The Queensland Minister for Housing and Public Works, Tim Mander, has released a discussion paper through the Queensland Building and Construction Commission (QBCC) to implement new protections to subcontractors in the building and construction industry.
The Minister, through the QBCC, has invited discussion from the industry in the context of having implemented control of the adjudication process through amendments to the Building and Construction Industry Payments Act (BCIPA).
As noted in the discussion paper, the QBCC is currently exploring the following five potential schemes and is interested in any alternative initiatives that can provide better payment outcomes for subcontractors:
1. Construction Retention Trust Scheme – This scheme, administered by the QBCC, would allow for the payment of cash retention monies into a proposed Construction Retention Trust Scheme in order to resolve the issues surrounding loss of retention monies held by the head contractor on behalf of a subcontractor. The funds held by the establishment of a statutory trust would not be available to the head contractor to use as working capital nor would they be available to a liquidator or administrator in the event of the head contractor becoming insolvent.
A similar scheme has been proposed in NSW by the Office of NSW Small Business Commissioner (OSBC). Cash retentions are to be held on trust by the OSBC and paid directly to the subcontractor or contractor.
2. BCIPA – Release of a valuable instrument – Should the Construction Retention Trust Scheme not be adopted, it is proposed the BCIPA be amended to allow adjudicators additional powers to decide on the release on security instruments such as bank guarantees.
3. Project Bank Accounts (PBA) – The QLD Government is proposing the implementation of a PBA to assist subcontractors in the recovery of money owing under construction contracts. This would allow for payments to be made directly to a head contractor and subcontractors by way of a trust account. It would allow for the protection from improper use of the funds by the head contractor as their working capital and provide protection of the funds in the event of head contractor insolvency.
The NSW Government has commenced a two-year trial of PBAs on selected government construction projects which took effect in January 2014. A link to the Construction Procurement Direction is provided here for those that require further information. The NSW Department of Finance and Services has drafted a trust deed for the purposes of the trial and modified the government construction contract to include references to the trust deed and PBA.
The WA Government is also currently trialling the use of PBAs on government construction projects. Through the establishment of a trust deed agreed between the parties, the PBA is opened by way of a project bank agreement and provides for a payment mechanism between the principal, head contractor and subcontractor.
4. Contract terms and conditions – It is recognised that the subcontractor is often disadvantaged by the strict deadlines imposed by the terms and conditions of certain construction contracts. These contracts provide unnecessarily complicated processes for the subcontractor to comply with before it is eligible to make a claim for or receive a progress payment. A change in law is considered to provide better payment outcomes for the subcontractor by making void any unreasonable and unfair preconditions to payment in constructions contracts.
5. Subcontractors’ Charges Act 1974 (SCA)- The SCA provides subcontractors with a way to secure outstanding monies owed under a contract by creating a statutory charge over monies payable to the contractor, and thereby secure the payment of money owed by that person to the subcontractor, without the need for a court judgment for the alleged debt.
The monies are frozen pending final contractual resolution of a payment dispute through the courts, which in many instances can be a lengthy and costly exercise.
The main difference between the SCA and the BCIPA is that under the SCA process, monies payable by the principal to a contractor are secured straight away. It is argued that the reason the SCA is not used frequently is that it is hard to understand and use, with only minor non-compliances with the legislation resulting in claims being ruled invalid.
It is queried whether there is any benefit to retaining the SCA in its current form or whether a review and rewrite would be more beneficial.
This outcome of the consultation period may well be significant to the construction industry. The proposed protections are potentially far reaching in that they will provide new measures for subcontractors to recover payment and retention monies. Consequently, this would restrict the principal or head contractor in utilising funds designated for a specific project. Whilst the proposed protections will be confined to Queensland, some of the same concepts have already been considered and implemented to a lesser extent in NSW. It is likely that the other States will review with interest any new protection measures ultimately implemented in Queensland.