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Building Industry Fairness legislation amendments: What's commenced?

Australia Publication October 2020

Background

On 23 July 2020, the Building Industry Fairness (Security of Payment) and other Legislation Amendment Bill 2020 (Qld) (with amendments) received royal assent. The new Building Industry Fairness (Security of Payment) and Other Legislation Amendment Act 2020 (Qld) (BIFOLA Act) amends various legislation, including the Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) and the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act), which we covered in our previous article.

The provisions in part 4 of the BIF Amendment Bill relating to the project trust and retention trust regime (i.e. the replacement of the project bank account regime set out in chapter 2 of the BIF Act) (Trust Account Regime) were to commence on a date to be proclaimed.

Proclamation

On 27 August 2020, a Proclamation was issued under the BIFOLA Act. As expected, there will be a staggered approach to implementation of the Trust Account Regime, with full implementation not to occur until 1 January 2023. The phasing is as follows:

Phase   Date of commencement   Application of the Trust Account Regime 
1 March 2021 

Applies to those contracts to which the existing project bank account regime applies, i.e. eligible State government building contracts with a contract price between $1 million and $10 million 

2A  1 July 2021  Applies to eligible State government and Hospital and Health Services’ building and construction contracts with a contract price of $1 million or more 
2B  1 January 2022  Applies to eligible private sector, local government, statutory authorities and government-owned corporations building and construction contracts with a contract price of $10 million or more 
3  1 July 2022  Applies to eligible private sector, local government, statutory authorities’ and government-owned corporations’ building and construction contracts with a contract price of $3 million or more 
4  1 January 2023  Applies to all eligible building and construction contracts with a contract price of $1 million or more 
     

Under the Trust Account Regime:

  • The head contractor will only need to create one project trust account (PTA) (rather than three accounts as was required under the previous regime) for each ‘eligible contract’ for ‘project trust work’. An ‘eligible contract’ is where the ‘contracting party’ is the State, where more than 50% of the contract price is for ‘project trust work’ and the contract price is more than $1 million but less than $10 million;
  • The head contractor will also need to create a single trust account for any retention money held among all of the head contractor’s eligible contracts;
  • The maintenance of a separate disputed funds account is no longer required; and
  • New offences for the non-payment of debts have been introduced to deter underpayment of agreed amounts which commence on 1 October 2020.

It is important to note that the Trust Account regime applies to contracts that are entered into on or after the commencement of the relevant section. However, if the tender process for the relevant contract was started before the relevant commencement date, the former PBA framework will apply to that contract.

Now that the relevant dates for the implementation of the Trust Account Regime are known, it is crucial that both principals and contractors start preparing for the implementation of the retention trust account regime, including by:

  • Ensuring that consideration is given as to how head contracts will address the current project bank account regime and future project trusts regime; and
  • Providing training for personnel to ensure that the impacts of the amendments are properly understood.

Separately, the Proclamation also provided (among other things) that effective 1 October 2020:

  • When a claimant submits a payment claim, the claimant must ensure the payment claim is accompanied by a supporting statement for all progress payments which are made to subcontracts under a construction contract (s75 BIF Act);
  • It is an offence if a respondent pays less than the amount proposed to be paid under the scheduled amount (s76 BIF Act);
  • If the adjudicator decides that the respondent is required to pay the claimant an adjudicated amount, and the respondent has not paid the adjudicated amount, the claimant may apply for a payment withholding request which requires a higher party to retain a sufficient amount to cover payment of the adjudicated amount (if the claimant is a subcontractor, the higher party is the person from whom an amount becomes payable to the respondent; if the claimant is the head contractor, the higher party is the financier) (s97B BIF Act);
  • If the claimant provides a payment withholding request in addition to the retention of the sufficient amount to cover payment of the adjudicated amount, a charge in favour of the claimant is created under a security interest to which the Personal Property Security Act 2009 (Cth) applies for securing payment of the adjudicated amount, if the claimant becomes entitled to that amount;
  • If the claimant has been successful in its adjudication application and the respondent then fails to pay the adjudicated amount within the time required, the claimant may be in a position to register a charge over the relevant property the subject of the work relating to the adjudicated amount, where the respondent or a related entity is the registered owner of the relevant property. Provided the claimant provides the specified documents with the registrar, a charge is then placed over the relevant property which expires 24 months after the date it is registered or if released earlier. A court may make an order that the relevant property be sold to satisfy the outstanding adjudicated amount owed by the respondent;
  • Section 67NB of the QBCC Act is amended to extend to include other securities such as bank guarantees, in addition to the retention amount. The legislation currently reads that the contracting party must release the retention amount in accordance with the building contract, unless the contracting party has a reasonable excuse. A contracting party may withhold retention amounts from progress payments to the contracted party to secure the performance of a contract. Alternatively, the contracted party may lodge another form of security, for example, a bank guarantee or interest-bearing deposit. This provides protections for more contracted parties, the amendment expands the application of the offence to other forms of security, in addition to a retention amount; and
  • Section 31 of the QBCC Act is amended and now allows for the QBCC to consider any cancellation, or suspension of an interstate or New Zealand licence in deciding whether a particular person is a fit and proper persn to hold a contractor’s licence in Queensland.

It is currently the case that under section 8 of schedule 1A of the QBCC Act, an unlicensed party may enter into a head contract to carry out building work if the work is not domestic building work or residential construction work and such person engages an appropriately licensed contractor to carry out the building work. However, from a date still to be proclaimed, this exemption will be removed from Schedule 1A and, accordingly, unlicensed head contractors will no longer have the benefit of the exemption (other exemptions remain unaffected).

The amendments also provide for a review of the role of developers in the building and construction industry, with a terms of reference to be determined and a report ultimately tabled in Parliament.

 

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We would like to thank Rohit Tularam for his contribution to this article.


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