Improving Security of Payment Building and Construction Industry

5. Proof of Payment Page 58National Public Works Council IncImproving Security of Payment in the Building and Construction Industry5.2 BackgroundThere are various options which this Consultancy considers in relation to the viability ofproof of payment mechanisms (other than statutory declarations) as a security of paymentmeasure.Proof of payment as a security of payment measure is predicated upon the concept that aSubcontractor be paid at the same time as or before a Head Contractor receives payment fromhis Principal.Most standard form building contracts contain the Statutory Declaration form of proof ofpayment, but the anecdotal evidence is that while they are relatively simple to administer,Statutory Declarations are not considered effective because of the many loopholes that areavailable in making a declaration in respect of payment.A variation on this approach is the use of Records of Payment. Prior to the Head Contractorbecoming entitled to receive any progress payment from the Principal, the Head Contractormust obtain a receipt from each Subcontractor that all monies due and payable have beenpaid. This is a relatively effective system, but requires significant administrative costs forboth Principals and Head Contractors. However, the system is open to abuse by disputationand its success depends on the record-keeping skills of all the contracting parties.As a consequence, we explore various alternatives.5.3 Queensland Build ApproachThe first option is the "Queensland Build Approach" ("QBA") which requires the HeadContractor to obtain from the Subcontractor a signed acknowledgment that payment has beenreceived and the Head Contractor is then required to submit to the Principal a statement tothat effect. The Head Contractor also identifies those Subcontractors who have not lodgedsuch an acknowledgment prior to further payments being made by the Principal under theprimary contract to the Head Contractor.The QBA contractual arrangements were implemented by QBuild Project Services, which isa business unit of the Queensland Administrative Services Department. The QBA wasimplemented on Department projects from 1 July 1992 and further amended in October 1993.The QBA is only mandatory for Departmental contracts and accordingly, is optional forprivate contracts.The contractual arrangements rely on Subcontractors being proactive in reporting to therelevant Department a default of payment by a Head Contractor and also rely onSubcontractors exercising their rights under the Queensland Subcontractors' Charges Act("SCA") immediately they are able to do so. The onus is on the Subcontractors recoveringmonies from defaulting Head Contractors through either the provisions of the SCA or mutualagreement with the respective Head Contractor.In summary, the QBA is as follows: