New law risks decimating the construction sector and economic output of Queensland

The Building Industry Fairness (Security of Payment) Act 2017 was recently passed in Queensland as part of an extensive reform of the Queensland construction industry.

What does the Act achieve?

In short, the new law:

• Substantially alters how owners/principals pay head contractors of construction projects in Queensland initially on Government projects and from 2019, all projects valued in excess of $1 million, and how subcontractors get paid for construction work they perform, by requiring head contractors to open three trust accounts for each contract. These accounts for each contract are Project Bank Accounts and are titled General Trust Account, Retentions Account and Disputed Funds Account. Owners/principals must pay funds into these accounts for on-payment to subcontractors
• Affords more ‘teeth’ to the industry regulator to investigate the financial capacity of contractors, and to exclude certain individuals from being involved in running construction companies if they have been involved in any failed construction business in the past
• Creates many new offences, some carrying penalty terms of imprisonment
• Makes it possible for the government to devise regulations ensuring specific contract terms are mandatory in all construction contracts

A more detailed summary of what the new law achieves can be seen at the end of this article.

Is the new Act good law reform?

Whilst noble in its intention of wanting to see subcontractors paid for work they perform, it misapprehends the implementation risk and risks strangling the industry, in turn choking economic output in Queensland.

First some context.

The stated basis for the new law is that it has come about in response to a number of ‘high-profile’ insolvencies of construction industry contractors, ‘profile’ of course being a reference to their occupation of newspaper content and the media cycle.

It is critical to the productivity of the construction industry and the State of Queensland that the legislative reaction to high-profile events is not an overreaction and that any response is measured, following a calm and methodical factual review of what has occurred and is occurring in the industry.

Why?

The construction industry in Queensland is the largest industry in the state based on contribution to GDP, and the third-largest by size of workforce employed. The entire economic stability of Queensland and every household’s livelihood is either directly or indirectly dependent on the health of the construction sector in Queensland.

Since the economic downturn in the mining sector, never before has the rest of the construction sector been so important to Queensland’s prosperity and economic activity.

From one perspective, Queensland is presently in the eye of a perfect storm.

The current ‘climate’ feels calm because economic activity is buoyed by:

• Major government expenditure on infrastructure associated with the staging of the largest sporting event Queensland and the Gold Coast has ever seen – the 2018 Commonwealth Games,
• Major projects, such as, Queens Wharf in Brisbane, Cross-River Rail in Brisbane, and Light Rail 2, Jupiters Casino Redevelopment and Pacific Fair Redevelopment on the Gold Coast,
• High levels of housing and unit construction activity due to incredibly low interest rates and high property pricing,

each combining to establish a sense of security.

Some excellent judges of construction pricing and the industry who I deal with, reliably inform me (and have shared analyses with me) that construction pricing and therefore activity has, in recent times, followed, almost to a tee, a 7-10-year property/economic cycle with material corrections at the end of each cycle, and that pricing and activity also dips/corrects substantially after major events (e.g. Sydney Olympics and Brisbane Commonwealth Games).

If this is to be so this time round (no one can no for sure what the future will hold), there is cause for serious reservation about the upcoming period.

Why?

The conclusion of the Gold Coast 2018 Commonwealth Games coincides almost exactly with 10 years since the last property market crash (GFC) back in 2007-08. On the 7-10 cycle, we would be due for a material correction in 2018-19. In addition, following on from the Commonwealth Games in 2018, we may have to simultaneously deal with the previously witnessed economic hangover from major events.

The pressure on the construction industry and the state’s economy could be immense at a point in time when there is currently minimal mining activity to buffer the dip, with no major mining projects for out of work contractors and subcontractors to seek alternate work on. There would also be little room for the RBA to go with further interest rate cuts, given the current already record low rates, in an effort to stimulate economic activity via monetary policy, should any retraction be nationwide.

Perfect storm indeed.

Given the above risk, the last thing the largest industry in Queensland currently needs is more constraint on competition, entrepreneurship and business activity. What it needs, in that context, is to be gently and sustainably stoked along to soften any market correction that may occur around the corner. The livelihood of the industry, the State, and the very subcontractors the new law is targeted to protect could depend on it.

That’s the context, so now for the analysis.

First, how does the new law impose constraints on the construction industry?

The project bank account regime, if extended to all private construction contracts over $1 million, as planned, is an extraordinary and suffocating imposition on private enterprise.

In theory it sounds sensible, if subcontractors are missing out on payment because head contractors are stretching themselves too thin and going bankrupt before paying their subcontractors, why not set up a regime where all monies that head contractors receive from their clients are paid into trust accounts for the benefit of subcontractors, and head contractors are not allowed to withdraw that money until their subcontractors are paid?

