It is fair to say that my initial reading of the Building Industry Fairness (Security of Payment) Act 2017 (BIFA) a little over 12 months ago left me shocked in terms of the sheer scale and magnitude of the reforms and changes proposed to be imposed on the industry.
I decided then and there that I wanted to make my voice heard on industry issues and offer my unique insight to a meaningful conversation. To this end, prior to this article, I have written 33 articles relating to BIFA, non-conforming building products (NCBP), insolvency reforms, big data, future fit regulation, innovation developments and upcoming industry disruption and transformation on a scale never previously contemplated.
This ‘mixed bag’ of topics demonstrates the challenge industry participants and governments are facing in having to deal with a large number of current and future issues RIGHT NOW.
In this article I have sought to highlight these main issues and to make things interesting, I have categorised them as either good, bad, ugly, missteps and unresolved.
I have also been much more forthcoming in this article with my views and insights than in previous articles so feel free to challenge me on anything I say!!
The decision by the Government to confirm the role of the Adjudication Registry within the QBCC in receiving adjudication applications and appointing adjudicators to decide payment disputes. I addressed this issue in detail in an article entitled “Is Adjudication Shopping about to make a comeback in Qld?” and I give the Government a huge tick for preserving the integrity of the adjudication process as a result of this decision.
The desire and commitment by the Government to address the significant issue of NCBP through new legislation based on the concept of holding the entire supply chain responsible in an effort to ensure all building products used in Queensland are safe and fit for intended purpose, should be applauded. I made such a case in an article entitled “Governments must regulate the construction industry ‘eyes up“.
The decision by the Government to act promptly and implement a 3 stage process to address the very significant public safety issue of dangerous external cladding on 12,000 privately owned high rise buildings in Queensland. I recognised the Government’s actions in this regard in an article entitled “A construction industry regulatory fail that affects 12,000 Queensland unit owners“, which as the title suggests also raises other issues of concern that I will outline elsewhere in this article.
The decision by the Government to appoint a Building Industry Fairness Reforms Implementation and Evaluation Panel (BIFA Panel) “to work with government and with the building industry to assess the implementation of this legislation.”
Misinformation or misunderstanding of particular issues has become a major problem. In some instances folk law has become accepted as fact and this is very concerning.
It was alleged by some that the 2014 reforms to the Building and Construction Industry Payments Act 2004 (BCIPA) resulted in it no longer being an offence for a respondent to fail to provide a payment schedule response to a payment claim from a claimant. The fact is, it was never an offence in the first place.
I addressed this issue and other BCIPA misconceptions in an article dated 6 October 2017 entitled “Folk stories and other urban myths“, where I outlined in detail how there never exited before BIFA a penalty for the failure by a respondent to provide a payment schedule.
Unfortunately several weeks later in the second reading speech for BIFA, the responsible Minister, the Hon Mick de Brenni made this statement:
“These provisions will restore accountability on respondents by restoring the penalty which used to apply when there was a failure to provide a payment schedule when one was due. If people actually get out and listen to subcontractors, they will hear that the LNP’s wilful decision to abolish that accountability and to repeal that penalty had a dreadful impact on payment culture and practices in the industry.”
The Minister would have been relying on departmental advice and clearly in this instance there was a failing in this respect.
There is a widespread belief that Project Bank Accounts (PBA’s) will apply in all situations and this is not the case. I have read a lot of media articles in recent times where subcontractors affected by a current failure of a builder to pay them for work done speak very positively of the future impact PBA’s will have in addressing this industry scourge.
However any subcontractor working for a builder performing engineering, civil or infrastructure work will NOT be protected by PBA’s. The same applies in cases where subcontractors work for builders carrying out residential work for ‘mums and dads’.
Also, any work done by a subcontractor where they are carrying out work of an exempt building work nature such as electrical work will not be afforded PBA’s protection under existing legislation.
The situation in respect of electrical work not been the subject of PBA’s coverage was raised by the relevant Parliamentary Committee in its report on BIFA. I noted the following statements in this report (‘MEA’ is Master Electricians Australia):
“The MEA raised a concern that as the QBCC does not regulate Electrical Work the definition may exclude electrical and other subcontractors”.
