On 23 July 2020, the Queensland Government confirmed that contractors who enter into a head contract to carry out building works must hold a contractor’s licence of the relevant class, even if that work makes up only a small portion of the contract works. This requirement is irrespective of whether the head contractor intends to engage licensed subcontractors. Should a head contractor not hold a licence, they run the risk of not only being penalised under section 42 of the Queensland Building and Construction Commission Act 1991 (QBCC Act), but perhaps more importantly, unable to recover payment. In a previous article, we considered the impact of carrying out building works without a licence and laid bare the dire consequences for several civil contractors.
Currently, under schedule 1A section 8, an unlicensed person can enter into a head contract to carry out building work provided that the work is not domestic building work or residential construction work, and the contractor engages an appropriately licensed contractor to carry out the building work.
On a date to be advised, the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Act 2020 (Amendment Act) will remove the exemption contained in schedule 1A section 8 of the QBCC Act. After extensive consultation from industry bodies, the consensus was that the operation of schedule 1A section 8 undermines the intent of section 42 of the QBCC Act and the regulation of the construction industry.
This exemption was introduced approximately 10 years ago to enable non-licensed entities to contract with major developers (like the LNP Project in Gladstone) provided the work was to be carried out by licensed entities. The application of this section has somewhat been stretched over the years to allow a backdoor way for civil contractors to enter into contracts that contain building works on the basis that it would engage a subcontractor to carry out that work. Once the removal of schedule 1A section 8 is confirmed, an unlicensed head contractor will no longer be afforded this protection.
So, what does the removal of the exemption mean for you?
- Civil contractors who tender for projects that contain building work for which they are not licensed may be in breach of section 42 of the QBCC Act. However, a civil contractor may escape liability under section 42 if the whole of the scope of works falls under one of the many exemptions in schedule 1 of the Queensland Building and Construction Commission Regulation 2018 such as water reticulation systems, sewerage system or stormwater drains, and public roads and tunnels.
- Property developers who enter construction contracts after schedule 1A section 8 of the QBCC Act is removed, will not be required to hold a licence to enter a contract to carry out building works. That said, the Minister for Housing and Public Works is presently reviewing the role of property developers in the building and construction industry throughout Queensland, with a report and findings of that review expected to be publicised by 1 July 2021.
Concluding remarks
We anticipate that the removal of schedule 1A section 8 to the QBCC Act will happen swiftly. We recommend that any head contractor, especially civil contractors, who are in the business of entering into contracts which include the carrying out of building works, as a general risk mitigation strategy, attempt to obtain an open builders’ licence before signing the contract or undertaking to carry out any of the works, or seek advice as to whether they need to commence steps to become licensed. A failure to do so may expose civil contractors to an argument that:
- the contract is unlawful and void;
- any amounts they were paid were mistakenly paid and should be refunded; and
- they are limited to recovering any amounts for works carried out only in accordance with section 42 of the QBCC Act – that is, only recovering amounts for material and labour (excluding profit).
If you are a property developer, stay tuned.
If you have any questions about this article or would like assistance to ascertain whether you require a licence to carry out building works under a specific construction contract, please feel free to contact CDI Lawyers.
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