WHO SHOULD READ THIS
- All participants in the Queensland construction industry.
THINGS YOU NEED TO KNOW
- The Queensland Parliament has passed the Building Industry Fairness (Security of Payment) Bill 2017 (the Bill). It is unknown when it will commence.
- In addition, the Building and Construction Legislation (Non-conforming Building Products—Chain of Responsibility and Other Matters) Amendment Act 2017 (Qld) (the Act) entered into force on 1 November 2017 and imposes onerous obligations on supply chain participants to ensure that non-conforming products are not used.
WHAT YOU NEED TO DO
- Understand the new laws and how they may affect your organisation.
On 26 October 2017, the Queensland Parliament passed the Bill. It has yet to receive assent and commence. On 1 November 2017, the Act entered into force.
Non-conforming building products
As to the effect of the Act on those involved in the supply chain of building products, please click here to read our earlier article.
The Bill provides for sweeping changes to existing construction and licensing legislation in Queensland. It repeals both the Building and Construction Industry Payments Act 2004 (Qld) (BCIPA) and the Subcontractors' Charges Act 1974 (Qld) (replacing it with a similar scheme), and also amends the Queensland Building and Construction Commission Act 1991 (Qld) (the QBCC Act).
It introduces Project Bank Accounts (PBAs) in a limited fashion initially, but envisages their broader application in the future.
Many of the changes that will be effected by the Bill will be dealt with in Regulations. The Regulations have not yet been released.
Farewell BCIPA: the new security of payment regime
Since its implementation in 2004, BCIPA has influenced the way in which payment disputes are conducted in the Queensland construction industry. The Bill repeals BCIPA, and includes a new security of payment regime in its place.
Key features of the new model include the following:
- No endorsement necessary. A payment claim will no longer have to state that it is made under the legislation. Instead, any claim for payment (including any invoice) will potentially be a payment claim and should be treated as such.
- Offences. It will be an offence not to provide a payment schedule in response to an unpaid payment claim.
- No second chances. A disputed payment claim may be immediately enforced in a Court when no payment schedule has been provided in response to it. Claimants will not need to provide respondents with prior notice and a second chance to provide a payment schedule. All possible locations at which payment claims may be served should be identified and checked regularly.
- No new reasons in adjudication. Adjudication responses which relate to complex claims will no longer be permitted to include any new reasons for withholding payment that were not included in the payment schedule. All reasons for withholding payment will need to be included in the payment schedule or an adjudicator will be unable to consider them.
Changes to the QBCC Act
To prevent phoenix activity, changes have been made to the QBCC Act's provisions dealing with excluded individuals. The definition of 'influential person' has been expanded to capture a broader range of individuals who exercise a degree of control over a company, including people who directly or indirectly own, hold or control 50% or more of the shares in the company, and people who give instructions to officers of the company which are generally acted on.
Additionally, harsher penalties for unlicensed building work (including imprisonment) are included.
A PBA is a bank account in which funds are held on trust for contractors and first-tier subcontractors under a building contract. Three accounts must be set up by the head contractor, and only the head contractor and first-tier subcontractors are beneficiaries of the funds. Retention monies, progress payments and disputed funds are to be paid into the PBA, and then from the PBA to contractors and subcontractors. The Bill imposes harsh penalties (including imprisonment) on head contractors for failing to correctly establish and administer PBAs.
How does it work?
- Initial roll-out. While it is envisaged that PBAs will ultimately be introduced on all Queensland projects that exceed a monetary threshold (although this will be reviewed), the Bill initially requires State Government projects with a value of between $1 million and $10 million to have a PBA. Local Government Authorities and private developments will not be required to have PBAs on their projects initially.
- Accounts established. A head contractor establishes a PBA by opening three trust accounts no later than 20 business days after the head contractor enters into the first subcontract for the building contract (but a building contract may prescribe a shorter period for the establishment of the PBA):
- Retention is quarantined. Retention amounts must be paid into the Retention Account, and must clearly be identifiable as held for the relevant subcontractor.
- Payments through the General Trust Account. The principal deposits the amount payable for a progress payment under the head contract into the General Trust Account. Head contractors may only pay first-tier subcontractors from the General Trust Account.
- Subcontractors are paid first. The head contractor may only be paid a progress payment from the PBA when it is owed an amount by the principal, when there would still be sufficient funds in the PBA to pay subcontractors at the time of withdrawal, and only to the extent the head contractor is not also liable to pay a subcontractor for the same work.
- Head contractors must top up the account. If there is an insufficient amount available in the PBA to pay a subcontractor, the head contractor must deposit the shortfall into the PBA immediately (serious penalties apply for breaches of this obligation).
- Disputes. If a payment dispute arises between a head contractor and its subcontractor, the head contractor must transfer into the Disputed Funds Account the difference between what was claimed by the subcontractor and what was assessed by the head contractor (or if no payment schedule is issued, the whole amount of the subcontractor's claim). Penalties apply for breaches of this obligation. The funds must remain in the Disputed Funds Account if there is an ongoing dispute resolution process. During the public consultation on the Bill, concern was expressed that this would drive the risk of insolvency up the contractual chain to head contractors.
What should you do next?
The Bill has not yet received assent, and it is unclear when it will enter into force. We recommend keeping an eye out for our articles and upcoming industry briefings and workshops, in which we will discuss the effect of the new regulatory landscape on the Queensland industry.
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.