Elsewhere in the report it is stated:
“The department advised the definition of ‘building work’ is intended to align broadly with the definition of that expression in the QBCC Act and it was not intended to exclude subcontracted work by an electrician related to the erection or construction of a building from the protection afforded by PBAs. The department indicated that it would consider the issue raised.”
I am unaware of any changes made to BIFA after this issue was raised by the Parliamentary Committee. I suspect that most electricians would find this situation very disconcerting given all the publicity that has been generated about how PBA’s will protect all subcontractors.
I have written a detailed article entitled “Project Bank Accounts are happening but will your job have one?“, where I expressed an opinion that only approximately $11.5 billion of the total worth (approximately $46 billion) the building and construction industry in Queensland, would be covered by PBA’s.
There is a belief that the Minimum Financial Requirements for licensing (MFR’s) are issued by the QBCC on the basis that contractors are solvent and will remain so.In this regard I have noted a recent media article entitled “Ostwalds to JM Kelly: Building game’s five-year trail of woe” the following statement was made:
“The state’s building regulator has as a basic requirement that those companies granted a Queensland Building and Construction Commission licence were solvent and remained so.
However there were numerous examples over the past half decade of failed building companies who were later found to have traded for a considerable time while insolvent”.
There is not one mention of the word ‘solvent’ in the current MFR’s. The objectives of the MFR’s are stated as:
“The objectives of the Minimum Financial Requirements in this policy are to promote financially viable businesses and foster professional business practices in the Queensland building industry.”
The MFR’s serve a very important licensing purpose but in their current form they are not based on licensees having to be solvent at all times.
If this is the outcome the Government, and just as importantly the industry wants to achieve then the MFR’s would have to be extensively modified to reflect the definitions of ‘solvent trading’ and ‘insolvent trading’ under the Corporations Act.
It also needs to be acknowledged that there would be resultant increased costs incurred by the QBCC in running a licensing programme incorporating solvency based MFR’s.
To fund an appropriate compliance program in respect of MFR’s that required all contractors to be solvent at all times, the burden would fall on approximate 100,000 licensees. (see page 40, QBCC 2016/2017 Annual Report).
I believe that all licensing fees (applications and renewals) would have to be substantially increased if the QBCC was to administer a licensing program incorporating solvency based MFR’s because of significantly ‘raised bar’ legislative responsibilities bestowed on the QBCC.
In a recent article the following was stated:
“QUEENSLAND’S building regulator has been blind since 2013 to the financial integrity of those it licenses to operate in this state.
The Queensland Building and Construction Commission says that was the last year those who were already licensed had to provide annually, audited financial accounts to support the licence class which governed their maximum annual turnover.
Only builders who were seeking a change in their licence class, or those seeking a licence for the first time, were required to provide information.”
This is only partially correct.
In cases where a licensed company is required to provide an auditor’s report or review report to the ASIC or ASX, Section 5.2 of the current Minimum Financial Requirements (dated 9 October 2015) states:
“If a Licensee or any company within its group of companies is required to provide an auditor’s report or review report to the ASIC or ASX, then within 30 days of the report being signed and/or submission to the ASIC or ASX a copy of the report must be submitted to the Commission. All Licensees or companies who were required to provide an auditor’s report or review report to ASIC or ASX for the 2014–15 financial year must submit a copy of the report to the Commission within 30 days of this policy commencing. Failure to provide the required information may result in the Commission determining the Licensee fails to meet the Minimum Financial Requirements.”
ASIC has defined the type of organisations required to lodge financial reports with them for each financial year and it quite a comprehensive list. I believe that the majority of the largest contractors would be captured by these requirements.
I have written two articles on the MFR’s, namely “Crystal-balling the Minimum Financial Requirements for Contractor Licensing” and “The New Min is the Old Max?” where I speculate on what proposed ‘tougher’ requirements of this nature will look like.
