Amendments to Queensland’s security of payment regime

Amendments to Queensland’s Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) have now passed, simplifying the project bank account framework and amending the rights and obligations of all parties involved in construction contracts in Queensland.

The Building Industry Fairness (Security of Payment) and Other Legislation Amendment Act 2020 (Act), was passed on 15 July 2020 amending the BIF Act. The Act received assent on 23 July 2020.

The Act adopts recommendations of the Building Industry Fairness Reforms Implementation and Evaluation Panel¹ and replaces the existing project bank account framework in place for Queensland Government construction projects with a simplified “statutory trusts” regime for monies to be paid to subcontractors and retention monies. The Act also increases the Queensland Building and Construction Commission’s powers to monitor and enforce the project trust requirements and introduces new penalties for non-compliance.

In addition to amending the project bank account regime, the Act introduces new rights for contractors and new penalties for principals for failing to pay sums certified or adjudicated by the due date for payment, which will apply to all contracts for construction work at sites in Queensland and supply of related goods and services.

Project bank accounts being replaced by statutory trusts

The Act simplifies the requirements for dedicated “trust” style bank accounts to be opened by head contractors engaging subcontractors or principals or head contractors withholding “retention monies” from payments due under contracts for certain types of building work in Queensland.

The Act also introduces new compliance obligations, such as audit and training requirements, as well as penalties for failure to comply or breach of the duty to report others that do not comply with their obligations under the Act. Executive officers will be personally liable for failing to ensure money is appropriately held and deposited into a project trust or retention trust account.

At present, the requirement for project trust accounts and retention trust accounts continues to apply to construction work for Queensland Government or certain State authority projects only.

New offences for non-payment

Under any contract for construction work at a site in Queensland or the supply of related goods and services (whether private sector or government) it will be an offence to fail to pay amounts certified in a payment schedule or determined by an adjudicator by the due date. The penalty will be 100 penalty units (currently $13,345 for an individual and $66,725 for a corporation).

Unpaid claimants are also given additional powers to recover money owing, including the power to serve a ‘payment withholding request’ on the project financier or to lodge a statutory charge over the property where the work is being constructed if owned by the respondent to the payment claim or its related entity.

Further details of each of these key changes are set out below.

Simplified framework

The Act simplifies the project bank account framework by removing the current requirement for three bank accounts to be opened for each eligible contract and streamlining the accounts required to be opened for eligible projects. Under the new regime:

• only one project trust account will be required for each head contractor to an eligible contract (which must be opened within 20 business days of entering into the first subcontract);
• one retention trust account will be required for each principal or head contractor under a construction contract for all “retention monies” held back from payments due, rather than one retention trust account per project; and
• the requirement to establish a disputed trust account will be removed.

When are project trust accounts required?

Project trusts accounts are intended to ensure that monies paid to a head contractor for the work performed by its subcontractors is appropriately quarantined for payment to those subcontractors.

Project trust accounts are compulsory for construction contracts where the contracting entity is the State, more than 50% of the contract price is for “project trust work” and the contract price is more than $1m but not more than $10m. Project trust accounts are also required where the contracting entity is a State authority that has decided a project trust is to be established for the contract, more than 50% of the contract price is for “project trust work” and the price exceeds $1m.

Under the amendments introduced by the Act, the definition of “project trust work” has been aligned with the definition of “building work” under the Queensland Building and Construction Commission Act 1991 (QBBC Act). Certain work, including maintenance work, contract administration work and work by professional architects and engineers is excepted from the definition of “project trust work”. The Act provides for additional types of works to be excepted from the definition of “project trust work” by regulation. It is not yet clear whether any regulations will prescribe the same exceptions to the definition of “project trust work” as the exceptions to “building work” in the QBCC regulation.²

Generally, only the head contractor who is subcontracting work is required to put in place a project trust account and must do so within 20 business days after entering its first subcontract. However, subcontractors who are related entities of a head contractor required to have a project trust account are also required to use project trust accounts for any further subcontracted work.

Similar requirements to project trust accounts are prescribed for “retention trust accounts”, where retention monies are withheld from payments due and the contract is one for which a project trust account is required. Commonwealth, State and Local government entities are exempted from the retention trust account requirements. Practically, retention trust accounts will therefore only apply to head contractors on Queensland Government or State authority projects who subcontract further work and withhold cash retention from payment due as security at present. Retention trust accounts will not apply where the contract price exceeds a minimum price to be specified by regulation.

Oversight by QBCC

The Act removes the oversight requirements previously imposed on the principals of construction projects and shifts the responsibility for ensuring compliance with the trust account requirements to the QBCC commissioner. This reduced responsibility is intended to decrease the operational cost for principals associated with monitoring the trust accounts.

Contracting parties will, however, be required to assist the QBCC to perform its role by informing the commissioner if:

• that party is aware that a project trust account is required, but has not been established by the head contractor; or
• that party is aware, or should reasonably have been aware, that a subcontractor is a related entity of the head contractor where a project trust account is required.

A maximum penalty of 100 penalty units (currently $13,345 for an individual and $66,725 for a corporation) will apply for failure to inform the commissioner regarding either of the above circumstances.

The QBCC will be entitled to ‘freeze’ project trust or retention trusts accounts and direct the trustee to give the commissioner an account review report for any one or more of the trust accounts for the trustee in the following circumstances:

• the contract is terminated;
• the contracted party becomes insolvent;
• the commissioner reasonably suspects the trust account is not being used appropriately; or
• a trustee’s licence under the QBCC Act is suspended or cancelled.

Additional compliance obligations

The Act imposes a number of additional compliance obligations on “trustees” of project trust and retention trust accounts, being the contracting party receiving payment or withholding retention funds in an eligible contract for “project trust work”.  The key additional obligations are set out below.

