WHO SHOULD READ THIS
- Any principal, contractor or subcontractor who has entered into a construction contract for construction work carried out or related goods and services supplied.
THINGS YOU NEED TO KNOW
- The new financial requirements for the delivery of a project and payment of contractors in Queensland.
WHAT YOU NEED TO DO
- Ensure you are compliant with the Project Bank Account requirements for your project.
Following the commencement of the Building Industry Fairness (Security of Payment) Act 2017 (Qld) or the 'BIF' Act in 2018, the Queensland State Government has continued on the path of reform of the Queensland Construction Industry in 2019. In March 2019, a report by the Building Industry Fairness Reforms Implementation and Evaluation Panel was released (Panel), primarily focussing on the Project Bank Account (PBA) regime established by the BIF Act (PBA Report). The PBA Report was produced following a 12 month evaluation after the introduction of the new legislative framework.
In June 2019, a separate report was released by a Special Joint Taskforce established by the Queensland State Government, to investigate complaints of fraudulent behaviour relating to subcontractor non-payment (Taskforce Report). Not only did the Taskforce Report investigate the prevalence of fraud, but also mental health issues in the Construction Industry and how payment disputes have contributed to this.
Both the PBA Report and Taskforce Report contained recommendations to the State Government. On 28 November 2019, the State Government released its response, which is set out below.
Building Industry Fairness (Security of Payment) Act 2017 (Qld)
The BIF Act has changed the regulatory landscape of the Queensland Construction Industry, bringing with it a new security of payment framework for the resolution of interim payment disputes. Amendments have also been made to the QBCC Act,1 introducing new penalties for non-compliance and expanding the current powers to combat the effects of insolvency and illegal phoenixing activity in the Construction Industry. As discussed in our previous industry briefings and workshops, it was expected that a staged roll out of the BIF Act would occur, commencing with phase 1 of the PBA regime on 1 March 2018 and the security of payment reforms on 17 December 2018.
An overview of phase 1 of the PBA framework can be found here.
The PBA regime was to be rolled out in phases, with phase 1 applying to contracts with a value of $1 million to $10 million, of which 50% of the work to be performed met the definition of 'building work' and the principal for the project is the State Government or a 'State Authority'2. Phase 2 was expected to commence in March 2019; however, it has not been implemented to date.
As part of the Construction Industry reforms, a review into the operation and effectiveness of the BIF Act was conducted through the appointment of the Panel, which predominantly focused on the effect of phase 1 of the PBA framework.
The PBA Report made 20 recommendations to the State Government to enhance the existing framework, which the Panel summarised under the following key themes:3
- Managing the financial transition – to provide the best chance of minimising financial stress as the sector transitions to improved financial viability;
- Simplifying the framework – and in doing so improve the balance between the administrative costs to comply and the need for transparency over the movement of project funds; and
- Improving protections – by expanding the obligation to hold retentions on trust to all parts of the contracting chain and creating new mechanisms to secure funds in dispute to all claimants.
A copy of the PBA Report can be found here, with the full list of the recommendations made by the Panel contained in 'Attachment A' on page 57.
To prepare the PBA Report, the Panel met directly with key industry stakeholders, including Principals such as the Department of Education and the Department of Housing and Public Works, head contractors, first-tier subcontractors and banks. Further, industry forums were also held, as well as the publication of a questionnaire and discussion paper.
In summary, while there was resounding support for the policy intent for the reforms introduced by the State Government, key feedback received was that the PBA regime:
- had lead to confusion, with further education needed for clarity and more time for the Construction Industry to adjust to the new reforms;
- there was a lack of readiness for financial institutions to be able to provide compliant products, with issues also arising in circumstances where a PBA has a zero balance because of anti-money laundering legislation; and
- increased and high administrative costs, with contractors having to shift from managing project funds in one bank account to three accounts for each project.
The common feedback received was for the removal of the Disputed Funds Account, with the Panel making this recommendation, to be replaced by stronger protection being afforded to a claimant. This includes that a claimant in an adjudication be able to issue a payment withholding request to a party above the respondent to require sufficient money to be retained to cover the claimed amount (recommendation 5). This is a similar scenario to what is in existence in New South Wales.
