You will have seen that the Queensland Government has released the next set of reforms to laws applying to the building and construction industry in Queensland.
These changes are affected by amendments to the Building Industry Fairness (Security of Payment) Act 2020 (Qld) (BIF Act), the Queensland Building and Construction Commission Act (QBCC Act) and certain other Acts of Parliament.
This article focuses on the changes to the security of payment laws introduced into the BIF Act which have immediate effect and may apply to you. It also explains how the new statutory trusts regime will work.
First, we will look at the changes to the BIF Act which commence operation on 1 October 2020.
The first important change affects contractors who have engaged subcontractors on a job.
When contractors who have one or more subcontractors below them on a particular contract, lodge a payment claim, they need to include with the payment claim a “supporting statement”. The supporting statement will require a declaration that all subcontractors have been paid anything they are owed (as at the date of the payment claim). If a subcontractor has not been paid, the supporting statement will need to specify any unpaid subcontractors, the amount outstanding, the date on which the un-paid works were carried out, and the reason for not paying.
If you lodge a payment claim for a job where you do not have subcontractors, there is no requirement for a “supporting statement”. Similarly, if you are a subcontractor to another contractor, you are not required to submit a “supporting statement” with your payment claim. So, this reform does not apply to everybody in the contractual chain.
Penalty if certified amount not paid or due date
The following reform applies to all contracts where a valid payment claim is submitted.
Once a party who has received a valid payment claim gives a payment schedule, it must pay the amount certified in the payment schedule by the due date under the contract. What is new is that if they do not pay the full amount on time, they are at risk of being fined an amount equivalent to 100 penalty units, ($13,345 as at the date of this article).
This should act as a good incentive for people to actually pay what they said in the payment schedule they would pay and to pay it on time.
Paying adjudicated amounts
A respondent to an adjudication application must pay the adjudicated amount to the claimant within 5 business days after receiving the adjudicator’s adjudication decision (subject to the adjudicator’s decision stating otherwise).
Commencing on 1 October 2020, respondents must be aware that:
- failing to pay the adjudicated amount on time exposes them to a fine of 200 penalty units, ($26,690 as at the date of this article); and
- they must notify the registrar that they have paid the adjudicated amount, within 5 days of doing so. Failing to do that can mean another penalty of 20 penalty units ($2,669 as at the date of this article).
Adjudicator’s fees are now restricted to the lower of the maximum prescribed in the Building Industry Fairness (Security of Payment) Regulation 2018 (Qld), or a reasonable amount for the work done and expenses incurred by the adjudicator. In practice we expect this will mean that adjudicators will usually charge the amount prescribed in the Regulation.
A claimant who wishes to withdraw their adjudication application must now notify the registrar “as soon as practicable” after it has done so. Again, if the claimant withdrawing an application does not do so, they are potentially liable to a penalty of 20 penalty units ($2,669 as at the date of this article).
Payment withholding requests
If a successful claimant has not been paid pursuant to an adjudication decision, it can serve a “payment withholding request” on a party above it in the contractual chain. For example, if a subcontractor is awarded $50,000 in an adjudication decision, and the contractor does not pay within the 5 business day period, the subcontractor can give a payment withholding request to the principal, who must retain the amount from the contractor (provided that the contract is still continuing, and the contractor is still owed amounts by the principal).
The claimant must give a copy of the payment withholding request to the higher party, and the party that owes the money, at the same time.
This is potentially useful to any contractor or subcontractor who is not being paid despite having the benefit of an adjudication decision.
If your contract is with the party who failed to pay the adjudicated amount and they own the land on which the work is being performed, you can register a charge over the property to protect your interest. If the party with whom you are contracting does not own the site, you cannot register such a charge. However, if you are not being paid and the person who is contracted to the owner of the site, is also not being paid, you might be able to encourage the other party who is owed money, to register such a charge which in due course could lead to you being paid as well.
The amendments mean that the project bank account scheme introduced in the BIF Act (but which is still limited to government projects), will, over time, be replaced by a different and improved scheme of “statutory trusts”.
Under the statutory trusts regime, which is less complicated than the project bank account scheme it replaces, certain parties will be required to open and administer a “project trust account” (PTA) and “retention trust account” (RTA).
A PTA is an account with certain characteristics which aim to protect contractors and subcontractors in the event they are not paid by the person required to hold the PTA. Consider the following example.
When do PTAs and RTAs come in and who has to set them up?
It is important to note that these changes do not come into effect as at 1 October 2020. They are introduced in a graduated fashion as explained below.
Whilst a PTA will apply in all of the examples below, a RTA is only required where there are cash retentions held under the contract in question.
ABC Pty Ltd will be required to open and maintain a project trust account and retention trust account (if there are cash retentions) where:
(a) ABC Pty Ltd is the head contractor for a building project where the contract price (not including GST) is greater than:
(i) $10,000,000 commencing 1 July 2021;
(ii) $3,000,000 commencing 1 January 2022; and
(iii) $1,000,000 commencing 1 July 2022; or
(b) The Building Industry Fairness (Security of Payment) 2017 Regulation (BIF Regulation) provides that ABC Pty Ltd must do so (noting that the BIF Regulation has not been released as at the date of this article).
There are also provisions which would require ABC Pty Ltd to establish a PTA (and an RTA if there are cash retentions) where the subcontractor immediately below it is a related body corporate of ABC Pty Ltd and the work the subject of that subcontract is of a type prescribed (which is on the whole, building work).
ABC Pty Ltd will be required to establish the PTA within 20 business days after it engages its first subcontractor. ABC Pty Ltd will be required to establish the RTA on the first day that it withholds the retention amount from payment.
A project trust account and retention trust account must continue regardless of any variations, amendments, changes in contract price, or a change in the contract work.
Contracts which are not required to have a project trust account or retention trust account include:
· Contracts between the State and a state authority;
· Contracts for small scale residential construction work (i.e. residential construction work for fewer than three units);
· Contracts for maintenance work (testing, taking samples, deterioration, prevention or restoration works);
· Contracts for building work services (administration, advisory, management or supervisory services); and
· Contracts with less than 90 days until practical completion.
· PTAs will apply to eligible state government contracts valued at more than $1 million but less than $10 million for contracts entered into on or after 1 March 2021.
· PTAs will be extended to eligible government and Health and Hospital Services building contracts valued at $1 million or more for contracts entered into on or after July 2021.
· From 1 January 2022, PTAs will be extended to the private sector and local government for eligible building contracts valued at $10 million or more.
· From 1 July 2022, PTAs will apply to eligible building contracts valued at $3 million or more.
· On and from 1 January 2023, PTAs will be required for all eligible building contracts valued at $1 million or more.
Everybody in the contractual chain in the building and construction industry needs to be aware of the changes set out at the beginning of the article relating to payment claims, adjudications and the new payment withholding requests.
These changes should improve the flow of cash throughout the industry provided of course that industry participants know how they work and use them. And remember, there are significant fines for those who do not comply with their obligations.
The new statutory trust and retention trust account regimes will eventually apply to most participants in the building and construction industry. When you are involved in a contract in which you have the benefit of the new regime, it will be important that you understand how it all works and how you can benefit from it.
If you are the one who has to operate these new accounts, it is even more important that you fully understand and comply with all of your obligations and ensure that your staff are prepared. Failure to comply with your legal obligations can have significant adverse consequences.
If you have any questions about this article please get in touch with the author or a member of our Building & Construction team.
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.