More changes to affect the industry

A series of reforms to improve security of payment for subcontractors have been incrementally introduced from 1 March 2018 under the new Building Industry Fairness (Security of Payment) Act 2017 (“BIF Act”).

The Plumbing and Drainage Act 2018 (Qld) (“PD Act”) received royal assent on 11 September 2018 and proclamation on 19 October 2018, bringing with it further amendments to the BIF Act.

These amendments largely focus on clarifying terms and the operation of project bank accounts (“PBA”), including extending the circumstances where a principal must make a payment into a PBA under section 27 of the BIF Act and introduces the ability for principals to apply to the Supreme Court for directions regarding an amount held in trust under a PBA.

The amendments also see changes to the administration of PBA’s, further defining who is considered a related entity, supplier and subcontractor and what a head contractor must do if there are insufficient funds available in a PBA to pay subcontractors. Amendments contained in the PD Act also provide for offences against the BIF Act to be recorded in the Queensland Building and Construction Commission’s (“QBCC”) licensee register.

New Penalties for Head Contractors with PBAs

Head contractors who open a PBA, change the name of a PBA or close a PBA, must now give the principal notice within five (5) business days, instead of 10 business days, after taking the action, or risk exposing themselves to a maximum penalty of 200 penalty units.

The PD Act also brings with it substantial penalties in relation to withdrawing amounts held in PBA retention accounts and PBA disputed funds accounts.

If a head contractor makes a withdrawal from a PBA retention account or a PBA disputed funds account that is not in accordance with sections 34A or 36B of the BIF Act, they could be stung with a maximum penalty of 300 penalty units or face two (2) years imprisonment.

A head contractor must now also ensure that an amount held in the PBA disputed funds account is identifiable as being held for the subcontractor the subject of the payment dispute or face a maximum penalty of 100 penalty units. Amendments have also been made to regulate the return of amounts held in the PBA disputed funds account after a particular time.

Are you a subcontractor or supplier?

The PD Act inserts new section 10A in the BIF Act which sets out when a subcontractor becomes a subcontractor beneficiary for a PBA and therefore entitled to be paid from a PBA. What is a subcontract and who is a subcontractor are dealt with in sections 6(1) and 6(3) of the BIF Act, however, in an attempt to clarify the distinction between a subcontractor and a supplier, the PD Act amends section 11 of the BIF Act. Section 11 provides that if you are required to hold a licence under the Building Act 1975, Electrical Safety Act 2002, Plumbing and Drainage Act 2002 (presumably now 2018), Queensland Building and Construction Commission Act 1991 or another Act prescribed by regulation, you are now considered a subcontractor under the BIF Act.

New Time Frames for Payment Schedules

Perhaps one of the most important changes, though still yet to commence operation, the PD Act has amended the BIF Act to reduce the time for giving a payment schedule in response to a payment claim from 25 days to 15 days after the payment claim is given, or the period under the relevant construction contract, whichever is first. This is only one of the changes to the procedures for adjudication of payment claims the BIF Act is making once it takes over from the Building and Construction Industry Payments Act 2004, expected on 17 December 2018.

Be Ready for the BIF Act

Are you ready for the changes? Most amendments made by the PD Act have already come into force, excluding the new timeframe for responding to payment claims. The second phase of the building industry fairness reforms are expected to take effect from 17 December 2018. It is imperative that your contracts and procedures are amended to ensure you are prepared to comply with the BIF Act.

Active Law’s construction team are very experienced in all aspects of construction law including in the drafting, negotiation and administration of contracts, dispute resolution including litigation, arbitration and of course the procedures under security of payment legislation. Active Law’s Paul Hick has been involved in the construction industry for over 35 years. He is a senior adjudicator under security of payment legislation in QLD, NSW, ACT and SA. Formerly employed by the QBCC, Emma Ward brings with her unique insight into Queensland’s construction watchdog and is well placed to assist you with statutory compliance and defence against prosecution.

Contact Active Law for more information.

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The material distributed is general information only. The information supplied is not and is not intended to be, legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.