How does the new construction legislation affect developers?
On 22 August 2017 the Queensland Government introduced the new Building Industry Fairness (Security Payment) Bill (the ‘BIF Bill’) for its first reading. The Bill affects all players in the construction industry including developers.
Overview of the Bill
The Bill is the outcome of over two years of extensive consultation with the building and construction industry. As a general over view the Bill:
Introduces Project Bank Accounts;
Replaces the Building and Construction Industry Payments Act 2004 (BCIPA);
Replaces the Subcontractors Charges Act 1974; and
Amends the Queensland Building Construction Commission Act 1991 in relation to phoenix companies.
This is an audacious change to the legislation in the building and construction industry. The actual effects and extent of the changes are unlikely to be truly known until the law starts to become tested and interpreted by the Courts, however, below we have summarised some of the key changes that are likely to affect developers.
Key Changes for Developers
There are two major areas that we see developers being affected by this new legislation:
Changes to security for payment (the replacement of BCIPA); and
Project Bank Accounts.
We discuss these changes in more detail below.
Developers will be affected to a lesser degree by:
Replacement of the Subcontractors Chargers Act 1974.
Most of the changes change the readability of the Act, and do not affect its substance. This Act had been considered by some of the judiciary as one of the worst written Acts.
The amendments to the QBCCA in relation to phoenix companies.
This will benefit developers and subcontractors alike from unscrupulous head contractors wishing to phoenix out of the ashes of their companies.
Changes to security for payment
There are four major changes to security for payment that will affect developers:
1. Payment claims
Progress claims no longer need to state that they are a payment claim under the Act to be a payment claim. This means that potentially any progress claim that fulfils the other criteria of section 68 is a payment claim and attracts the protections of security for payment.
As a result you now need to treat any progress claim as a payment claim.
2. Payment Schedules
There are two major changes to payment schedules.
Payment schedules are now compulsory.
Even if you intend to pay the full amount claimed you must issue a payment schedule. The consequence for not providing a payment schedule is a maximum of 100 penalty units, which equates to a maximum of $12,615 fine.
Section 20A notices or second chance payment schedules as they were popularly known have been abolished.
This returns to the law to the pre-2014 law, which means that the consequence of not sending a payment schedule is that the payer becomes liable for the entire amount claimed in the payment claim.
In other words payment schedules will be vital for all developers.
3. Adjudication Responses
Previously if an adjudication response was in relation to a complex payment claim (a claim for more than $750,000), you were able to raise new reasons that had not been previously contained in your payment schedule.
You are now no longer allowed to raise new reasons in an adjudication response that were not previously contained in your payment schedule. This means that your payment schedule must contain all of the relevant reasons for not paying the head contractor.
The Bill also seeks to limit the length of adjudication applications and responses. The limit is to be prescribed by regulation.
4. Project Bank Accounts
The BIF Bill is probably most well-known for its introduction of project bank accounts. Essentially, project bank accounts are designed to ensure that the money you pay makes its way to subcontractors and suppliers and is not diverted into the head contractor’s other projects or accounts. Although these new project bank accounts could be seen to only protect subcontractors and suppliers, this legislation also has the effect of protecting developers from having to pay twice, when a head contractor becomes insolvent.
The government is trialling project bank accounts on government projects from $1 million to $10 million from 1 January 2018. It further intends to expand this to all projects (government and private) over $1 million on 1 January 2019.
The project bank account is to be set up and administered by the head contractor.There will be three accounts:
As a developer and principal you will need to make payments in relation to the building contract into the project bank account. The head contractor then pays all of the suppliers, subcontractors and itself and moves any retention amounts into the separate retentions account and any disputed amounts into the dispute account.
The contractor will be responsible for any shortfalls in the project bank account.
If the head contractor becomes insolvent you will have the opportunity to take over the project bank account as trustee.
As principal, a developer must inform QBCC if there are any discrepancies with a payment instruction from a head contractor.
Submissions on the Bill close on Thursday 7 September 2017. If you have any questions or concerns about the BIF Bill, please contact us on 07 3128 0120 or firstname.lastname@example.org.