Introduced into Parliament, the Building Industry Fairness (Security of Payment) Bill 2017 aims to improve security of payment laws, modernise and simplify provisions for making subcontractor charges, improve ease of access to security of payment legislation and provide for greater accountability.
A critical part of the policy revolves around the introduction of project bank accounts (PBAs) – trust accounts into which progress payments and retention monies are held in trust, independent of the head contractor and principal.
These will be mandated under a two-stage process with PBAs becoming mandatory on all government building projects valued at between $1 million and $10 million between from 1 January next year and on all building projects over $1 million (public or private) from 1 January 2019.
In a setback for subcontractors, however, the rules apply only to building projects. Civil or engineering projects such as roads, ports or mines are not covered, and contractors/subcontractors on these projects will not enjoy PBA protection.
Also, the Bill applies to first tier subcontractors only – those who deal directly with the head contractor.
Whilst the Bill enables the protection available through PBAs to lower tier sub-contractors (e.g. sub-subcontractors) at a later date, no protection will be applied for these sub-contractors at this point.
The Bill also aims to further prevent phoenix activity within the industry by clamping down on ‘shadow directors’ – those who have been banned from running construction companies in Queensland but effectively control companies from behind the scenes (such as through their spouse being a director).
Amendments to the Queensland Building and Construction Commission Act will ensure that the current definition of an ‘influential person’ is expanded to ensure that a person’s function is captured in addition to their formal role.
Other elements of the legislation will overhaul provisions for progress payment claims, improve the usability of subcontractor charge provisions and increase penalties for unlicensed work.
In its explanatory memorandum, the Government said problems in respect of late or non-payments had been identified through two years of consultation.
“What was once considered poor business practice has become a standard operating model for some licensees in the industry – higher contractors often do not make, or delay payments to subcontractors in order to supplement cash flow, offset the costs of other projects or to receive interest, and avoid additional financing costs for accessing further funding,” the memorandum states.
Minister for Housing and Public Works Mick de Brenni said the changes will help to ensure fair practices within the building sector.
“For too long the building and construction industry has operated by pushing the majority of the risk for projects onto subcontractors—often family run businesses,” de Brenni said.
“That changes with these new laws. We are putting the construction industry on the level.”