Do you know about Queensland's Building Industry Fairness (Security of Payment) Bill 2017?
This Bill was introduced in Queensland Parliament on 27 August 2017 and, subject to review by the Public Works and Utilities Committee of Parliament, it sets out the Government’s answer to various inquiries and public consultation that have been undertaken over the last few years. Bearing in mind the impending election due in Queensland between now and April next year there is no certainty that this legislation will become law.
What is attempted by the Building Industry Fairness (Security of Payment) Bill 2017 provisions?
Essentially better security of payment is sought through:
- The use of trust accounts referred to as Project Bank Accounts (PBA’s) for some building work (progressing to further building work at a later time).
- Various amendments to the Building and Construction Industry Payments Act (BCIPA).
- Some amendments to the Subcontractors Charges Act (SCA) with BCIPA and SCA being incorporated into this Act.
- Various amendments to the Queensland Building and Construction Commission Act (QBCC) which is said to combat phoenixing and other perceived wrongs in the industry.
Project Banks Accounts
As expected these provisions provide for essentially three trust accounts being set up by the principal contractor:
- A general trust account to which amounts received from the principal are banked and from where amounts due to a subcontractor are paid.
- A retentions trust account which are retention funds and those funds are distributed at the appropriate time subject to other contractual rights in respect of those funds.
- Lastly an account where funds are in dispute pending resolution between the parties.
Contrary to what had been rumoured as being part of the model, pursuant to section 24 and 25 of the Bill the principal can review all deposits, withdrawals and payment instructions to financial institutions. The subcontractor is also to be given a copy of the payment instruction. These provisions at least give some element of transparency that had been lacking in some models.
If the amount available in the trust account is less than the amount to be paid from a trust account the contractor must immediately deposit the shortfall with significant penalties of over $12,000 or over $63,000 for a company and in an individual’s case the possibility of 1 year in prison.
There are very significant penalties in the PBA provisions; some as high as 500 penalty units or over $63,000 for an individual and over $315,00 for a company. In addition to these large penalties there are various provisions that apply to individuals where 1 or even 2 years imprisonment is possible as a maximum penalty.
The initial period of application of these provisions will occur for an indeterminate period and will only cover Government projects with a contract value of between $1,000,000 and $10,000,000. If it does pass the Bill will only commence to apply to tenders issued after the commencement. Phase 2 of the introduction of PBA’s will apply to a wider set of building contracts (contracts exceeding $1,000,000) but will not be required for residential construction work relating to less than 3 living units or maintenance work.
Amendments to the Building and Construction Industry Payments Act
Section 67 of the Bill preserves a right to issue a claim following termination of the contract reversing various decisions in this regard throughout Australia.
Section 68 defines a payment claim as not requiring an endorsement under the Act. In those circumstances any invoice might well be a claim. It also allows for claims to be made for:
- Amounts held under the contract which a claimant says is due for release (retentions); and
- Losses said to be incurred by reason of work being taken out of the subcontractor’s hands as a result of a suspension pursuant to the provisions of section 98(3).
In the event that no payment schedule is supplied by a respondent there is a penalty of 100 penalty units totalling over $12,000 or $63,000 for a corporation. This could be a very expensive oversight.
Pursuant to the provisions of section 77, 78 and 99, should there be a failure to lodge a payment schedule or failure to pay any sums outstanding, there will be an option to proceed to recover those amounts following a warning notice being forwarded. There is now no requirement to give a respondent a second chance to lodge a payment schedule. As a consequence the timing of a payment schedule and its content will have particular focus.
There are new time limits for adjudication applications which are generally extended significantly. For applications for adjudication where the payment schedule is less than the amount stated in the payment claim an applicant has 30 business days (6 weeks) to make an application.
Interestingly the length of submissions are now restricted on any adjudication application which will be detailed in regulations yet to be released.
The adjudication response cannot provide new reasons not already contained within the payment schedule.
While Complex Claims survive they only survive with extended periods being allowed for responses. No further submissions are due in relation to any complex claims bearing in mind no new issues can be raised.
Should the adjudicated amount not be paid under section 90 there is now a penalty of 200 penalty units or over $25,000 for an individual and over $126,000 for a company.
Pursuant to section 181 of the Bill, a code of conduct for adjudicators is intended to be introduced by regulation.
Subcontractors Charges Act
Comparatively these provisions have not been completely reworked and appear, in many cases to be updating wording and clarifying what has now become a fairly accepted procedure. Of note are:
- The meaning of work is now to include demolition, removal and relocation of buildings and other structures.
- Section 114 of the Bill gives priority to the contractor’s employees for wages payable to them in relation to the contract should there be an assignment, disposition or charge given by the contractor over money that is to become payable.
- In one of the few sections that makes reference to the other distinct parts of this Bill, section 117 sets out that there will be no entitlement to a charge to the extent that it relates to money held in trust under a project bank account.
Queensland Building and Construction Commission Act
Section 252 of the Bill inserts in the Act a new and more detailed definition of an “Influential Person” which is to include among other things a person acting as a chief executive officer or a person directly or indirectly owning or controlling 50% or more of the shares of a company. Linked to these provisions, said to be combatting phoenixing, is section 271 where directors, officers and influential persons are liable to be excluded now if they were those persons within 2 years of an insolvency event. The old provisions provided only 1 year.
Section 260 increases penalties for unlicensed building with a maximum for a third offence of $44,000 for an individual or over $220,000 for a company or 1 year’s imprisonment.
Section 264 is a provision not previously seen where a person has caused another party to a building contract to suffer a significant financial loss because that person deliberately avoids complying with the contract. That has a penalty of over $44,000 for an individual and $220,000 for a company.
Pursuant to section 276 of the Bill there are mandatory conditions in building contracts that are introduced which we are yet to see by regulation. The penalty for not providing those mandatory conditions is $10,000 for an individual and $50,000 for a company. On the other hand there will be under the same section prohibited conditions introduced by regulation with similar penalties.
Section 278 of the Bill introduces provisions that provide penalties unless there is a reasonable excuse for the non-release of retention monies. Those provisions provide for over $25,000 penalty for individual with 1 year's imprisonment and $100,000 penalty for a company. Separate provisions require notices to be sent by the contractor within 10 business days of the end of the defects liability period in an approved form providing for details of the amount to be released etc. Penalties apply for an individual at over $12,000 and for a company over $60,000.
On the positive side for contractors section 71J of the Act is proposed to be inserted that requires that notifications of defective work or incomplete work need to be made within 12 months and for consequential damages within 12 months of becoming aware of such damage.
There are many other provisions that we could detail but these are, in our view, some of the main provisions of interest that will provide some considerable change to practice and understanding of compliance issues. We will update you on the progress of the Bill through its committee stages and if it is finally passed. Should you have any queries concerning those matters raised you should contact Tony Mylne in Brisbane or anyone in his team including Bill Hickey, Adam Hempenstall and Jasmine Blight.
Should you wish to make submissions to the Public Works and Utilities Committee it should be by email to firstname.lastname@example.org
Tony Mylne, Partner