Idea in brief
- In July 2021 we published an article on the planned removal of the Head Contractor Licence Exemption in Queensland.
- Following additional stakeholder consultation, the Building and Other Legislation Amendment Bill 2022 (Qld) (the Bill) was introduced in March of this year to revoke this plan to remove the Head Contractor Licence Exemption and effectively reinstate the exemption before its removal commences.
- This Bill was passed in Queensland on 25 May 2022 and will result in the Head Contractor Licence Exemption remaining available to head contractors who subcontract building work to licensed subcontractors, exempting those head contractors from the requirement of holding a building licence themselves.
- The decision to retain the Head Contractor Licence Exemption was influenced by stakeholder feedback that the removal of the exemption would result in increased costs and administrative burden for head contractors. It was argued that some head contractors who never intended to conduct any of the building work personally, have structured their business models around the exemption by subcontracting out all licenced building work to licenced subcontractors.
- As noted in our previous article, this issue is a vexed one for industry with those opposing the Head Contractor Licence Exemption noting it is contrary to the role of the legislation and licensing regime in Queensland to permit a party to contract to perform building work with customers if they are unlicensed to do that work, even if they in turn then subcontract that work to licenced subcontractors.
- Perhaps in an attempt to appease both sides of the argument, the Bill as passed allows the Queensland Government to make regulations in the future that exclude certain contracts from the Head Contractor Licence Exemption.
- There is no express qualification in the legislation to limit the types or categories of contract that this regulation power could be used to exclude from the exemption in the future. However, it was noted when passing the Bill that this regulation power was included to address concerns held about unlicensed parties contracting to carry out complex or high-risk work that impacts life or safety, such as mechanical services or fire protection, who then subcontract that work out but do not have adequate skills, experience or expertise to properly administer or manage that subcontract. Only time will tell whether and, if so, what regulations are made in the future excluding contracts from the head contractor building licence exemption. For now, the status quo remains.
The idea in detail
Under the Queensland Building and Construction Commission Act 1991, contractors undertaking to perform building work are required to hold a licence of the appropriate class. Since 2013, head contractors in Queensland have been exempt from this requirement, provided they subcontract that building work to a properly licensed subcontractor (the ‘Head Contractor Licence Exemption’).
The Head Contractor Licence Exemption was due to be removed by the Building Industry Fairness and Other Legislation Act 2020 (Qld) (‘BIFOLA’) by 24 July 2022 in response to feedback received by the Transport and Public Works Parliamentary Committee regarding alleged misuse of the Head Contractor Licencing Exemption. However, further stakeholder consultation led to postponement of the commencement of the BIFOLA provision which would remove the exemption, to enable further consultation.
The Building and Other Legislation Amendment Bill 2022 (Qld) was introduced in March with an explanatory note citing reliance on the Head Contractor Licence Exemption in several areas of commercial contracting, with concerns that the repeal of the exemption would cause increased administrative and cost burdens for these businesses.
The Bill was passed by the Queensland Parliament on 25 May 2022 and will revoke the yet to commence provision of the BIFOLA which sought to remove the Head Contractor Licence Exemption.
It is expected that the Bill will revoke the removal of the exemption prior to the removal of that exemption taking effect.
As noted in our article of July 2021, this exemption has been contentious in the industry for a number of years and has resulted in conflicting legislative amendments – as can be seen by the recent BIFOLA and the Building and Other Legislation Amendment Bill 2022 (Qld) taking opposing approaches to the exemption (one removing it, one reinstating it with a regulatory power to modify its scope in the future).
It has long been argued that the Head Contractor Licence Exemption is contradictory to the purpose of the building licencing regime, which is to ensure that all persons who contract to carry out building work are appropriately licensed to do so. It also allows unlicensed head contractors to avoid requirements of the licencing system by relying on this exemption, such as the minimum financial requirements to hold a licence and permits persons without adequate experience or expertise to contract to perform building work. Opponents to the exemption argue this is contrary to the consumer protection and quality assurance drivers of regulating the industry.
Proponents of the exemption argue industry has structured itself around the existence of the exemption and changing this would result in material compliance burden for nil benefit to consumers because the work that is required to be done by a licensed contractor is done by a licensed subcontractor in any case, where head contractors relying on the exemption subcontract that work to licensed subcontractors.
To attempt to meet both sides of this argument, the Bill introduces the ability for a regulation to be passed by Government under the Queensland Building and Construction Commission Act 1991 (Qld) to exclude certain head contracts from the Head Contractor Licence Exemption. Although the explanatory notes noted this was intended to be used for instances of complex or high-risk work that may impact life or safety, such as mechanical services or fire protection, no definition or examples were provided in the Bill itself and no limits are prescribed in the legislation on the scope of the regulation making power.
Stakeholders consulted prior to the passing of this Bill observed that this created significant uncertainty for head contractors. This is because there is no criteria to guide what categories of contracts the regulations may exclude in the future from the Head Contractor Licence Exemption, so head contractors may be required to rapidly obtain a licence in order to continue lawfully having a subcontractor conduct building work, and the regulations may be made without the same standard of parliamentary scrutiny or stakeholder consultation as an amending act would.
It is critical that contractors are appropriately licenced, because a failure to do so can result in civil offences and disentitle the contractor to payment under its contract or access to the Security of Payment legislation. For this reason, industry is rightly concerned to seek clarity and certainty about the law that applies to it and seek clarity and forewarning of any regulations in the future that might exclude from the head contractor licence exemption certain categories of head contracts.
Although the decision to retain the Head Contractor Licence Exemption does mean head contractors can for now continue to benefit from the exemption from being required to hold a licence for building work they are not personally performing but subcontracting to a licenced subcontractor, it is possible regulation could be passed modifying the scope of the Exemption in the future. For this reason, industry should continue to monitor the licencing requirements and be ready to respond to any changes passed by regulation in the future.