Bringing fairness to the building industry: new proposed processes for securing payment for contractors in Queensland

The Building Industry Fairness (Security of Payment) Bill 2017, recently introduced into Queensland Parliament, will bring further reform in relation to security of payment for contractors in Queensland.

The Bill seeks to create a "one stop shop" for security of payment legislation in Queensland by consolidating the Building and Construction Industry Payments Act 2004 (BCIP Act) and the Subcontractors' Charges Act 1974, and introducing an entirely new scheme of Project Bank Accounts. It also amends other legislation which is aimed at stamping out unlicensed building work, the operation of phoenix corporations, and the inclusion of prohibited terms in contracts.

Key changes to the security of payment regime

The objectives of the Bill include:

• improving security of payment for subcontractors by providing for the establishment of a framework of Project Bank Accounts (PBA);
• modernising and simplifying the provisions for making a subcontractor's charge;
• increasing the ease of access to the payment claim and adjudication process;
• providing greater powers to the Queensland Building and Construction Commission (QBCC) to provide regulatory oversight to the building and construction industry; and
• increasing penalties for non-compliance with the legislation including, in some instances, imprisonment.

The Bill mandates the use of the new Project Back Accounts (PBAs) regime on certain projects.

Initially, these will be State Government head contracts involving building work (a building contract) with a contract sum of between $1 million and $10 million dollars and more than 50% of that price is for building work. However, it is expected that they will be expanded later to all Government (including local government) and private building head contracts over $1 million where more than 50% of that price is for building work.

PBAs are trust accounts to be established by the head contractor (who is also the trustee) in connection with a building contract:

• through which all payments to the head contractor and subcontractors^[1] under their respective contracts must pass;
• in which subcontract retention money is held until it is due for release to the head contractor or subcontractor (as the case may be) under the subcontract; and
• into which the head contractor must pay any difference between the amount that it states in a payment schedule is payable to a subcontractor and the (lower) amount that it subsequently pays to the subcontractor.

The aims of the legislation are quicker payment to the relevant subcontractors of the amounts that are included in a head contract progress payment which relate to subcontractor work, and to protect money payable to subcontractors in the event of head contractor insolvency.

Notable features of the scheme include:

• a head contractor must inform prospective subcontractors when a PBA will be used for subcontract payments and at which financial institution that PBA will be held;
• a principal must pay progress payments into an established PBA unless it has a reasonable excuse, or face a penalty of up to 200 penalty units (approximately $25,000);
• a head contractor that does not comply with the requirements surrounding the operation of a PBA is exposed to significant financial penalties or imprisonment;
• a head contractor must immediately pay into the PBA any shortfall between the amount otherwise available in the trust account for payment to subcontractors and what is payable to those subcontractors;
• a head contractor must share information with the principal about the PBA and the payments made from it;
• a head contractor is not entitled to payment from the PBA or subcontractor for administering the accounts, but it is entitled to all interest earned on amounts held in the PBA; and
• a principal has the right to step into the role of trustee of the PBA if the head contractor becomes insolvent.

Payment claims, payment schedules and the adjudication process

The Bill repeals and replaces the Building and Construction Industry Payments Act 2004. Many of the provisions from the existing Act carry over, but there are important changes made to payment claims, payment schedules and the adjudication process which are aimed at reducing delays by respondents and streamlining the adjudication process.

Two of the more important changes will be the removal of the requirement to endorse a payment claim as one which is made under the Act and the inclusion of an obligation to always provide a payment schedule (except for a reasonable excuse). That means that any payment claim which is served by a claimant must be responded to as required by the legislation and may be the subject of an adjudication application.

The concept of standard and complex claims is retained, but:

• claimants are given a longer time to make an adjudication application;
• "second chance notices" (for the service of a payment schedule) are abolished. Where a payment schedule has not been served and the claimed amount has not been paid in full, an adjudication application can be made without any further notice, but a warning notice must be given before the commencement of court proceedings to recover the unpaid amount;
• the existing ability of a respondent to a complex claim to include new reasons in an adjudication response is removed; and
• the number and length of submissions for adjudication applications and responses may be limited by regulation.

Measures aimed at ensuring compliance with the legislation have been introduced, with financial penalties able to be imposed for a failure to provide a payment schedule or pay an adjudicated amount. QBCC licence-holders also risk disciplinary action.

Subcontractor Charges Act 1974

The Subcontractors' Charges Act 1974 will be repealed and its provisions largely carried into the new legislation. There are some changes made to modernise some of the language used in the existing Act and clarify issues, but a stated objective has been to keep the legal effect of the provisions of the Subcontractors' Charges Act largely unchanged.

How to get prepared

The Government is aiming for the legislation to commence in early 2018. There is a lot in the Bill for participants in the construction industry to prepare themselves in anticipation that the timeline will be met, including:

• getting familiar with the changes being introduced;
• considering contract terms and processes to deal with the introduction of the PBA; and
• reviewing processes in light of the changes to the payment claim and adjudication scheme.