The State Government has indicated that it is willing to adopt the 20 recommendations of the PBA Report. A copy of the Government's response can be found here. This includes the Panel's recommended phasing of the PBA reforms to be as follows:
|Phase||Commencement||Project requiring a PBA|
Approximately two months after passing of the amendment to the BIF Act
All Government and private projects valued at $10 million (excluding GST) or more
Four to six months after the passing of phase 2
Private projects in the range of $3 million to $10 million (excluding GST).
Four to six months after the passing of phase 3
Private projects in the range of $1 million to $3 million (excluding GST).
Led by the Honourable John Byrne AO RFD, the review undertaken by the Special Joint Taskforce focused on fraud and subcontractor non-payment. The submissions received by the Taskforce provided valuable information regarding the circumstances and factors that not only lead to subcontractor non-payment but also other practices that sought to disadvantage subcontractors.
The Taskforce set out to:4
- invite submissions and investigate complaints relating to allegations of fraudulent behaviour relating to building subcontractor non-payment;
- refer possible breaches of legislation to the relevant prosecuting authority; and
- consider if there are sufficient and appropriate investigative and supervisory powers to deal with the conduct disclosed in the matters reviewed.
Submissions were invited to be made to the Taskforce between 27 March and 17 May 2019, both in writing and in person. This occurred on a confidential basis. During this time, 146 submissions were received relating to complaints of non-payment, with 69 of those revealing possible contraventions of legislation and subsequently being referred to at least one prosecuting authority. The main findings of the Taskforce were that 5:
'Submitters described a variety of behaviours associated with non-payment, including insolvent trading, phoenix activity and supplying false documents such as statutory declarations and financial reports. Also drawn to the Taskforce's attention were contracting and payment practices that, while not necessarily fraudulent, sought to disadvantage subcontractors.'
Common examples of fraud experienced by subcontractors included: illegal phoenixing;
- illegal phoenixing;
- insolvent trading;
- supplying false statutory declarations and financial reports; and
- contractors not operating with the appropriate licensing.
Following the investigations by the Taskforce, the following recommendations were made:6
- The Government consider amending section 42E of the QBCC Act to place the burden on the defendant to show a reasonable excuse for a deliberate failure to comply with a building contract.
- The Government consider creating an offence directed against the giving of false or misleading information about a licensee's financial circumstances where that information is communicated by another person to the QBCC.
- The Government consider amending section 111 of the QBCC Act so that a prosecution may be started within three years of the commission of an offence or two years after the offence comes to the knowledge of the QBCC, whichever is the later.
- The licence application process require applicants (including a director or nominee for a company) to provide:
- any previous name by which the applicant has been known
- proof of identity, including certified photo identification.
- The QBCC liaise with the Department of Housing and Public Works (HPW) in relation to the inclusion of mandatory and prohibited contract conditions in a regulation.
- The Government note the work of the QBCC to identify appropriate education and training opportunities for subcontractors.
- The Government consider making a regulation to enable the disclosure of information by the QBCC to relevant agencies.
- The licensee register include:
- clear, detailed information about the circumstances involved in a concluded disciplinary matter
- where applicable—the licensee's ABN or ACN.
- The Government consider whether amendments are needed to enable the QBCC to publish details about excluded and permanently excluded individuals.
- The Government consider:
- creating a legal obligation for head contractors to declare that subcontractors have been paid what is due and payable to them
- creating an offence for making a false or misleading declaration about subcontractor payment
- using the New South Wales legislation as a model.
In addition to investigating complaints of fraud in the Construction Industry, one of the stakeholders that the Taskforce met with were Queensland representatives of 'MATES in Construction', a suicide prevention charity focussing on Australian construction workers.
1 Queensland Building and Construction Commission Act 1991 (Qld)
2 State Authority is defined in section 8 of the BIF Act and includes 'an agency, authority, commission, corporation, instrumentality, office, or other entity, established under an Act or by authority of the State for a public or State purpose'.
3 Building Industry Fairness Reforms Implementation and Evaluation Panel, Queensland State Government, Building Fairness An Evaluation of Queensland's Building Industry Fairness Reforms, (2019) 1.
4 Special Joint Taskforce, Queensland State Government, Special Joint Taskforce – Investigation subcontractor non-payment in the Queensland building industry (2019) 34.
5 Special Joint Taskforce, Queensland State Government, Special Joint Taskforce – Investigation subcontractor non-payment in the Queensland building industry (2019) 4.
6 Special Joint Taskforce, Queensland State Government, Special Joint Taskforce – Investigation subcontractor non-payment in the Queensland building industry (2019) 6.
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