The Building Industry Fairness (Security of Payment) (Transitional) Regulation 2018 (Qld) (the transitional provisions) and the Building Industry Fairness (Security of Payment) Regulation 2018 (Qld) (the regulations) are the first of the forthcoming regulations to be prescribed for the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIFSOPA).
As set out in our previous update, the provisions under BIFSOPA relating to the implementation of Project Bank Accounts (PBAs) commenced yesterday on 1 March 2018, and applies to all Queensland government tendered building and construction projects (excluding bridges, roads and ports) valued between $1 million and $10 million.
However, the commencement of the majority of the provisions under BIFSOPA, including those which effectively replace the existing regime set out under the Building and Construction Industry Payments Act (Qld) (BCIPA), has yet to be officially proclaimed.
The transitional provisions aim to facilitate the operation of BCIPA and BIFSOPA concurrently, as payments made under BCIPA will still be subject to the PBA provisions under BIFSOPA during the transitional phase if the relevant contract requires a PBA.
Payment instructions under PBAs
Under BIFSOPA, head contractors will be required to provide “a copy of the information contained in a payment instruction” to the principal and each subcontractor beneficiary (payment instruction information). Up until now, it was unclear exactly what head contractors would be required to provide as part of the payment instruction information and how this would impact their disclosure obligations. However, the regulations have now clarified this and the payment instruction information means:
- the name of each person to be paid;
- the amount, if any, to be paid to a subcontractor;
- the amount, if any, to be paid to the retention account or the disputed funds account, respectively;
- the date those amounts are to be paid;
- the name of the account and financial institution; and
- the BSB and account number where the amount is to be deposited.
The requirement that amounts payable to subcontractors must be disclosed to the principal should be concerning to head contractors as it will effectively mean that the head contractor will be operating on an “open-book” basis. This in effect, requires disclosure of confidential information and the provision of a complete trade breakdown to the principal. To ensure that this information is kept confidential, head contractors should consider amending their contracts.
The obligation to provide the payment instruction information to each subcontractor individually will place a hefty administrative burden on head contractors throughout a project.
The regulation has also prescribed the requirements for the specific information the head contractor must provide the principal within 5 business days of entering each subcontract, including the subcontractor’s name and bank details, or face a fine of up to $25,000.
There is also no prescribed form for a payment instruction under BIFSOPA.
Principal as trustee
Under BIFSOPA, where a contract is terminated for a default by the head contractor, or the head contractor becomes insolvent, the principal may provide notice that it will replace the head contractor as trustee of the PBA. In these circumstances, the principal must open three new trust accounts which become the PBA, and the financial institution must transfer all amounts from the original PBA to the corresponding accounts in the new PBA.
The regulations provide that a principal may replace the head contractor as trustee of the PBA where a contract is terminated for any reason. Head contractors should be alert to the potential for abuse by principals. In a contract which permits termination for convenience, a principal could terminate the contract at any time and at its absolute discretion and replace the head contractor as trustee of the PBA, effectively attaining control over all amounts currently held within the PBA from the head contractor.
Dispute resolution process
As previously advised in our November Update, a payment dispute (as defined under BIFSOPA) occurs where:
- the amount stated in a payment instruction is for less than the scheduled amount; or
- the head contractor fails to provide a payment schedule and becomes liable to pay that amount.
In scenario (a), the difference between the payment instruction and the scheduled amount must be transferred to the disputed funds account. In scenario (b), the total amount claimed in the payment claim must be transferred to the disputed funds account.
Under BIFSOPA, funds can only be transferred out of the disputed funds account to a head contractor in accordance with the outcome of a ‘dispute resolution process’.
The regulations define ‘dispute resolution process’ as:
- a proceeding in a court or tribunal;
- adjudication; or
- arbitration in accordance with the subcontract.
Therefore, funds can only be transferred out of the disputed funds account to the head contractor in accordance with a court order, adjudicator’s determination or an arbitrator’s decision. Head contractors should ensure that appropriate controls are in place with respect to the issuing of payment schedules and payment instructions, or be forced to resort to potentially lengthy and costly dispute resolution processes in order to recover moneys required to be deposited into the disputed funds account.
Other
The regulations clarify that a head contractor is authorised to deposit or withdraw funds from a PBA to satisfy payment in accordance with an adjudication determination.
Scaffolding works, building certifying functions and the assessment of the energy efficiency of a building, are now included in the definition of ‘building work’, meaning PBAs apply to such contracts. However, the construction, maintenance or repair of a busway, road, railway or tunnel is excluded from the definition of ‘building work’.
Takeaway
In addition to the significant uncertainty that remains surrounding the operation of BIFSOPA, the regulations have created a number of additional risks and concerns for head contractors.
You should ensure that your contracts are amended to provide adequate protection in the face of the significant changes that lie ahead.
As of yesterday, 1 March 2018, all PBA provisions apply to government tendered projects between $1 million and $10 million. If you are tendering for a government project between $1 million and $10 million ensure that you are adequately prepared for the changes.
CDI Lawyers will keep you abreast of all new regulations and developments regarding BIFSOPA to ensure that you can properly prepare for any upcoming changes.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader’s specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.
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