Audit trust accounts

Each trustee will be required to engage an independent auditor to review the project trust and/or retention trust account at times prescribed by the regulation.

Non-compliance with this requirement will attract a maximum penalty of 200 penalty units (currently $133,450 for a corporation or $26,690 or 1 year’s imprisonment for an individual).

Training requirements

Each trustee, or any person nominated by the trustee who will be responsible for administering the retention trust account, must complete a compulsory training in relation to the operation of the retention trust within the period prescribed by the regulation.

Failure by the trustee or a nominated person of the trustee to complete the compulsory training within the prescribed period will attract a maximum penalty of 100 penalty units (currently $13,345 for an individual and $66,725 for a corporation).

Executive officer liability

The Act imposes strict liability on executive officers where an offence is committed by a contracting party that is a company against an executive liability provision and the executive officer did not take all reasonable steps to prevent the company from committing the offence. An executive officer includes any person that is involved in the management of the company.

Executive officers may be personally liable for non-compliance with the following executive liability provisions:

• ensuring money is held and deposited into a project trust account appropriately;
• ensuring withdrawals from the project trust account are authorised (ie. for the purpose of paying subcontractors) or otherwise in accordance with the order of priority prescribed by the Act;
• providing notice to the commissioner of any opening, closing or renaming of a retention trust account; and
• ensuring appropriate and authorised withdrawals from the retention trust.

The maximum penalty for non-compliance of an executive liability provision is up to 300 penalty units (currently $40,035) or 2 years imprisonment.

The Act also introduces increased protections for contractors for all contracts for construction work on a site in Queensland or the supply of related goods and services. Three key changes to be aware of are set out below.

Supporting statement to accompany payment claims under the BIF Act

It is now a requirement for head contractors to provide a ‘supporting statement’ with every payment claim. The statement must declare that all subcontractors have been paid in full by the head contractor, or must explain the reason for any failure to pay any amounts owed.

Failure to provide a supporting statement will attract a maximum penalty of 100 penalty units (currently $13,345 for an individual and $66,725 for a corporation).  Principals to construction contracts should be aware, however, that failure to provide a supporting statement will not affect the validity of the payment claim.

Offences for failing to pay by due date

In addition to the current offence for failing to issue a payment schedule upon receipt of a payment claim, the Act introduces new offences for:

1. failing to pay the claimant the full amount specified in the payment schedule by the due date for the progress payment; and
2. failing to pay the claimant the amount determined under an adjudication by the date that is 5 days after the adjudication determination is provided to the respondent or as otherwise determined by the adjudicator.

The penalty will be 100 penalty units (currently $13,345 for an individual and $66,725 for a corporation).

In respect of item 1 above, the due date for the progress payment will be the date in the construction contract, or if the contract is silent, 10 business days after the date of the payment claim. For contracts for construction work that are also “building work” under the QBCC Act, the due date for payment under the relevant contract must comply with the time frames specified in the QBCC Act or the time for payment provision will be deemed void. The specified time frames for payment are 15 business days after the date of the payment claim for a “commercial building contract” or 25 business days after the date of the payment claim for a “construction management trade contract” (ie a contract being managed for a project proponent under an EPCM or project management arrangement). Certain types of work are specifically excluded from the scope of “building work” under the QBCC Act by regulation. For these construction contracts, provided that the whole of the work undertaken falls within the exception, the due date for payment will be the date specified in the contract.

Enforcement rights granted to contractors

The Act grants claimants (ie contractors) who have not received payment of an adjudicated amount within the prescribed timeframe to serve a ‘payment withholding request’ on the party higher in the contracting chain to the respondent (which may include for the head contractor, the principal’s project financier). The ‘payment withholding request’ will require the higher party to withhold the unpaid amount from any amounts payable to the respondent until the respondent has paid the adjudicated amount in full. 

Where a higher party fails to withhold the unpaid amount upon receipt of a ‘payment withholding request’, the higher party will become jointly and severally liable to the claimant for the adjudicated amount. 

In addition to the above, where the claimant is a head contractor and the respondent to an adjudication proceeding has not paid the adjudicated amount within the timeframe prescribed by the regulation, the head contractor may lodge a statutory charge under over the property where the construction work was undertaken or the related goods and services were supplied (if the property is owned by the respondent or a related entity of the respondent).  The charge may be registered on title and is not required to be removed until the adjudicated amount has been paid in full. In some circumstances, where the court considers it appropriate, an order may be made that the property be sold.

The provisions of the Act described above are to take effect from a date to be proclaimed.

The explanatory notes to the Act suggest a phased approach to the roll out of the new trust account regime across the broader industry, with the next roll out to include building work for hospital and health services. The planned dates for further phases are as follows:

• from 1 July 2021, the regime will apply to private sector and local government eligible building contracts valued at $10 million or more (exc. GST);
• from 1 January 2022, the regime will apply to private sector and local government eligible building and construction contracts valued at $3 million or more (exc. GST); and
• from 1 July 2022, the regime will apply to all eligible building and construction contracts valued at $1 million or more (exc. GST).

Further information

The full text of the Act is available here.

The explanatory notes to the Bill are available here.

The Building Industry Fairness Reforms Implementation and Evaluation Panel report is available here.

Endnotes

1. See Building Industry Fairness Reforms Implementation and Evaluation Panel, Building Fairness: An Evaluation of Queensland’s Building Industry Fairness Reforms (2019) available at https://www.hpw.qld.gov.au/__data/assets/pdf_file/0011/9200/buildingindustryfairnessreforms.pdf
2. See Queensland Building and Construction Commission Regulation 2018, schedule 1.