The security of payment regime in Queensland has undergone significant reform in recent years. Since the introduction of the Building Industry Fairness (Security of Payment) Act 2017 (Qld), the regime has remained the subject of scrutiny and review, resulting in the recent passage of the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Act 2020 (Qld) ("BIFOLA Act"). The BIFOLA Act introduces significant changes such as the replacement of Project Bank Accounts with a new Project Trust Account framework, and new protections for claimants where the respondent has failed to pay an adjudicated amount.
Under the reforms, head contractors will no longer be exempt from the requirement to hold an appropriate building licence and will be required to submit a supporting statement confirming payment of all subcontractors with any payment claim. The number of these reforms have already begun to take effect. With the amendments introducing additional penalties for noncompliance, it is imperative that all industry participants begin to familiarise themselves with the new regime.
To assist in preparing for the impending changes, this White Paper discusses the major reforms, the timing for their commencement and the potential practical consequences for your business.
INTRODUCTION
On 15 July 2020, the Queensland Government passed the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Act 2020 (Qld) ("BIFOLA Act"), which received assent on 23 July 2020. This legislation is the culmination of several years of review of the security of payment regime in Queensland and will institute significant changes to the Building Industry Fairness (Security of Payment) Act 2017 (Qld) ("BIF Act"). These reforms largely reflect the recommendations of the Building Industry Fairness Reforms Implementation and Evaluation Panel ("Panel")1 and of the Special Joint Taskforce investigation into subcontractor nonpayment in the Queensland building industry ("Taskforce")2.
Consistent with the main purpose of the BIF Act of "helping those in the building and construction industry to be paid for the work they do",3 the BIFOLA Act introduces the following key reforms:4
- Replacing Project Bank Accounts with "Project Trusts" or "Project Trust Accounts" ("PTA" or "PTA Framework") and undertaking a phased implementation of the revised trust account framework to the private sector;
- Requiring a head contractor to provide a supporting statement to the principal along with any payment claim, which must state that all subcontractors have been paid, or if they have not been paid, the reasons for this;
- Providing more protection to claimants where the respondent has
failed to pay an adjudicated amount when due, by enabling a
claimant to:
- Lodge a payment withholding request to the higher party in the contracting chain (i.e., the head contractor or the financier); or
- Place a charge on land, if the respondent owns the land on which the relevant building work took place;
- Introducing additional offences and increased penalties for failure to comply with the legislation, including in relation to progress payments;
- Bestowing increased audit powers on the Queensland Building and Construction Commissioner ("Commissioner") to audit compliance with the new PTA Framework, as well as progress payment and adjudication matters; and
- Removing the exemption for head contractors from the requirement to hold a contractor's licence of the appropriate kind to undertake building work.
On 27 August 2020, a proclamation was issued under each of the BIFOLA Act and the BIF Act setting forth the dates of commencement for the various reforms. On 1 October 2020, provisions of the BIFOLA Act relating to progress payments under the BIF Act commenced, including the requirement for the supporting statement and the new enforcement measures. The new PTA Framework will come into operation from 1 March 2021,6 applying initially to eligible State Government building contracts with a contract price between $1 million and $10 million. The PTA Framework will then extend its coverage through a phased implementation before ultimately applying to all eligible building and construction contracts with a contract price of $1 million or more from 1 January 2023.7 The Building Industry Fairness (Security of Payment) and Other Legislation Amendment Regulation 2020 ("BIFOLA Regulation"), published on 1 October 2020,8 provides the supporting detail for the new PTA Framework and will also commence on 1 March 2021.9
As these significant reforms begin to take effect, it will be important for both principals and contractors to take steps to prepare for, and adapt to, the new regime. This White Paper provides a summary of the amendments and highlights the changes most likely to impact your business.
Each of these major amendments, the timing for commencement and their potential practical consequences are discussed in further detail below.
THE NEW PROJECT TRUST FRAMEWORK
Overview
From 1 March 2021, Project Bank Accounts will be replaced with the new PTA Framework, which comprises Project Trusts and Retention Trusts.
These reforms implement the 20 recommendations made by the Panel, which can be summarised in three broad categories of measures designed to
- Simplify the framework;
- Improve the protections and oversight; and
- Manage the financial transition.10
Statutory trusts must be established for particular contracts related to the building and construction industry, with the intention of ensuring that funds paid to contracted parties (i.e., the party who is required to perform the work under the contract, whether personally or by directly or indirectly causing the work to be carried out)11 are held in trust to protect the interests of subcontractors.12
Footnotes
1 Building Industry Fairness Reforms Implementation and Evaluation Panel, Building Fairness An Evaluation of Queensland's Building Industry Fairness Reforms (Report, March 2019) ("BIF Panel Report"). Section 200A of the BIF Act required the Minister to ensure a review of the operation and effectiveness of the 2017 suite of building and construction reforms under which the BIF Act replaced the Building and Construction Industry Payment Act 2004.
2 Special Joint Task Force, Investigating subcontractor non-payment in the Queensland building industry (Report, June 2019) ("Taskforce Report").
3 BIF Act, s 3(1).
4 See Department of Housing and Public Works, Building Industry Fairness (Security of Payment) and Other Legislation Act 2020 (Web Page).
5 Proclamation No. 158 of 2020 made under the BIFOLA Act ("BIFOLA Act Proclamation") and Proclamation No. 159 of 2020 made under the BIF Act ("BIF Act Proclamation").
6 BIFOLA Act Proclamation.
7 BIF Act Proclamation.
8 The BIFOLA Regulation makes amendments to the Building Industry Fairness (Security of Payment) Regulation 2018 ("BIF Regulation"), and separately the Queensland Building and Construction Commission Act 1991 as a result of recommendations made by the Taskforce.
9 See Department of Housing and Public Works, Building Legislation and Policy, "Building and Plumbing Newsflash 578: Building Industry Fairness (Security of Payment) and Other Legislation Amendment Regulation 2020", October 2020, for further explanation of the BIFOLA Regulation.
10 See Explanatory Notes, Building Industry Fairness (Security of Payment) and Other Legislation Amendment Bill 2020 (Qld) 5.
11 BIF Act, s 8 (as amended by BIFOLA Act, s 63).
12 BIF Act, s 7 (as amended by BIFOLA Act, s 63).
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
