On 5 February 2020, the Queensland Government introduced the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Bill 2020 (Qld) (“Bill”) that will bring major changes to the building and construction industry.
The Bill proposes extensive changes to the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (“BIF Act”) that will ensure effective, efficient and fair payment procedures for those who work in the building and construction industry.
These changes will be rolled out in 4 phases; the commencement dates of each phase are outlined below.
Background to the new Building Industry Fairness Legislation
On 14 May 2018, the Minister for Housing and Public Works, Minister for Digital Technology and Minister for Sport established the Building Industry Fairness Reforms Implementation and Evaluation Panel (“the Panel”). The goal of the panel was to review the implementation and effectiveness of the building industry fairness reforms introduced by the BIF Act and provide recommendations accordingly.
The panel’s recommendations were provided in the Building Industry Fairness Reforms Implementation and Evaluation Panel Report (“the Report”).
The Bill was issued as a direct response to the Report, which proposed 20 recommendations to the BIF Act. These recommendations have been grouped into three major themes:
- Managing the financial transition – to enable minimum financial stress following implementation;
- Simplifying the framework – to reduce administrative costs while providing for transparency; and
- Improving protections – by obligating all contractors and private principals in the contractual chain to hold retentions on trust and providing new mechanisms for securing funds in dispute to all claimants.
The Queensland Government has accepted, or accepted in-principle, all 20 recommendations.
Key changes
Major changes have been proposed by the Bill, including reform of project bank accounts (“PBAs”), improvements to the security of payment regime and imposing liability for executive officers.
Project Bank Accounts
The PBA framework will be simplified by removing the requirement for each contract retention to have a separate trust account. This will mean less administration for head contractors and ensure payments that subcontractors are entitled to are protected until they are due to be paid.
Previously, PBAs were only required by government building contracts between $1 million and $10 million. Head contractors were required to have a set of 3 trust accounts (known as PBAs) for each qualifying project that operated to secure funds, under a building contract, until they are paid to a subcontractor:
- progress payments;
- disputed funds; and
- retention money.
The new framework will remove the disputed funds account and rename PBAs “Project and Retention Trusts” accordingly. The new approach to dealing with disputed funds is outlined below under ‘Security of Payment’.
Following implementation of the Bill, head contractors will be required to establish a Project Trust for each project and a Retention Trust for all cash retentions held. This framework will eventually be expanded to all building and construction contractors (including subcontractors) and the private sector through the aforementioned phased approach.
The Queensland Government has acknowledged that the “removal of project and retention funds from operating capital is an intended consequence of the reforms and some businesses may need to change their financial management practices and find other sources of working capital from savings, by increasing debt, or liquidating assets”[1]. In an attempt to overcome this, it has been put forward that the roll out approach will leave “plenty of time for the industry to prepare and have new administrative procedures in place, minimising financial stress”[2].
Security of Payment
The Bill introduces many changes that will improve the security of payment regime by increasing protection for contractors (including head contractors) and subcontractors from a failure to pay by principals. The following examples are some of the major changes presented by the Bill.
Based on New South Wales’ model, head contractor’s payment claims will be required to be accompanied by a supporting statement. Payment claims are requests for payment given to an individual or company from a contractor progressively for construction work (or related goods and services) completed under a construction contract to a certain point in time. The supporting statement must declare that all subcontractors have been paid as at the date of the payment claim or identify any subcontractors which have not been paid and the outstanding amounts.
Further, it will be an offence to pay less that what is stated in a payment schedule. A payment schedule, as required by the BIF Act, is a document that identifies a specific payment claim, states the amount that will be paid and provides reasons if the amount that will be paid is less than the payment claim.
The Bill also introduces additional measures to secure payment. Claimants will be able to make payment withholding requests against the principal over amounts in dispute in adjudication. Payment withholdings requests will enable a claimant to require a higher party [3] to retain the adjudicated amount [4]. Additionally, head contractors can register a security interest over a property for an unpaid adjudicated amount if the respondent is the registered owner of the property [5].
Liability for Executive Officers
Executive officers will be personally liable for certain trust offences by the company if all reasonable steps in ensuring the corporation did not engage in the offending conduct are not taken [6].
An executive officer (of a corporation) is a “person who is concerned with, or takes part in, the corporation’s management, whether or not the person is a director or the person’s position is given the name of executive officer” [7].
Offences that will attract executive liability include withdrawing money from a Project Trust account for an inappropriate purpose, which has a maximum penalty of 300 penalty units ($40,035 at the time of writing) or 2 year’s imprisonment [8], and dissolving a Project Trust without authorisation, which has a maximum penalty of 500 penalty units ($66,725 at the time of writing) or 1 year’s imprisonment [9].
When will the changes be rolled out?
The enhanced PBA program will be rolled out in 4 phases. The phased approach aims to ensure that those most capable to cope with the changes will be affected first.
It is anticipated that Phase 1 will commence on 1 July 2020, extending to government building projects, including Health and Hospital Services, above $1 million.
Phase 2 will commence on 1 July 2021 and will apply to all building projects above $10 million.
Phase 3 will commence on 1 January 2022 and will apply to all building projects above $3 million.
Phase 4 will commence on 1 July 2022 and will apply to all building projects above $1 million.
What this means for you?
Implementation of the Bill will affect every stakeholder in the Queensland building and construction industry.
Participants should familiarise themselves with the Bill to ensure compliance with these forthcoming amendments. In particular, those who will be affected by the replacement of the previous PBA framework with Project and Retention Trusts should consider any financial impacts well in advance of commencement.
How can we help?
If you would like to know more on how the Bill will affect you, please contact our Building & Construction Lawyers on (07) 3009 8444 or email us at [email protected].
References:
[1] https://www.hpw.qld.gov.au/__data/assets/pdf_file/0028/9199/panelgovernmentresponse.pdf.
[3] If the claimant for the amount is a subcontractor—the person from whom an amount is or becomes payable to the respondent under an arrangement with the respondent for related work or services; if the claimant for the amount is a head contractor—the person who is the financier for the related work or services.
[4] Building Industry Fairness (Security of Payment) and Other Legislation Amendment Bill 2020 (Qld) s 97B(2).
[5] Ibid s 100B.
[6] Ibid s 58A.
[7] Ibid.
[8] Ibid s 20A.
[9] Ibid s 21A.
