At 4.42 pm on the 25th, a specialist subcontractor sends Tax Invoice 003 for $660,000. The accounts team files it for processing. The quantity surveyor is waiting for supporting information, and the project manager is away until next week. Nobody has recorded a response deadline.
The invoice may require a response under the contract or security of payment legislation. Someone needs to establish when it arrived and what action is due, without waiting for the supporting information or the project manager's return. Even an accurate valuation may not protect the recipient from the consequences of a missed deadline if the response is late.
Payment administration starts before the first claim arrives and continues throughout delivery. A current account showing how each assessment was reached, what remains disputed and how much has actually been paid gives the team a basis for responding to the next claim. It also leaves less to reconstruct when the work is complete.
Identify the applicable security of payment legislation
Australian states and territories have different security of payment regimes. Before adopting a claim form or timetable, the team needs to establish which legislation applies to the work, including its coverage, exclusions and transitional provisions. The location and nature of the work and the relevant dates need to be checked. Particular care is needed where work crosses a state or territory border.
A contract's choice of governing law or its description of the applicable payment legislation does not, by itself, determine which statutory regime applies. The legislation's own application provisions need to be checked and read alongside the contract to establish what each party must do.
Some regimes require the payment claim to state that it is made under the legislation. A head contractor may also have to provide a supporting statement about subcontractor payments. These requirements are separate from valuation evidence or the tax-invoice process, and the effect of an omission needs to be checked under the applicable law.
Our Australian Security of Payment comparison sets out claim requirements, supporting statements, response periods and rules for counting days across the jurisdictions. Queensland requirements are examples, not a national timetable.
Set up the payment calendar
Payment procedures belong among the contract administration arrangements established at mobilisation. The contract needs to be checked for when a claim may be made, the valuation date, required information, recipient and service method. Assessment, response and payment dates then need to be calculated with the applicable statutory requirements in view, including any limits on contractual payment periods.
Work might be valued to the 20th, with evidence assembled before a claim on the 25th. The formal response may then be due before payment. Internal review and approval dates should allow time to resolve questions and issue the required document before its deadline.
A calendar entry stating 'ten business days' still needs to be converted into a date. That means applying the definition in the relevant contract or legislation, including the treatment of weekends, public holidays and any excluded periods. The calculation should be retained and checked, particularly around year end.
The timetable should allow for absences and urgent approvals. If a response is due on Day 10, an assessment ready on Day 9 may still be late if the person authorised to approve it is unavailable until Day 11. Someone must be available and authorised to make the decision in time.
Recognise a payment claim and respond
The title of a document does not settle its payment status. In Queensland, an ordinary invoice can be a payment claim if it meets the content and other applicable requirements. Tax Invoice 003 should therefore reach the person responsible for assessing that question as soon as it arrives.
Keep the original document, transmission details, destination and receipt time. Check those against the applicable service rules before recording the date from which the response period runs. A 4.42 pm receipt does not, by itself, establish whether the claim is treated as given that day or on a later date.
Under Queensland's Building Industry Fairness (Security of Payment) Act 2017, the respondent must give a payment schedule within the earlier of the contractual period for giving the schedule and 15 business days after the claim is given. A schedule is not required if the claimed amount is paid in full on or before the payment due date. Where a schedule proposes less than the claimed amount, it must explain why, including the reasons for withholding payment.
In Queensland, a respondent who fails to give a schedule as required becomes liable to pay the claimed amount by the payment due date. The Act also prevents a respondent from introducing new withholding reasons in an adjudication response that were not included in its payment schedule.
Missing information should be requested promptly, without assuming that the request stops the response period running. The assessment needs to address the information available and explain the position reached. Discussions can continue while the formal response is prepared and issued within the required time.
An approved response still needs to be given to the correct recipient by a permitted method. Retain the document as issued and evidence of service, and make sure accounts knows the amount and payment date. A draft certificate waiting for a signature is not evidence that the response has been issued.
If a response or payment deadline has been missed, establish the facts and obtain prompt advice on the available steps. Further notices, adjudication and suspension have their own requirements and time limits. Continuing the valuation discussion does not remove the need to address the missed step.
Assess the cumulative account
Interim assessment establishes the value to date and reconciles it with the previous position. Looking only at this month's movement can conceal duplicated adjustments, omitted credits or an incorrect retention balance.
Measured progress, milestones, eligible materials and adjustments need to be assessed using the valuation basis in the contract and applicable law. Retention, where permitted and applicable, is then dealt with on that basis. The account must identify what previous amount has been deducted and whether it represents an assessment or an actual payment.
In a separate example, a contractor's cumulative assessed value is $5.4 million. The following calculation excludes GST and assumes that the contract permits the materials included, retention applies at five per cent with no cap or release adjustment affecting this assessment, and the $40,000 set-off is substantiated and permitted by the contract and applicable law.
| Account calculation | Amount |
|---|---|
| Gross cumulative assessed value | $5,400,000 |
| Cumulative retention at 5% | ($270,000) |
| Net cumulative assessed value | $5,130,000 |
| Previous net cumulative assessment | ($4,200,000) |
| Current assessed amount before set-off | $930,000 |
| Supported set-off | ($40,000) |
| New amount assessed for payment | $890,000 |
The $4.2 million deducted here is the previous net cumulative assessment. It identifies the additional amount now assessed, but it does not establish what has been paid. Any earlier certified or scheduled amount still outstanding needs to remain visible in a separate payment reconciliation.
The same care is needed with individual adjustments. If $120,000 is the total accepted value of an item to date, it belongs in the cumulative account once. Adding the full amount again as this month's movement would overstate the assessment.
