Passed by the Queensland Parliament on 10 November 2017, the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act) represents a major reform and streamlining of the some of the most critical procedures in the construction industry. Morrissey Law & Advisory foreshadowed the impacts of this legislation prior to its introduction in our last article on the Queensland construction industry legislative landscape.
How the Act will affect the construction industry
The BIF Act will be in full affect from 1 July 2018 and will affect all participants in the construction industry. It is critical that builders familiarise themselves with the changes introduced by the BIF Act as it introduces amendments to the security of payment regime and the Queensland Building and Construction Commission Act 1991 (Qld) (QBCCA) and implements the Project Bank Accounts regime, which will affect the everyday operations of all builders.
Security of payment reforms
For years the legislative provisions aimed at protecting builders’ rights to progress payments and streamlining the payment procedures of the construction industry in Queensland have been spread between the Building and Construction Industry Payments Act 2004 (Qld) (BCIPA) and the Subcontractors’ Charges Act 1974 (Qld) (SCA).
The BIF Act combines these provisions and improves their effectiveness by ensuring respondents that do not comply with the legislated procedures are not given any room to skirt their obligations.
Payment claims are no longer required to be endorsed by the Act, meaning the words “this is a payment claim under the Building and Construction Industry Payments Act 2004” need not be explicitly written in the wording of a payment claim.
This means an invoice that identifies the construction work to which it relates and states the amount claimed is considered a valid payment claim and start the clock ticking on the time for payment or challenge by the respondent.
Following the service of a payment claim, respondents have 25 days (Response Period) to either pay the claimed amount or issue a payment schedule, failure to do so results in:
- Liability of the respondent to pay a maximum penalty of 100 penalty units;
- If a respondent fails to issue a payment schedule within the Response Period, they will be liable to pay the claimed amount on the due date for the progress payment to which the payment claim relates;
- If a respondent fails to pay the amount owed to the claimant in full on or before the due date for the progress payment, the claimant is no longer required to give further notice in the way of a ‘second chance’ notice prior to applying for adjudication of the claimed amount; and
- The respondent will be precluded from submitting an adjudication response if it fails to comply either of these obligations.
The timeframes for claimants to apply for adjudication have also been extended:
- Where a respondent fails to issue a payment schedule or pay the full amount of the payment claim, the claimant may now apply for adjudication within 30 business days (previously 10 days) after the later of the payment due date or the payment schedule due date; and
- Where a respondent issues a payment schedule that stipulates an amount less than that of the payment claim, the claimant now has 30 business days (instead of 10) after receipt of the payment schedule, to apply for adjudication.
Enhanced Powers of the Queensland Building and Construction Commission (QBCC)
The QBCC’s enforcement powers have increased significantly as a result of the BIF Act’s implementation. The Commission’s aim of preventing phoenix activity will be achieved more effectively through the expansion of the definition of an ‘influential person’ to now include a wider range of individuals who exercise a degree of control over a company, such as people who directly or indirectly own, hold or control 50% or more of the shares in a company, and people whose instructions the directors of a company typically follow.
Project Bank Accounts
The Project Bank Account (PBA) regime is included in the BIF Act to safeguard progress payments, protect retention monies and ensure that money to be paid to particular subcontractors is held in a way that protects the interest of the subcontractors, this involves a set of three bank accounts that operate as a trust:
- The Head Contractor is the trustee of the PBA, meaning they are in charge of ensuring the benefit is directed towards the beneficiaries in accordance with the terms of the agreement.
- Each subcontractor who signs a subcontract becomes a beneficiary.
The PBA regime requires three accounts to be set up at a financial institution in Queensland:
- A general trust account into which the Principal must make payments;
- A retention trust account which holds the Subcontractor’s retention monies; and
- A disputed funds trust account which holds amounts that are the subject of payment disputes until such disputes are resolved.
Since 1 March 2018, building and construction projects (excluding engineering projects) tendered by the Queensland Government that are valued between $1 million and $10 million have been required to use PBAs.
In order to combat the construction industry’s culture of late or non-payment, the BIF Act also introduces a new range of tough penalties for non-compliance with its PBA provisions. The most serious penalties under chapter 2 of the BIF Act are the maximum penalty of 500 penalty units for a head contractor failing to establish a PBA and the maximum penalty of 500 penalty units or 1 year imprisonment for unauthorised ending of a PBA.
Pending the successful implementation of this model, it is set to cover all projects, both public and private, over $1 million dollars from 1 March 2019.
If you have any questions around the security of payment and PBA regimes in Queensland or other states and territories, or changes your business may be required to make to comply with the BIF Act, please contact Morrissey Law & Advisory.
Disclaimer: This publication by Morrissey Law & Advisory is for general information and commentary only and should not be considered or relied upon as legal advice. Formal legal advice should be sought in relation to any matters or transactions that may arise in relation with communication.