On 23 July 2020, the Building Industry Fairness (Security of Payment) and other Legislation Amendment Bill 2020 (Qld) (with amendments) (the BIF Amendment Bill) received royal assent. The Bill amends various legislation, including the Building Industry Fairness (Security of Payment) Act 2017 (the BIF Act) and the Queensland Building and Construction Commission Act 1991 (Qld) (the QBCC Act).
Readers may recall that a key concept in the BIF Act was the introduction of Project Bank Accounts (PBAs) in an effort to increase security of payment for subcontractors.
The implementation and effectiveness of the reforms under the BIF Act, including operation of PBAs, was subject of review by the Building Industry Fairness Reforms Implementation and Evaluation Panel (Panel), which released a report in March 2019 making 20 recommendations to improve the underlying objectives of the Act. Additionally, the Queensland Government established the Special Joint Taskforce (Taskforce) to investigate subcontractor non-payment within the building industry, which made a number of recommendations in June 2019 in relation to the regulation of building industry participants.
The BIF Amendment Bill aims to address the recommendations of the Panel and the Taskforce, which were to:
- simplify the PBA/trust account framework;
- improve protections for subcontractors and increase the oversight of the Queensland Building and Construction Commission (QBCC) over trust accounts;
- manage the financial transition to the trust account framework; and
- strengthen the financial requirements of the QBCC licensing framework.
Additionally, the BIF Amendment Bill aims to address failures in the building certification process, and improve legislative compliance by architects and registered professional engineers.
The BIF Amendment Bill has simplified the framework for trust accounts. Under the new framework:
- a single project trust (rather than 3 trust accounts) is required to be established by the head contractor for each 'eligible contract' for 'project trust work';
- a single retention account is required where retentions are held in the form of cash under a head contract or a first tier subcontract, but only where a project trust is required for the relevanthead contract; and
- relieving principals from trust account oversight.
The requirement to establish a project trust account will apply to new contracts entered on a date that is yet to be proclaimed, however there is limited retrospective operation of the trust account requirements in certain circumstances.
The BIF Amendment Bill provides a detailed framework for the setting up and administration of project trust accounts, including that:
- all payments by a principal under a head contract must be made to the project trust account, unless an exemption applies;
- 'project trust work' is defined very broadly by reference to a list of activities and building work, and is broader in scope than the definition of 'building work' under the QBCC Act;
- the principal under a head contract has certain reporting obligations to the QBCC, including where the subcontractor is a related entity of the head contractor, or where a project trust account has not been opened in accordance with the requirements of the BIF Act.
The key requirements for a retention trust account include:
- the trustee must open the retention trust account before withholding a retention amount from payment;
- the retention trust account may only be used for the limited purpose for which it is intended (i.e. returning the retention to the contracted party, the trustee obtaining the benefit of the retention where so entitled, or paying for the correction of defects or omissions in the contracted work);
- the trustee is liable to make up any shortfall where there is an insufficient amount available in the retention trust account to pay a beneficiary; and
- the trustee is not entitled to payment for administration of the trust or trust fees, and is prohibited from investing the funds held in trust in any form of investment.
The penalties for contravening provisions regarding the trustee's obligations are severe, with some contraventions resulting in a penalty of up to 300 penalty units or up to 2 years imprisonment.
Managing the transition
The provisions in part 4 of the BIF Amendment Bill relating to the project trust and retention trust regime (i.e. the replacement of chapter 2 of the BIF Act) commence on a date to be proclaimed. Although the timeframe for the implementation of the reforms has not yet been prescribed, we understand that the initial rollout to State projects between $1million and $10million (with an 'opt in' for State authorities) will occur in March 2021. Initial indications are that the new regime will take a staggered approach to implementation, with the regime rolling out to higher value projects and private sector projects over time.
It is important that both principals and contractors start taking steps now to prepare for the implementation of the retention trust account regime. This should include:
- ensuring that consideration is given as to how head contracts will address the current project bank account regime and future project trusts regime; and
- training for personnel to ensure that the application of the BIF Act and the BIF Amendment Bill is properly understood.
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.