Have your say
The Department of Housing and Public Works has released a Security of Payment Discussion Paper (Paper) with the aim to improve security of payment for subcontractors. In 2014, the Queensland Building and Construction Commission sought feedback on ways to improve security of payment laws through the Better Payment Outcomes discussion paper. Using the information received, feedback is now sought from a wider section of the construction industry. The Paper puts a strong emphasis on the government working together with industry professionals to collectively achieve a better outcome for subcontractors who are often left vulnerable due to their position in the payment chain.
To achieve this, the Paper looks at weaknesses in the current system and legislation, proposes a number of options for improvement and seeks industry feedback.
Key weaknesses
Key weakness identified in the current system include:
- insolvency in the contractual chain;
- retention money being used as cash flow;
- protracted and unjustified delays in payment; and
- lack of financial management in the construction industry.
Current legislation
Three pieces of legislation currently deal with security of payment for subcontractors. However, gaps in the current system have been identified as below:
- Building and Construction Industry Payment Act 2004 (BCIPA) – while this act provides subcontractors with a right to make claims for payment and rapid determination of disputed amounts, it does not guarantee that funds will be available.
- Subcontractors’ Charges Act 1974 – this establishes a statutory mechanism where a subcontractor can secure monies owed under a contract, by way of freezing money payable (including money payable higher in the contractual chain) via a statutory charge. However, this means the money is on hold until final resolution of a dispute through the courts.
- Queensland Building and Construction Commission Act 1991 (QBCC Act)– under this legislation policies can be made which govern the administration of the QBCC Act, for example, the Minimum Financial Requirements Policy which seeks to promote financially viable businesses and enhance security of payment. However in October 2014, reporting requirements for contractors were relaxed.
To address these gaps, the Paper proposes a number of options for safeguarding payments which are open for public consideration:
1. Project bank accounts
The proposed project bank account would be established by the principal and head contractor with funds held on trust for payment of both head contractors and subcontractors when amounts are certified. The key feature of these accounts is the trust status which provides additional protection for subcontractors in the case of head contractor insolvency. Project bank accounts are currently being trialled in New South Wales, Western Australia and the Northern Territory for government projects and have already been implemented in England.
2. Retention trust fund scheme
A retention trust fund scheme would require retention monies held by the head contractor to be held in a trust account with an authorised deposit- taking institution. The introduction of the scheme would prevent retention monies being used as cash flow, as money can only be withdrawn from the account in accordance with the terms of the contract.
3. Insurance schemes
This reform would involve an insurance scheme taken out by head contractors. This would eliminate the need for contractors to keep retention money. The advantage of such a scheme would be that the subcontractor would not have to wait until the end of the defects period to receive their retention money. In order to facilitate this reform, changes to legislation would be needed to preclude retention money clauses in contracts.
4. Federal legislative changes
This proposal would seek a review of Commonwealth bankruptcy and corporations legislation to enable subcontractors to claim a priority payment in the event of insolvency of the head contractor.
5. Education
An education program to increase the level of financial management skills in the construction industry, particularly focussed on small businesses. This experience may be valuable but fails to directly address the direct causes of head contractor insolvency.
Get involved
You can read the full Security of Payment discussion paper online at: http://www.hpw.qld.gov.au/SiteColle ctionDocuments/SecurityOfPaymentD iscussionPaper.pdf
You can give your feedback on the Paper through an online survey https://www.getinvolved.qld.gov.au/gi/consultation/2810/survey/2804/view.html
Submissions close Thursday 31 March 2016.