Support the valuation and explain differences
The supporting records need to match the item claimed. Quantities and rates support measured work, while a milestone requires evidence that its defined requirements have been achieved. Materials need to qualify for payment under the relevant arrangements, with evidence of identification, ownership, condition and protection as applicable. These are project records to maintain as the work proceeds, rather than assemble only when a claim is disputed.
Paying a supplier for off-site equipment does not, by itself, establish an entitlement to include it in the next claim. That depends on the contract and applicable law, including any requirements for vesting, insurance, storage or inspection. When the equipment reaches site, the account also needs to prevent it being valued twice.
The response should explain a difference in terms the claimant can investigate. If 700 metres of pipework are claimed at $200 per metre, but the assessment allows 620 metres, the $16,000 difference needs a reason as well as a calculation. The response should identify the measurement relied on and explain why the additional 80 metres have not been allowed.
For an equipment item, the response should identify the requirement or part of the claim that has not been substantiated and explain how that affects the amount allowed. 'Not agreed' gives the recipient little basis for resolving the issue.
A contractual certificate and a statutory payment schedule serve different purposes. One document may perform both functions if it satisfies all applicable requirements, but issuing a certificate should not be assumed to discharge the statutory obligation. Authority, content, recipient, timing and service all need to be checked.
Check the basis for deductions
A proposed deduction needs its own basis. A photograph of damaged cable and an internal repair estimate may show a problem worth investigating. They do not, on their own, establish who is responsible or whether the respondent is entitled to reduce payment.
Before including a deduction or set-off, establish the entitlement to make it, who is responsible and how the amount has been calculated. Follow the applicable procedure, including any notice, timing or approval requirements. Calling an amount a contra-charge does not provide the missing entitlement or evidence.
The account should distinguish a lower valuation of the work from a separate claim to recover a cost. A measurement adjustment, for example, is different from a claim for repairing damage. Each must be assessed and explained under the mechanism that applies to it.
The account should show how each deduction has been carried forward into later assessments. An amount applied this month should not be lost from the account next month or deducted a second time without justification.
Coordinate subcontract and head contract payments
Subcontractors need to understand the payment arrangements before work begins. The initial briefing should use the actual agreement to explain claim dates, supporting information and authorised contacts. It should also cover retention or security where applicable. Allocate responsibility and a deadline for resolving any unanswered questions.
The team should record the retention rate and cap, security amounts and forms, insurance requirements and any expiry, renewal or release dates. Supporting documents need to be checked when received, with responsibility assigned for renewals and replacements. Retention deductions, reductions and releases should be reconciled with the account, while movements in other security remain traceable in the security register.
Information from subcontractors may be needed before the head-contract claim is prepared. Progress forecasts and evidence cut-offs can help the contractor make that assessment in time. Those reporting arrangements should be agreed without treating an internal cut-off as an automatic change to the subcontractor's payment rights or dates.
Notice periods need to work together as well. A seven-business-day subcontract notice period leaves the contractor exposed where the head contract requires action within two business days. The team needs an immediate reporting route and, where necessary, properly agreed changes to the contractual arrangements. A briefing alone does not rewrite the subcontract.
The subcontract payment date must also be managed independently of incoming funds. In Queensland, pay-when-paid provisions have no effect under the Building Industry Fairness legislation. The contractor needs to arrange payment in accordance with its obligations, even if the corresponding head-contract payment has not arrived.
Keep the account ready for completion
An account maintained throughout delivery retains the original contract or subcontract sum and shows later additions, omissions and credits separately. Agreed items need to be distinguished from assessments, pending matters and rejected claims. Amounts certified or scheduled should also remain separate from actual payments.
For another subcontract, an original sum of $3.6 million, an agreed addition of $120,000 and an agreed credit of $40,000 produce a current agreed account of $3.68 million. A further $80,000 item awaiting information remains pending and should be identified separately in the forecast. Record what information is missing, who will obtain it and when it is due.
If the latest assessment shows a net cumulative amount of $3.55 million and verified payments to date are $3.45 million on the same GST basis, the $100,000 difference needs to be reconciled against the amounts due and their payment dates. Successive cumulative assessments must not be added together. Completing an assessment or approving a payment instruction does not confirm that payment has been made.
Agreed credits belong in the account when they arise, supported by the relevant instruction and agreement. The records are easier to obtain while the people who dealt with the work are still available.
Check when the final claim may be made, what it must contain and how it must be served. Record the assessment, response and payment dates under the contract and applicable legislation. Negotiations over the final account should not be assumed to suspend those requirements.
At completion, the team can review the final claim against that existing account, resolve outstanding items and reconcile payments. Required deliverables and any retention or security movements need separate attention. Missing commissioning records, manuals or warranties should be dealt with under the relevant contractual and legal requirements, rather than used to invent a new condition for withholding payment.
Agreement of the account does not automatically settle every payment or release obligation. Practical completion may trigger a retention reduction under the relevant arrangements while other obligations continue. A pending item needs to be managed without overlooking sums already due or security that must be released. Negotiating the settlement and defining what it closes are considered further in Final Accounts: Closing the Commercial Position.
Tax Invoice 003 needs to reach someone who can establish the applicable process and act before the deadline. Recording the assessment, any required response and actual payment keeps its status clear. Repeating that process each month gives the team an account it can reconcile when the work is complete.
This article draws on the Contract Administration – Essentials and Best Practice (Part 2) module of the RICS Commercial Management Fundamentals programme, which I developed and deliver for RICS. The views expressed here are my own.