In an article entitled “A construction industry regulatory fail that affects 12,000 Queensland unit owners”, I outlined the situation that has occurred where these owners, at no fault on their part, are now legally required to submit to an evaluation process to determine if their unit has dangerous external cladding. If it does, these owners will have to incur assessment and rectification costs.
Ugly. Number 1.
The lack of respect displayed by some parties towards those who hold opposing views on security of payment (SOP) issues has been very disappointing. I suppose that this is to be expected given it seems as a society, the art of people having civilised discussions about important things without it ending up in a crass and demeaning free for all has all but disappeared.
The journalist Julia Baird summed this very unfortunate trait up perfectly in a recent article entitled ‘Shouting down your opponents just cements the silos’ where she stated:
“Silos are about gathering armies, about attack, and the casualties are civility and persuasion. It’s taking more and more muscle to carve out public spaces for argument, not antagonism, and for talking, not trolling.
If you have only conviction without persuasion, you won’t convince anyone”
That last sentence is very powerful and resonates with me. I am of the view there are some parties in the industry who certainly have strong convictions and a desire to effectively represent their members and that is to be admired, but who unfortunately are not interested in persuading others of their agenda or charter through respectful public dialog and actions.
Whatever happened to ‘reaching across the aisle’ so as to achieve SOP reforms that are broadly accepted by all parties and stakeholders in the industry?
I know for a fact this can be done. The Building and Construction Industry Payments Act 2004 was unanimously passed by parliament after 4 years of research and industry consultation I undertook. It is worth noting that this is about the same time that has now elapsed since the Government committed to reviewing SOP laws in early 2015, with BIFA being the eventual outcome of this review.
Missteps Number 1.
None of the BIFA initiatives represent transformative thinking to address SOP concerns, a fact I pointed out in a previously article entitled “Construction Innovation — It’s not just about apps!”.
Despite the building and construction industry undergoing massive changes over the past several decades to the point it is almost unrecognisable, aside from PBA’s, the initiatives in the BIFA are recycled ones where they seek to deliver SOP to subcontractors through a combination of long established payment, contractual and licensing initiatives.
The industry needs to be regulated along ‘future fit’ lines that will allow innovation to flourish, but at the same time ensuring buildings and homes are constructed in full compliance with building standards and at all times utilising conforming building products.
Furthermore ALL contractors should be licensed against significantly upgraded technical, business and financial criteria. I am of the view that the best thing a subcontractor can have going for themselves in terms of securing payment for work done for a builder is being able to match the builders business and financial knowledge.
A QBCC contractor licence is a legal entitlement to run a business in the construction industry but here we are having to consider the implementation of PBA’s to protect subcontractors from builders not paying them. The mere fact that this statutory protection is considered necessary to assist subcontractors run their businesses is a massive indictment on existing training and licensing regimes.
This matter is wholly owned by the industry in a collective sense. I cannot believe how the majority of existing industry participants are seemingly ‘asleep at the wheel’ and behaving as if the construction industry is going to be somehow the only industry not massively disrupted by the entry of brash entrepreneurs who are innovation focused and highly, highly capitalised.
The net worth of Amazon ticked over a day or so ago to in excess of $1 trillion USD. The entire worth of the Australian economy is $1.2 trillion USD. If Amazon decided to enter the Australian construction industry, with all their money and innovation and technology means, it would be game over for the majority of existing industry contractors.
In an article entitled “Global Construction giant AIXI posts after tax profit of $1 trillion for 2038 FY” I tongue in cheek projected “for the third straight year global construction giant AIXI dominated the Australian and Asian residential and non residential markets, recording an after tax profit of $1trillion and in the process performing 50% of all construction work of this nature in Australia and Asia.”
An idea that the most effective way to prevent the misuse of cash retentions is to require all such funds be held in a Statutory Construction Retention Bond/Trust Scheme has always appealed to me. Such a scheme would operate along the same lines as the Residential Tenancies Authority does in protecting the misuse by landlords of rental bonds paid by tenants when entering into accomodation leasing arrangements.
Unfortunately such a trust or scheme, while initially proposed by the QBCC, has not been advanced by the Government as a SOP solution. I addressed this issue in my article entitled “RIP Statutory Construction Retention Bond/Trust Scheme”.
The philosophical approaches by the Commonwealth and State Governments in terms of the way they are dealing with insolvency in the industry is very different and this is sending mixed messages to industry participants.
On one hand the Commonwealth Government through the Treasury Laws Amendment (2017 Enterprise Incentives №2) Act 2017 amended the Corporations Act 2001 (Cth) to prohibit contractual termination rights arising on the occurrence of an insolvency event.
Specifically these reforms prohibit the enforcement of contractual rights because a company is in voluntary administration, receivership or subject to a scheme of arrangement. Any such termination clauses, known as ipso facto clauses will be unenforceable.
Furthermore, in the relevant explanatory memorandum it is stated:
“The Government is reforming Australia’s insolvency laws. Our current insolvent trading laws put too much focus on stigmatising and penalising failure.”
However the State Government is adopting a tough and uncompromising approach to anything to do with contractor insolvency.
In an article entitled “Insolvency in the building and construction industry. New thinking. Old problem” I pointed out that a voluntary administrator could be appointed to a licenced building company, with its prospects of trading out of financial difficulties significantly enhanced as a result of the recent Commonwealth Government ipso facto contract reforms, only for the QBCC to suspend or cancel the companies licence because of it failing to comply with the MFR’s.
I have mixed feelings about what approach is the right one but I suspect the preferable position may be somewhere in the middle.
Despite BIFA being the subject of 145 amendments when Parliament debated it in October 2017, on 12 June 2018 the responsible Minister, the Hon Mick de Brenni announced a 6 monthdelay in the commencement of key BIFA initiatives to allow for the progressing of further amendments.
I addressed this matter in an article entitled “BIFA delay.SOP confusion”.
For a very significant probity and integrity reason that I outlined in an article entitled “Is Adjudication Shopping about to make a comeback in Qld?”, I am of the view that the Commonwealth Government has failed to deliver suitable harmonised SOP legislation for consideration by the states.
This issue concerns the proposed return of Authorised Nominating Authorities in the receiving of adjudication applications and the appointment of adjudicators and I am strongly of the view that this must never happen in Queensland.
The decision by the Government not to appoint any contractors to the BIFA panel.
In an article entitled “Enormous Brother is Watching” I outlined how regulators are attempting to be more proactive in the performance of their roles by seeking to rely on significantly enhanced and upgraded data intelligence, analytics and the sharing of information with other regulators, government agencies and mining publicly available information.
A regulator who is reforming its operations around making better use of data is the QBCC. In an article entitled QBCC embraces the benefit of hybrid cloud, it was stated that to promote organisational flexibility the QBCC has switch to a hybrid cloud solution “to better utilise data to enable it to adopt an insights-driven approach to its work”.
The QBCC has further advanced its operational reforms in this regard by issuing a Insights Driven Regulator-Strategy and Business Case Tender where it is stated:
“Through recent significant legislative reform the QBCC was given extended powers to enhance the integrity and probity of the building and construction industry. Consequently, this reform will rely heavily on data intelligence and analytics. A critical dependency to achieve the Government’s expectations for implementation of the new laws is the ability to be an “insights driven regulator””.
I am unaware of how this initiative is proceeding.
In an article entitled “SOP questions you should be asking” I posed 9 questions that the industry needs answers to, namely:
- For evaluation purposes, what are the objectives or purpose of BIFA?
- What will be the total regulatory costs of BIFA having regard to all its initiatives?
- Will contractual uncertainty caused by section 76 of BIFA (payment schedule requirements) be addressed?
- What will be mandatory and prohibited conditions in a building contract?
- Will there be additional details prescribed by regulation as to what will constitute a valid BIFA payment claim?
- What will be the continuing professional development requirements for adjudicators?
As at the date of this article none of these questions have been answered.
So there you have it, industry participants and Governments struggling to respond in a timely and appropriate manner to current and future issues. With regard to future issues, they are developing so rapidly and are of such a magnitude in terms of potential industry disruption that in some ways they demand more urgent attention than the current issues.