John Carey

John Carey

Partner

It has been a big couple of months for legislative reform in the construction industry in Queensland.

In addition to new legislation being passed relating to chain of responsibility in the construction industry for non-conforming or defective building products, the Building Industry Fairness (Security of Payment) Bill was introduced to Queensland Parliament.

The Queensland Government introduced this legislation as one of its key election promises.  The objects of the bill are to improve security of payment for subcontractors, create a framework to establish project bank accounts (PBAs) and modernise and simplify the provisions for making a subcontractors charge.

There are also provisions which increase the QBCC’s oversight and regulatory functions.

If this bill is passed into law it will mark a change in the manner in which business is done in the industry.  The current legislation repeals the Building and Construction Industry Payments Act and incorporates new provisions regulating security of payment. It also incorporates the Subcontractors Charges Act.

Some of the changes to the Queensland security of payment regime include:

  1. Removing the requirement to state that a payment claim is one made under the Act.
  2.  Creating a new or additional reference date upon termination of a contract if the contract does not provide for one.
  3. Removal of the ability for a respondent to include new reasons in an adjudication response which were not raised in a payment schedule, as well as complete removal of the respondent’s “second chance” to serve a payment schedule.
  4. Increase in the time frame for a claimant to lodge an adjudication application.

In addition to all that, the Queensland Parliament can in the future limit the size of an adjudication application or an adjudication response.

The bill also places obligations on head contractors to establish PBAs within 20 business days of entering into the first subcontract for a project. Significant penalties exist for failure to do so.

There are 3 different separate trust accounts to be opened:

  1. General Trust Account
  2. Retention Trust Account
  3. Disputed Funds Trust Account

During the life of a project payments from the principal to the head contractor must be deposited into the general trust account.  Usually this will be the certified or scheduled amount in response to a head contractor’s progress claim.  In practice, after a head contractor has assessed each of its subcontractors claims, the head contractor will issue a payment instruction to the bank in which the PBA has been set up that identifies the amounts payable to each of those subcontractors.  Specific instructions must be given for payments to be made from the PBA.

If there are insufficient funds in the PBA to cover the amount payable by the head contractor to a subcontractor, the head contractor must deposit an additional amount to cover the shortfall.  In addition the head contractor is prohibited from withdrawing any money to pay itself until all subcontractors are paid in full.

There are other onerous provisions but the bill makes it clear that all payments to subcontractors must be processed through the PBA.

This constitutes a major change to administrative and legislative burdens on builders and consumers.  The question is, will it result in a guarantee of payment to subcontractors in the future?