Code compliance is now critical for contractors and sub-contractors carrying out building work on Commonwealth funded projects and for non Commonwealth entities which receive Commonwealth project funding (eg universities, State Governments and State Owned Corporations). Code compliance obligations extend beyond Commonwealth funded projects and the Code's impact will consequently be felt throughout the construction sector.

When the Federal Government re-established the Australian Building and Construction Commission (ABCC) in December 2016, the Minister for Employment issued a new code of practice to directly regulate building work funded by the Commonwealth and to indirectly improve the industrial relations climate on construction sites across the industry. Six months later, it was reported in Senate Estimates on 30 May 2017 that there are currently 97 expressions of interest or tender processes to which the Code for the Tendering and Performance of Building Work 2016 (the Code) is likely to apply.

One contractor has already been prevented from tendering for Commonwealth building work for three months due to Code violations. Failure to comply with the Code may see contractors and their related entities issued with an exclusion sanction by the Minister on the ABCC's recommendation, banning them from submitting expressions of interest or tenders for or being awarded Commonwealth funded building work for up to 12 months. The ABCC Commissioner confirmed during Senate Estimates last month that three contractors have already been issued with show cause notices over suspected Code breaches in recent weeks, including one allegation relating to security of payment. Two of those entities were described as Tier 1 contractors.

This recent enforcement activity is a warning that Code violations will be treated seriously. Construction contractors which wish to, or have already, bid for Commonwealth funded projects should urgently review their contracts, industrial relations agreements and dispute resolution policies to ensure they are Code compliant.

This Alert is essential reading for anyone who is involved in or keen to tender for Commonwealth funded construction work, including contractors, building industry participants, Commonwealth agencies and State or Territory government entities. This Alert will take you approximately four minutes to read in full.

What is the Code?

The Code is a legislative instrument created under section 34 of the Building and Construction Industry (Improving Productivity) Act 2016 (Cth). The Code has applied to all new tenders and expressions of interest for Commonwealth funded building work since 2 December 2016. Transitional provisions apply for expressions of interest and tenders entered into under the previous Building Code 2013. The meaning of "Building work" is defined by schedule 1 of the Code.

Once a contractor or building industry participant tenders for Commonwealth funded building work, it automatically becomes a "Code Covered Entity". From then on, it must comply with the Code on all building work undertaken, including unrelated projects that are privately funded. A Code Covered Entity's related entities also become subject to the Code at the same time. A contractor or building industry participant cannot be awarded Commonwealth funded building work unless it complies with the Code.

How will it affect you?

The Code imposes wide-ranging obligations on Code Covered Entities, including in relation to:

  • industrial relations and the content of enterprise agreements;
  • compliance with work health and safety laws and Workplace Relations Management Plans;
  • dispute settlement policies and procedures;
  • new security of payment requirements, which exist in addition to State and Territory laws;
  • ensuring that their sub-contractors also abide by the Code in respect of work on that project.

The Code is enforced by the ABCC. If a Code Covered Entity fails to comply, the Minister for Employment may issue a formal warning or an exclusion sanction preventing the entity and its related entities from tendering for and being awarded Commonwealth funded work for up to one year.

Commonwealth agencies (Funding Entities), State agencies and State Owned Corporations participating in Joint Funding Agreements (Funding Recipients) must also comply with Code requirements across all stages of procurement and throughout the life of the project. These obligations include a requirement to request specific information from preferred tenderers regarding Australian-manufactured content of materials and contribution to Australian skills growth. Further information, resources and model clauses for Funding Entities and Recipients are available on the ABCC's website. Funding Entities and Recipients can also contact the ABCC Manager of Government Code Compliance, Cassie Woods, on (02) 6121 5528 or at cassie.woods@abcc.gov.au to seek further assistance.

Changes to Enterprise Agreements

The Code also imposes new industrial relations obligations on contractors and sub-contractors, including to remove so-called “union friendly” provisions from enterprise agreements made under the Fair Work Act 2009 (Cth). This aspect of the Code has been controversial because these changes affect a significant part of the construction industry and must be implemented within a relatively short timeframe. The Code provides a transitional period to allow contractors with non-compliant enterprise agreements to lodge expressions of interest or tenders for Commonwealth funded building work on or before 31 August 2017. However, these contractors generally cannot be awarded a government funded project if they do not have a Code-compliant enterprise agreement by the time the tender is awarded. Whether a contractor can take advantage of this transition period or the limited exceptions created by schedule 5 of the Code depends upon the scope and date of entry of their non-compliant enterprise agreement. The ABCC has released comprehensive guidance on this matter.

The transitional period ends on 31 August 2017. Contractors therefore have less than three months in which to amend their non-compliant agreements and submit them to the ABCC for assessment and certification as Code-compliant. In some cases contractors may be required to provide a Self-Declaration Form to evidence compliance, either in addition to or instead of a Letter of Compliance from the ABCC. The ABCC Commissioner told Senate Estimates that as at 29 May 2017, the ABCC had assessed 324 draft agreements, of which 158 were determined to be Code-compliant, and a further 233 registered agreements, of which 137 were deemed Code-compliant.

Contractors and sub-contractors must act now to review and amend their enterprise agreements to ensure they are not prevented from tendering for Commonwealth funded building work from 1 September 2017.

Security of Payment

The Minister for Employment has described the Code as "probably the strongest security of payments law the building industry has ever seen". Contractors should be aware that the Code imposes additional Federal security of payment obligations and penalties on top of existing State and Territory laws. These new requirements include obligations to ensure that payments are made in a timely manner and not unreasonably withheld, to have and comply with a documented dispute settlement process that details how disputes about payments to sub-contractors will be resolved, and to report to the ABCC any progress claims/payments referred to adjudication (disputed payments) and any failures to pay amounts determined by an adjudicator (delayed payments). To make a report, contractors should use the Delayed or Disputed Progress Payment Reporting Form available on the ABCC's website and email this Form to enquiry@abcc.gov.au.

What should I do? Becoming Code-compliant

The ABCC has released a significant volume of Guidance Materials, Forms and Templates to assist with Code compliance and will likely continue to do so. The ABCC also works collaboratively with Code Covered Entities, Funding Entities and Funding Recipients to ensure that their Code obligations are fulfilled. To request advice or assistance, contact the ABCC on 1800 003 338 or via enquiry@abcc.gov.au.

Contracting parties should review the Code, the legislation and the ABCC's Guidance Materials to ensure they understand the specific requirements that apply to them. Contractors should thoroughly review and amend their contract clauses and policies to ensure they are, and remain, Code-compliant in relation to:

  • employment practices and enterprise agreements;
  • dispute resolution and security of payment policies and practices;
  • industrial relations and work health and safety laws;
  • obligations to ensure sub-contractor compliance with the Code.