The Queensland Government has issued its response to the Building Industry Fairness Reforms Implementation and Evaluation Panel Report (Report), which proposed amendments to the Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) regarding the use of project bank accounts (PBAs).
All 20 recommendations proposed in the Report have been either accepted or accepted in-principle by the Queensland Government. The reforms are expected to commence on 1 July 2020 and be fully implemented within 24 months.
A PBA is a trust account that a principal pays progress payments into under a construction contract for ‘building work’ where certain criteria are met. The PBA framework is designed to ensure that payments that subcontractors are entitled to receive remain protected in the PBA until they are due to be paid to the subcontractor. Our previous article on the project bank account regime can be accessed here.
The current laws surrounding PBAs
Phase 1 of the PBA reforms commenced on 1 March 2018, but only applied to Government building and construction projects valued between A$1 million and A$10 million (GST inclusive).
It was proposed in the Report (and accepted by the Queensland Government) that through three further phases, PBAs would be made compulsory for every project for building work valued over A$1m:
- Phase 2: PBAs will be required for all Government and Private projects valued at A$10m or more (GST exclusive);
- Phase 3: PBAs will be required for Government and Private projects between A$3m and A$10m (GST exclusive); and
- Phase 4: PBAs will be required for Government and Private projects in the range of A$1m and A$3m (GST exclusive).
Additionally, the Report recommended further amendments be made to the BIF Act regarding the operations of PBAs. The most important of these accepted amendments include:
- Recommendation 2: The definition of ‘building work’ will be amended so it is consistent with the definition under the Queensland Building and Construction Commission Act 1991 (Qld). Contracts solely for the supply of construction related services (including architectural, design and surveying services) will be excluded from the PBA requirements. The definition of ‘subcontractor’ will be amended to include civil construction work and consultants.
- Recommendation 3: The requirement for a disputed funds trust account will be removed from the PBA framework. This was suggested in light of the new protections in Recommendation 5 (see below).
- Recommendation 4: The BIF Act will be amended so that it will be an offence for a person given a payment claim to pay less than the amount stated in a payment schedule.
- Recommendation 5: The BIF Act will be amended so that a subcontractor can give a Payment Withholding Request to a project principal on or after making an adjudication application. This request would require the principal to retain enough money (from amounts due to the head contractor) to cover the adjudication claim. Queensland would be the first jurisdiction to introduce such measures.
- Recommendation 6: The requirement to create a Retention Trust Account as a part of the PBA will be removed.
- Recommendation 7: The Retention Trust Account will be replaced as a part of a PBA by requiring all contractors and private sector principals in the contractual chain to create a (separate) retention trust account to withhold cash retentions in relation to any project which requires a PBA or prescribed work.
- Recommendation 10: The Retention Trust Account requirement will be progressively phased in alongside the PBA phases (outlined above). In accordance with this recommendation, where a PBA is required in Phases 2 and 3, all head contractors and private sector principals must hold any retentions from those projects in a Retention Trust Account. In Phase 4, all contractors holding retentions for ‘building work’ and private sector principals on projects requiring a PBA will also have to hold any retentions in a Retention Trust Account.
- Recommendation 18: The BIF Act currently provides that on termination of the contract or insolvency of the head contactor, the principal may step in and administer the PBA. The Report proposes (and the Queensland Government accepted) removing the ability of the principal to become the trustee of the PBA in the instance of insolvency or contract termination. Instead, the Queensland Building and Construction Commission (QBCC) will be able to administer PBAs in these circumstances.
When will the reforms be rolled out?
Phase 2 (the initial Phase) will commence on 1 July 2021. When this phase commences, all government and private projects for building work valued at A$10m and above will require PBAs (in addition to existing requirements for Government projects for building work over A$1m to have a PBA).
Phase 3 will commence 4-6 months after Phase 2 (likely 1 January 2022). When this phase commences, all private projects for building work valued between A$3m and A$10m will also require PBAs.
Finally, Phase 4 will commence 4-6 months after the commencement of Phase 3 (likely 1 July 2022). When this phase commences, private projects for building work valued between A$1m and A$3m will also require PBAs.
It is anticipated that legislation will be forthcoming in the final half of 2020.