Australia: Security of payment regime in Queensland undergoes important changes

In brief - Latest tranche of changes to the Building Industry Fairness (Security of Payment) Act 2017 released

The Queensland building and construction industry is set to undergo a myriad of changes in relation to how and when payments can be made. The first of these changes came into effect on 1 March this year, under the new Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act).

The latest tranche of changes to the BIF Act has been introduced under the Plumbing and Drainage Act 2018 (Qld) (PD Act), which received royal assent on 11 September 2018. The PD Act introduces important amendments and clarifications to the BIF Act, including the timeframe for responding to a payment claim, the use of project bank accounts (PBAs), and the obligations of head contractors and principals in relation to PBAs.

Responding to payment claims

One of the most notable changes to the BIF Act made under the PD Act is in relation to the timeframe for responding to a payment claim through a payment schedule. Currently under the BIF Act, a payment schedule is required to be provided within 25 business days of receiving a payment claim. The PD Act will reduce this time to just 15 business days.

Supplier or subcontractor?

A subcontractor is a beneficiary of a PBA under the BIF Act. This means that they have a number of rights in relation to how and when they are paid. It is therefore important to establish whether a person is a supplier or a subcontractor for the purposes of the BIF Act.

The PD Act introduces a new test for whether a person is a supplier or a subcontractor. If a person is required to hold a licence or authority to lawfully supply goods or services, they will be deemed to be a subcontractor. Such a licence or authority may be required under the Building Act 1975 (Qld), the Electrical Safety Act 2002 (Qld), the Queensland Building and Construction Commission Act 1991 (Qld), the PD Act itself, or another Act prescribed under the PD Act.

Implications of changes to the Building Industry Fairness (Security of Payment) Act on head contractors

The PD Act makes a number of changes to head contractors' obligations. This includes amendments to existing provisions addressing how retention amounts are to be dealt with, what a head contractor must do if there are insufficient amounts available to pay subcontractors, and how amounts are to be dealt with when a payment dispute occurs.

Head contractors will also be subject to new obligations introduced by the PD Act. These relate to when a head contractor is liable to pay an amount to a subcontractor, identifying amounts held in a disputed funds trust account and withdrawing or returning these amounts, and when a head contractor may withdraw retention amounts held in a retention trust account.

Timeframe for notifying a principal about a trust account

When a head contractor opens a trust account as part of the PBA regime, changes the name of a trust account, or closes a trust account, they are required to notify the principal. Previously under the BIF Act, a head contractor is required to provide written notice of this information to the principal within ten business days. However, the PD Act reduces this time to just five business days.

Severe penalties for non-compliance of some new provisions

Some of the new provisions carry severe penalties for failure to comply, including imprisonment.

For instance, there are two new provisions under the PD Act which regulate how and when a head contractor may withdraw from a retention trust account, and a disputed funds trust account. Where a head contractor withdraws an amount for a purpose that is not set out in the BIF Act, they could face a maximum penalty of 300 penalty units or two years' imprisonment.

Given the severe penalties for non-compliance, it is important that head contractors familiarise themselves with these provisions.

Implications of changes to the Building Industry Fairness (Security of Payment) Act on principals

Principals' obligations will also be affected by the PD Act. For instance, the circumstances in which a principal must deposit an amount into the general trust account will be extended to include situations involving:

  • the principal's liability to make the payment to the head contractor under the building contract
  • an adjudication of a disputed progress payment
  • a final and binding dispute resolution process, or
  • a court order

Applying to the Supreme Court for directions in relation to project bank accounts

Principals will now have the ability to apply to the Supreme Court for directions in relation to the operation of a PBA, an avenue which was previously only available to head contractors. However, this will only apply where the principal has taken on the role of trustee of a PBA.

Commencement date for amendments

A number of these amendments have already come into effect. These include the circumstances in which a principal must deposit an amount into a general trust account, when a head contractor must pay a subcontractor, the test for whether a person is a supplier or a subcontractor, and the timeframe for a head contractor to notify a principal of changes to a PBA.

For the provisions which have not yet come into force, including the timeframe for responding to payment claims, the Department of Housing and Public Works has indicated that they are anticipated to commence on 17 December 2018. Thereafter, we can expect to see further changes to the BIF Act being gradually rolled out.

Victor Borzillo Naazihah Jamal Jasmine Borgeaud
Construction and engineering
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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