A new Security of Payment regime for Queensland's building & construction industry

Key takeaways

• The new Act has far-reaching consequences for almost all members of the Queensland construction community.
• The Building Industry Fairness (Security of Payment) Act 2017 (Qld) (the Act) commenced in force on 17 November 2017.
• The Act repeals and replaces the Building and Construction Industry Payments Act 2004 (Qld) and the Subcontractors’ Charges Act 1974 (Qld) and amends the Queensland Building and Construction Commission Act 1991 (Qld).
• Head contractors should familiarise themselves with the new requirements, particularly in relation to PBAs and payment schedules, as failure to comply will be costly.

Why did the Government implement this reform?

Systemic late or non-payment of subcontractors in the $44 billion Queensland building and construction industry was uncovered by the Government via industry wide consultation and verified by the Senate Economics References Committee’s 2015 inquiry. The Act introduces Project Bank Accounts to address these issues.

The Act also modernises and merges the law entitling subcontractors to progress payments and to create and enforce a security interest via a subcontractor’s charge.

While designed to stop poor payment practices, the Act implements several reforms and imposes substantial penalties for non-compliance. This is a significant legislative reform for the building and construction industry in Queensland and, in this article, we set out the key features that you should take into account.

Project bank accounts

A Project Bank Account (PBA) creates a trust over the following amounts:

1. all amounts paid by the principal to the head contractor under a building contract;
2. all amounts a subcontractor is entitled to be paid by the head contractor under a first tier subcontract;
3. all retention amounts withheld under a first tier subcontract; and
4. all amounts that are the subject of a payment dispute.

The head contractor is appointed sole trustee of the trust created by the PBA and the beneficiaries are each subcontractor as well as the head contractor. In the event the head contractor becomes insolvent, the amount in the PBA will continue to be held on trust (i.e. quarantined) for the subcontractor beneficiaries, and as such is protected from other creditors.

Which projects require PBAs?

PBAs are required for building contracts where:

1. the principal is the State or a State authority that has decided a PBA is to be established for the contract;
2. more than 50% of the contract price is for building work; and
3. the contract price for the building contract is between $1 and $10 million

Residential construction work is excluded except where the principal is the Department of Housing and Public Works. Building contracts that are solely for maintenance work are also excluded.

Administrative requirements – 3 separate accounts required

A head contractor must establish a PBA by opening all of the following trust accounts at the office or a branch of a financial institution within the State:

1. a general trust account for amounts paid to the head contractor under the head contract;
2. a retention account for retention amounts held under subcontracts;
3. a disputed funds account for amounts the subject of a payment dispute.

Each account name must include the words ‘trust account’.

The head contractor must notify the principal when a trust account is opened or closed and if the name of the trust account is changed.

PBAs must not be used for payments or transactions that are not related to the relevant building work.

Administrative requirements – electronic transfers and payment instructions

PBAs must comply with the following operating rules:

1. deposits and withdrawals can only be made using electronic transfers;
2. withdrawals can only be made using a payment instruction given to the financial institution; and
3. transfers between the trust accounts can only be made using a payment instruction given to the financial institution.

Administrative requirements – information sharing

The head contractor must:

1. inform each subcontractor (before the subcontract is entered into, unless the subcontract was entered into before the PBA was established) that a PBA will be used for making payments to subcontractors and identify the financial institution where the PBA accounts are to be held;
2. provide the principal with details of each subcontract; and
3. provide the principal and the relevant subcontractor beneficiary with a copy of the information contained in each payment instruction given to the financial institution.

Head contractor to cover shortfalls

The head contractor is responsible for any shortfall in a trust account. If there are insufficient funds in a trust account to pay an amount owed to a subcontractor, the head contractor must deposit the shortfall into the account as soon as the head contractor becomes aware of the shortfall.

Progress payments

The Act repeals and replaces the Building and Construction Industry Payments Act 2004 (Qld). Whilst the majority of the provisions have been directly translated, Chapter 3 of the Act streamlines the progress payment provisions that relate to claims, schedules and adjudication.

The Act reinforces the right to progress payments for construction work (and related good and services), and tightens the period in which the party receiving the payment claim (the respondent) must make payment and provide a payment schedule. In summary a progress payment becomes due:

1. if the contract provides a date, on that date; or
2. if the contract does not provide a date, 10 business days after the day the relevant payment claim is made.

Bear in mind that ‘pay when paid’ provisions in a contract are void, and that the Queensland Building and Construction Commission Act 1991 (the QBCC Act) voids any contractual provision for a payment date that is later than 25 business days. 

These payment periods apply regardless of whether the payment claim is a complex or standard claim. However, the Act does not require a respondent to serve a payment schedule if the full amount of the payment claim is to be paid in full and is paid in full within the relevant payment period.

Under the new regime there is no second chance to serve a payment schedule. If a payment schedule is provided outside of the response period, then the contractor (claimant) may apply for judgment immediately. Moreover, the respondent may be prosecuted for the failure to provide the payment schedule within the response period, with the penalty being up to 100 penalty units (currently $12,615).

Subcontractors’ charges

The Act also repeals and replaces the Subcontractors’ Charges Act 1974 (Qld). The primary reform embodied in the new Act is modernised language to resolve issues of interpretation with the old provisions. However, the legal effect of the relevant provisions in the Act is unchanged.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).