Significant changes proposed for Queensland’s building and construction industry

In the wake of the collapse of a number of high profile construction contractors and the resultant outcry from out-of-pocket subcontractors, the Queensland government has introduced the Building Industry Fairness (Security of Payment) Bill 2017 (the Bill).

The main purpose of the Bill is “to help people working in the building and construction industry in being paid for the work they do”, and if enacted, will dramatically change how Queensland’s building and construction industry operates.

Major changes proposed by the Bill include:

the introduction of Project Bank Accounts (PBAs);
the consolidation of, and further amendments to, the Building and Construction Industry Payments Act 2004 (Qld) (BCIPA) and the Subcontractors’ Charges Act 1974 (Qld) (SCA);
increases to the Queensland Building and Construction Commission’s (QBCC) ability to provide regulatory oversight to the industry, including the re-introduction of mandatory financial reporting for QBCC licence holders; and
the implementation of measures under the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act) to limit the occurrence of corporate ‘phoenixing’.

Project Bank Accounts

The most significant change under the Bill is the introduction of PBAs.

A PBA will be made up of three trust accounts that hold funding for progress payments and retention monies independent of the head contractor and the principal, in order to provide greater security for subcontractors, particularly in the event of insolvency of head contractors.

The PBAs are planned to be implemented in two phases, being:

Phase 1: on and from 1 January 2018, PBAs will be required on all government building and construction projects between $1 million and $10 million; and
Phase 2: on and from 1 January 2019, PBAs will be required on all building and construction projects in excess of $1 million (subject to certain exceptions).

Head contractors will be required to establish a PBA within 20 business days of entering into the first subcontract for the project, by opening:

a general funds trust account, in which payments by the principal will be deposited, and from which the head contractor will pay itself and its subcontractors;
a retention funds trust account, where subcontractor retention monies are held; and
a disputed funds trust account, where the head contractor must transfer amounts subject to a payment dispute between the head contractor and a subcontractor.

Monies held in a PBA cannot be used by the head contractor (including to pay its other debts) until properly withdrawn by the head contractor out of the PBA.

The head contractor is required to cover any shortfall of monies within the PBA.

A failure to properly establish a PBA may incur fines of more than $60,000. Furthermore, if a head contractor misappropriates monies held in a PBA, it may result in a penalty of up to 2 years imprisonment.

BCIPA

If passed, the Bill will replace BCIPA, with the provisions of BCIPA being incorporated into the Bill.

In contrast to the last major amendments to BCIPA, the changes proposed by the Bill are decidedly claimant-friendly.

Reference dates

If the Bill is enacted, a statutory reference date will accrue upon a construction contract being terminated.

Regular attendees of our seminars would know that, given contractual reference dates do not accrue after termination, clauses which allowed for unilateral termination of the contract (including for convenience) by head contractors and principals provided an effective strategy to prevent further payment claims and adjudication under BCIPA post-termination.

However, the proposed changes under the Bill mean that a contractor will be able to claim for all works completed up until termination, regardless of whether the contract provides for a reference date upon termination.

Payment claims and payment schedules

If enacted, payment claims will no longer be required to be endorsed as being made ‘under BCIPA’ in order to activate the provisions of the Act.

The Bill also eliminates the ‘second chance’ for a respondent to issue a payment schedule.

Effectively, if a respondent fails to serve a payment schedule by the required time, the respondent is liable to pay the entire amount claimed on the due date for payment.

A claimant may enforce payment of the claimed amount by:

commencing court proceedings (subject to providing notice of its intent to do so); or
apply for adjudication of the payment claim.

The proposed amendments are likely to significantly increase the burden of contract administration for respondents, as:

all claims for construction work will be payment claims under BCIPA; and
respondents must respond to all payment claims with a payment schedule within the specified timeframe or risk being deemed liable for the full amount claimed.

A respondent will also no longer be able to raise reasons for withholding payment in adjudication which were not raised in its payment schedule.

Accordingly, each payment schedule issued by respondent must be comprehensive and contain all the respondent’s reasons for withholding payment.

Finally, a respondent may be subject to disciplinary action under the QBCC Act, if it fails to:

serve a payment schedule; or
pay the amount owed after an adjudication decision within 5 business days of receiving the decision.

Extended timeframe for adjudication application

The timeframe for submission of an adjudication application has been increased to 30 business days (up from 10 business days) following service of the payment schedule.

Subcontractors’ Charges Act

As with BCIPA, the SCA will no longer be a separate Act, but will be incorporated into the Bill.

The period to respond to a notice of claim will be reduced from 14 days to 5 business days, and a failure to respond within time will be considered an offence.

The Bill also clarifies that there would be no entitlement to a subcontractors’ charge over money held in a PBA.

QBCC Act

The Bill proposes a number of amendments to the QBCC Act, including the re-introduction of mandatory financial reporting and ability for QBCC to require a building contractor to produce its financial records.

The Bill also provides that certain ‘prohibited conditions’ (which are yet to be defined) cannot be included in any building contract, and will be void if included.

We expect that the prohibited conditions will be those typically viewed as being ‘unfair’, such as unreasonably short time bars, termination for convenience, and recourse to security without notice.

In an attempt to eradicate the practice of ‘phoenixing’, whereby an entity is wound up to avoid payment to creditors, and a new entity is established with the same director(s) and influential persons, the Bill proposes to broaden the definition of ‘influential person’ and ‘excluded individual’ to further encapsulate influential persons in a company’s failure and prevent those persons being in a position of influence in the business of another QBCC licensee.

Conclusion

The Bill, in its current form, proposes a raft of changes which will have significant implications for those involved in Queensland’s building and construction industry.

We expect that the Bill will undergo substantial changes, if enacted.

CDI Lawyers will keep you abreast of any further developments with respect to the Bill and its effect on the building and construction industry.

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.