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Security of payment reforms have serious implications for building and construction industry
Upcoming changes to legislation within the Queensland building and construction industry will have serious implications to developers, builders, sub-contractors and suppliers, if not properly understood.
Brendan Bathersby, Partner at Garland Waddington, Maroochydore, warns that significant penalties, including jail time, could be imposed for failure to comply with the new legislation.
“These changes are complex and the penalties for non-compliance are serious. It’s imperative that builders, subcontractors and suppliers get advice to understand the new legislation and safeguard their business,” Mr Bathersby said.
Due to enactment of the Building Industry Fairness (Security of Payment) Act 2017 (the BIF Act), the new Projects Bank Accounts (PBA) regime applies to all tenders for Government work between $1 million and $10 million after 1 March 2018. This regime provides trust accounts to receive progress payments from the Principal and retention funds and disputed monies, for the benefit of first-tier subcontractors.
In addition, from 1 July 2018, Chapter 3 and 4 of the BIF Act will replace two long standing pieces of legislation: the Building and Construction Industry Payments Act 2004 and the Subcontractors Charges Act 1974.
Broadly speaking, these changes relate to security of payment legislation and increase Queensland Building and Construction Commission (QBCC) oversight of financial affairs.
“Chapter 3 and 4 of the BIF Act are far more important than Project Bank Accounts regime. They will affect the whole of the building and construction industry in Queensland immediately on 1 July 2018” Mr Bathersby said.
Breaches of the legislation can result in disciplinary action by the QBCC and serious penalties such as significant fines and even jail time for certain breaches.
“We are greatly concerned that many participants in the building and construction industry, and their advisors, think that the changes to the BIF Act are limited to Project Bank Accounts and/or Government work between $1 million and $10 million”.
“In fact, the most significant changes are in relation to payment claims, set out in Chapter 3. The new requirements apply to all contracts and are far more wide reaching than just applying to Government tenders. Businesses need to ensure that they have processes in place to be BIF-ready and BIF-compliant.”
“Whether you are a builder, a sub-contractor or a supplier to the industry, you need to understand how the changes will impact your business,” Mr Bathersby said.
Garland Waddington will be hosting a free seminar to assist industry participants to gain a greater awareness on the changes at 5:00pm on Thursday 24 April at Mooloolaba Bowls Club.
Please RSVP before Monday 21 Mayl to Sarah Chaplin at schaplin@gwlaw.com.au or phone 5443 4866.
To find out more about the legislation and its impacts, contact Brendan Bathersby on (07) 5443 4866 or email brendanb@gwlaw.com.au.
Security of payment reform
Security of payment in the building and construction industry has been the subject of a number of enquiries and reports over the past decade.
The report of the Commonwealth Senate Committee regarding insolvency in the building industry (December 2015) argued that the building and construction industry is distorted due to market power being concentrated at the top of the contracting chain, so that risk is reallocated from large contracting companies down to those who can least bear it … subcontractors, suppliers and employees.
There are a number of issues facing the building and construction industry which contribute to its relatively high rate of insolvencies - poor business processes, poor contract management, undocumented and/or disputed variations, a lack of financial management and forecasting, low margins and a culture of pushing risk down the contractual chain.
The system of cascading payments from head contractor to subcontractor enables contractors higher in the contractual chain to delay payments and thereby supplement their own cash flow and working capital. This then requires subcontractors to bear the risk of head contractor insolvency leaving subcontractors unpaid for work completed, retention money lost to operating cash flow and subcontractors enduring protracted delays in obtaining payment for work.
The report of Deloitte Access Economics – ‘Analysis of security of payment reform for the building and construction industry’ – prepared for the Queensland Government (November 2016), suggests that a Project Bank Account Scheme should be implemented in respect of:-
- Government projects (excluding infrastructure) over $1m; and
- private sector projects (excluding residential building and infrastructure) over $1m.
The report rejects the Retention Trust Fund Scheme (on the basis that its costs outweigh its benefits) and proposes educating contractors through a compulsory professional development scheme and amending the Building and Construction Industry Payments Act 2004 to further extend timeframes for Adjudication Applications and making all progress claims delivered to be payment claims under the Act like the New South Wales experience.
Watch this space … as the Deloitte’s report is considered by industry and the Government responds to it.
Brendan Bathersby
Partner
(07) 5443 4866