates and payment claims (consistent the High Court decision of Southern Han).
The net effect being that after the contractual suspension takes effect, claimant’s BIF Act payment rights are effectively on hold (until a contractual reconciliation of the work removed by the respondent), and the ground is set for a negotiation between the parties in respect of their ultimate rights under the contract.
Of course, a contractual show cause regime offers no guarantee to minimise the issues in dispute, when of course the breaches asserted against a claimant contractor may themselves become the subject of dispute, together with the validity of the respondent’s show cause notice.
However, where selectively applied in the early stages of what may become a protracted array of disputes, it is a dispute minimisation strategy worth careful consideration.
For further information about your construction contract, contact Julian Troy at Troy Legal, julian@troylegal.com.au.
When parties to a construction contract fall into dispute over the nature or value of construction work performed, or related goods and services supplied, (together with a general breakdown of the relationship) there is a natural tendency for both parties to engage in a race to expand the issues in dispute, rather than narrow them.
For BIF Act claimants, this often materialises in an increased number of claims, claim items and claim amounts. For BIF Act respondents, this often materialises in more reasons for withholding payment, including broader deductions and set-off amounts.
The structure of the BIF Act and the importance of the timing and content of BIF Act payment schedules in response to BIF Act payment claims in setting the parameters for dispute, to some extent, drives these tendencies. Initial BIF Act mechanisms may be the starting point for broader litigation on expanding issues in dispute on the project.
However, construction contracts also commonly provide various mechanisms for descoping and removal of work, that have the potential for dispute minimisation. Where used selectively, these mechanisms can intervene and minimise the issues in dispute, rather than expanding them.
For example, if defective or incomplete (delayed) construction work are in issue, the circumstances may give rise to an argument that a claimant contractor is in substantial breach of the contract. Commonly, construction contracts (Australian Standard contracts) provide for a show cause or breach regime, whereby the respondent principal or head contractor, may give a show cause notice to the claimant contractor in relation to that defective or incomplete work.
The time allowed for claimants to remedy breaches in the show cause context is short, often 5 or 10 business days. If breaches are not remedied within that time, the regime grants the respondent the option of either taking all or part of the works out of the hands of the claimant contractor, or terminating the contract.
For the reasons outlined below, when adopted carefully, taking work out of the hands of a claimant contractor in this way may provide a useful tool to respondents to minimise the scope for dispute.
The timing of respondents initiating the show cause regime is critical, particularly if a BIF Act payment claim is already in play, or the respondent is on notice that such a claim will soon be in play.
When work is taken out of hands of a claimant contractor under a show cause regime, it typically (subject to amendment) has the effect of suspending the claimant’s rights to payment under the BIF Act (depending on the contract wording –either on issue of the show cause notice itself or upon taking work out of its hands), which renders any subsequent BIF Act payment claim given by the claimant invalid.
The show cause regime and the impact on claimant’s BIF Act payment rights was addressed in detail in the QLD Supreme Court decision in York Property Holdings Pty Ltd v Tomkins Commercial & Industrial Builders Pty Ltd [2025] QSC 44 (following earlier NSW Supreme Court authority). The Court held that payment rights in respect of prior BIF Act reference dates and payment claims given could not be suspended by a respondent's subsequent election to take work out of hands of a claimant, rather a claimant’s right to payment under the BIF Act is only suspended in relation to subsequent reference dates and payment claims (consistent the High Court decision of Southern Han).
The net effect being that after the contractual suspension takes effect, claimant’s BIF Act payment rights are effectively on hold (until a contractual reconciliation of the work removed by the respondent), and the ground is set for a negotiation between the parties in respect of their ultimate rights under the contract.
Of course, a contractual show cause regime offers no guarantee to minimise the issues in dispute, when of course the breaches asserted against a claimant contractor may themselves become the subject of dispute, together with the validity of the respondent’s show cause notice.
However, where selectively applied in the early stages of what may become a protracted array of disputes, it is a dispute minimisation strategy worth careful consideration.
For further information about your construction contract, contact Julian Troy at Troy Legal, julian@troylegal.com.au.
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