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Focus: Queensland security of payment regime: more change on the horizon

16 January 2017

In brief: The Queensland Government recently released a Queensland Building Plan discussion paper for public consideration that coincided with the enactment of the Federal Government's Building and Construction Industry (Improving Productivity) Bill 2013. Both developments have the potential to affect the existing security of payment regime in Queensland. Partner Nicholas Ng (view CV), Managing Associate Nikki O'Leary (view CV), Senior Associate Matt Thomas and Associate Brydon Wang consider the proposed changes to security payment regimes under the Queensland Building Plan and the ABCC legislation.

 
 

How does it affect you?

  • Construction projects in Queensland with a value of over $1 million will require a head contractor to establish a project bank account for the sole purpose of quarantining progress payment and retention amounts to ensure prompt payment to contractors and subcontractors. These accounts are similar in substance to the schemes presently being trialled in NSW and Western Australia.
  • A number of potential amendments to Queensland's security of payment legislation have been identified including:
    • consolidation of various security of payment provisions into one piece of legislation;
    • removing the requirement to state that a payment claim is made under the Building and Construction Industry Payment Act 2004 (Qld) (the BCIPA); and
    • providing claimants with an additional 20 business days to lodge an application for adjudication under amendments to BCIPA.
  • The potential removal of the need to explicitly confirm that a claim is made under the security of payment legislation will create a need for principals and head contractors to assume that any claim may ultimately proceed to adjudication under the BCIPA. 

Queensland Building Plan

The Queensland Building Plan discussion paper identifies the following proposed amendments to Queensland's existing security of payment regime to:

  • consolidate in one piece of legislation the security of payment provisions under the BCIPA, Subcontractors' Charges Act 1974 (Qld) (the SCA) and the provisions in the Queensland Building and Construction Commission Act 1991 (Qld) that relate to ensuring payment to subcontractors;
  • introduce project bank accounts (PBAs) on every construction project over $1 million. The aim of these accounts is to address 'cascading payments' from head contractors to subcontractors, where subcontractors bear the risk of a head contractor's insolvency, and where payments received by head contractors are routinely accessed to 'supplement… cash flow and working capital'.1 Principals will be required to pay progress payments into the PBA, which would then disburse the payments directly to the head contractor and subcontractors;
  • remove the requirement to state that a payment claim is being made under the BCIPA. The Queensland Government has indicated this amendment is intended to ensure that the benefits of security of payment legislation extend to all payment claims without having industry participants make specific claims under the BCIPA provisions. This amendment would align the statutory payment claim process with the current regime in NSW;
  • provide an extension of 20 business days to the timeframe to lodge adjudication applications. For 'standard' claims (below $750,000) the timeframe is proposed to be extended from 10 business days to 30 business days. For 'complex' claims (over $750,000), the timeframe is proposed to be extended from 20 business days to 40 business days;
  • extend the BCIPA provisions to contracts that have been terminated for convenience. Specifically, the Queensland Government intends to clarify that payment claims may be made after termination of the contract, for the period up to the termination of the contract, and that these payment claims that survive the termination for convenience will still be caught under the security of payment regime; and
  • impose further governance requirements on the adjudication process, including enhancing the independence of the Adjudication Registry, imposing continuing professional development obligations on adjudicators and potentially requiring advice on the BCIPA to only be provided by Adjudication Registry officers.

The Queensland Government intends to make the security of payment regime less costly for claimants by imposing caps on the level of fees that can be charged by adjudicators and giving new powers to adjudicators to order that a claimant be reimbursed for the cost of the application fee in whole or in part, or pay interest on the amount claimed from the date of the original payment claim.

The Queensland Government is also seeking to consult the public on 'unfair contracts', in particular where termination for convenience clauses have been drafted to avoid the BCIPA.

Comments

The last round of public consultation and amendments to the Queensland security of payment regime occurred in 2014, but it appears that further changes are imminent. These further changes are very much a step change from the current legislation, and will make it easier and more cost effective for contractors and subcontractors to make claims under the BCIPA, which is likely to lead to an increased volume of claims being made. 

Prior to the release of the Queensland Building Plan discussion paper, the Queensland Government released a report produced by Deloitte that analysed the proposed security of payment amendments identified in the Plan. In its report, Deloitte suggested that:

  • the benefits of PBAs appear to outweigh the cost of implementation. However, these benefits are based on Deloitte's assumption that subcontractors would reduce their fees for early payments and that subcontractors in Australia have traditionally inflated bids by approximately 4 per cent to cover the risks of late or no payment;
  • the benefits of Retention Trust Funds may be outstripped by the cost of implementation. This appears to have been accepted by the Queensland Government and this proposed amendment has not been put forward in the discussion paper;
  • subcontractor use of BCIPA provisions is not as extensive as it could be. Deloitte noted that by removing barriers to utilising the adjudication process (by allowing a claimant to recoup costs and interest) and by ensuring that BCIPA provisions apply to all progress claims, this would reduce a subcontractor's wait time to be paid, improving subcontractor working capital.

The removal of the requirement to state that a claim is being made under the BCIPA is particularly noteworthy. Principals and head contractors routinely use the presence of such a statement on a payment claim as a warning sign as to possible adjudication under the BCIPA, or as an indication that a more robust approach is needed to preparation of a payment schedule. Without this explicit confirmation, principals and head contractors will be compelled to assume that any claim may ultimately proceed to adjudication under the BCIPA, and commit resources to responding accordingly.

Further, mandating PBAs will likely lead to increased financing and administration costs associated with a project.

At the federal level, a Security of Payment Working Group will be set up as part of the Building and Construction Industry (Improving Productivity) Act 2016 (Cth) (the ABCC Act). The Working Group will monitor compliance with, and propose changes to, state and territory security of payment legislation, which will be considered by the new Australian Building and Construction Commissioner. Given the broadness of the language in the ABCC Act, we think that there is some scope for the Working Group to investigate the feasibility of creating a uniform national security of payment regime, but such changes are unlikely at present.

Footnotes
  1. Deloitte (8 November 2016) Analysis of security of payment reform for the building and construction industry.

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