A brave new world – Project Bank Accounts, increased powers of the QBCC and the amendment and amalgamation of the Security of Payment and Subcontractors Charges legislation
In accordance with one of its key election promises the Queensland Government has introduced the Building Industry Fairness (Security of Payment) Bill 2017 (Bill) into Queensland Parliament. The stated objects of the Bill are:
- to improve security of payment for subcontractors in the building and construction industry and increase ease of access to the security of payment legislation
- the creation of a framework to establish Project Bank Accounts (PBAs)
- to modernise and simplify the provisions for making a subcontractors charge
- to provide increased ability for the Queensland Building and Construction Commission (QBCC) to oversee and regulate the building and construction industry.
On the assumption that the Bill is passed into law it will mark a significant change in the manner in which business is done in the industry and require all participants to ensure they fully understand and comprehend the various amendments and alterations to the current regimes in place. In many instances the effect of the amendments is to limit or remove perceived indulgences to Respondents in relation to security of payment claims and return to the original model whereby a failure to comply with timeframes had potential dire consequences. Significant amendments and alterations to the current security of payment regime in Queensland are as follows:
- Removing the requirement to state on a payment claim that the claim is made under the legislation
- The statutory creation of a new or additional reference date on termination of the contract if the contract does not provide for one
- Removal of the Respondent’s second chance to serve a payment schedule in all circumstances
- Removal of the ability for a Respondent to include new reasons in an adjudication response which were not raised in a payment schedule
- Increased timeframe for the Claimant to lodge an adjudication application
- The creation of specific offences for a failure to comply with certain parts of the legislation including the service of payment schedule (irrespective of whether it is intended to pay the full amount) and payment of an adjudicated amount within five business days
- Providing that a Claimant can make a claim for each reference date (section 70 of the Bill) as compared with from the reference date (section 12 of the current legislation). On reading the balance of the Bill we expect that the legislature did not intend a move from the current position however query whether this proposed change does in fact do exactly that.
- An ability for the legislature to, in the future, limit the size of an adjudication application or adjudication response.
Insofar as the Bill deals with what is currently the Subcontractors Charges Act there are limited substantive or practical amendments to the operation of the legislation albeit we would anticipate that industry will find the legislation easier to follow and read than its predecessor. One change however is that a Contractor served with a notice of claim of charge must respond within the reduced time period of 5 business days advising whether the Contractor accepts liability (or part thereof) for the amount claimed. Failure to do so constitutes an offence.
The Bill also seeks to grapple with the vexed concept of who is an “influential person” insofar as it is relevant to the QBCC’s supervisory and disciplinary powers. It also extends the concept of an “excluded individual” to anyone who was a director or influential person in the period of 2 years (extended from 1 year) prior to the company going into liquidation.
A significant part of the proposed reform has been focused on the issue of Project Bank Accounts. If the Bill is passed into law PBAs will come to fruition. The Explanatory Notes to the Bill discuss a two phase approach for the implementation of PBAs, the first phase to apply to government building and construction projects of between $1 million and $10 million and to commence on 1 January 2018 with the second phase to implement PBAs in relation to all building and construction projects with a value in excess of $1 million, commencing on 1 January 2019.
The Explanatory Notes to the Bill state that it is not intended for PBAs to apply to engineering and infrastructure projects including bridges, roads and ports.
The Bill places an obligation on the Head Contractor to establish the PBA within 20 business days of entry into the first subcontract for the project. Significant penalties exist for failure to do so. It is to do so by opening three separate trust accounts as follows:
- general trust account
- retention trust account
- disputed funds trust account.
The Head Contractor and each Subcontractor to the Head Contractor are beneficiaries of the PBA.
During the life of the project, payments to be made from the Principal to the Head Contractor are deposited into the general trust account. In the normal course this will be the certified or scheduled amount in response to the Head Contractor’s monthly progress claim. Practically, following the Head Contractor’s assessment of each of the Subcontractor’s claims the process under the PBA is that the Head Contractor will issue a payment instruction to the financial institution where the PBA has been set up identifying the amounts payable to each of the Head Contractor’s Subcontractors and instructing such payments to be made from the PBA as well as identifying the amount payable to the Head Contractor after payment to the various Subcontractors.
Where the Head Contractor is aware there will be insufficient funds in the PBA to cover the amount payable by the Head Contractor to a Subcontractor the obligation is on the Head Contractor to deposit into the general trust account an additional amount to cover the shortfall. Similarly where there is any such shortfall the Head Contractor is strictly prohibited from withdrawing any amount to pay itself until any and all Subcontractors are paid in full (unless the Head Contractor is doing so to pay an amount pursuant to an adjudication decision or court order).
If there are insufficient funds in the general trust account to pay each of the Subcontractors the amounts owing in full they are each entitled to be paid from the general trust account in proportion to the amounts due to be paid to each Subcontractor. There is an obligation on the Head Contractor to then pay the shortfall payable to each Subcontractor into the disputed funds trust account.
In relation to retention monies these are required to be held in the retention trust account and each amount must specifically identify the Subcontractor each retention amount relates to.
The Bill makes it clear that all payments to subcontractors must be processed through the PBA. Finally, in response to industry feedback the Bill enables an extension of the PBA in the future to Subcontractors further down the contractual chain and attempts to limit the potential liability of those operating the PBA.
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this publication is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources.
This article first appeared on the Holding Redlich website and has been reproduced with permission.