The problems are:

1. This seemingly simple golden bullet solution brings significant complexity and additional cost to an industry that already runs on incredibly tight margins
2. There has been no cogent evidence to our knowledge tabled that Queensland is experiencing a unique/unusual insolvency crisis in the construction sector
3. It reduces the bank-ability of the entire industry, which may reduce competition and ironically accelerate the rate of insolvencies in the industry
4. It ignores the already significant and strict legal remedies that are open to subcontractors who are not paid for work they do, and ignores recent work of the federal government to assist subcontractors.

Each of the above is deserving of further explanation.

1. Significant complexity and additional cost

I have used one of Queensland’s largest private builders, as a case study.

This builder lists on their website that it currently has 165 active projects in Queensland.

Given the size of this builder, it is reasonable to conclude that at least 80% of their projects are for contract prices of in excess of $1 million, so that’s at least 132 projects with a total budget in excess of $132 million.

Assume that tomorrow the new law applies to that contractor and to their current projects. They would be required to open and carefully administer 396 trust accounts (three for each head contract), each recording entries in and out of that trust account and each ready for audit by the regulator at any time.

Each payment direction from an account would need to be carefully prepared, and copied to the principal. Shortfalls in amounts held in trust for payment to subcontractors will need to be immediately identified and corrected via top-up payments directly from the head contractor as required. Retentions will have to be held in separate trust accounts. Disputed monies will need to also be separated out into a separate trust account. Finally, timing for creation and closure of the accounts will have to be closely monitored.

The result is a mind-boggling compliance hurdle of epic proportions.

Bookkeepers, accountants and banks will benefit immensely from the new law, but will the industry?

Head contractors operate on low single-digit profit margins to compete for new projects.

Every additional dollar spent on complying with this new legislation will invariably be passed on to clients as there is no lower to go on profit margins. If there was, and were these additional costs to be absorbed as an operating cost, it would serve to exacerbate the insolvency risk that already exists in the industry. So, we can rightly assume there will be a pricing effect from this new regulation that will be passed on to clients, which in turn may stifle demand for work at a time when (for the reasons explored above) we should be stimulating construction to ride out any post-Commonwealth Games hangover and property cycle retraction.

The fact that this Act will involve additional compliance costs is not an assumption, it is proven.

The WA Government recently introduced trial construction project bank accounts as a policy position on certain government construction projects for one department. This was implemented by using terms in the department’s contracts with its builders, not by enforceable law.

The Auditor General in WA subsequently released a report on the effectiveness of this trial.

It was noted on page 15 of the report that it: “cost about $80,000 per project to implement [Project Bank Accounts], [they] are challenging to establish due to the administrative effort required and [they] require demanding administration of the monthly payment process”.

If the WA Government, already with the resources and systems in place to manage this process, discovered that it took considerable cost and “demanding” administrative effort to operate a small number of project bank accounts, how is private enterprise, which is comprised of builders of varying sizes and levels of sophistication, going to cope? What about the builder in our example who needs to administrate over 396 new accounts? The administrative burden and cost to the industry is of real concern.

On the face of it, the economic analysis that was commissioned by the Queensland Government, and purportedly supported the proposed law, appears flawed.

The Queensland Government obtained a costs/benefit analysis on the adoption of this policy position.

It should be acknowledged that this type of analysis can only ever be an estimation and that there is a need to make assumptions. No economist has a crystal ball, much of the cost and benefit analysis depends on modelling market and human behaviours, which is less than rational at the best of times and which requires the making of assumptions. Regardless of this, there are some troubling aspects of the report directly relating to the analysis that was used to push the Act through.

First, the report appears to have proceeded on the assumption that head contractors subcontract only 5% of their work. (P.22, “Subcontractor percentage of project value (assumed to be 5%, provided by the Department)”, these same assumptions were confirmed as being used in the private sector model, P. 27, under the heading “Reduced working capital from loss of access to progress payments”). That makes no sense. In the construction industry, the incidence of subcontracting is far greater. For a major construction project valued in excess of $1 million, it is more likely that a head contractor would subcontract 95% of the project’s value, not 5%.

By adopting such a low percentage of assumed subcontracted work on each project, the subsequent analysis must be flawed. One critical outcome of the Act will be the substantial reduction in working capital for head contractors. The law now means that considerable liquid capital will now be tied up in trust accounts (‘trust’ means that the account is not ‘owned’ by the head contractor) and is therefore no longer available to aid cash-flow of the head contractor. If the analysis assumed only a small degree subcontracting when in fact most head contractors subcontract a lot, it must grossly underestimate the effect and size of loss of working capital impacts to head contractors.

Second, the report assumes head contractors will experience only a partial increase in the cost of accessing working-capital financing.

On page 11 of the report, it states: “In calculating working capital impacts, we have assumed an average financing cost for head contractors of 9%, being an estimated overdraft interest cost. We have used this cost as we assume head contractors will finance working capital through an overdraft-like facility rather than through fixed debt facilities, equity or some hybrid security.” The implied and critical assumption being made here is that access to working capital finance is automatically available to head contractors, albeit at a likely additional cost. On paper this may seem feasible but, in reality, the tying up of so much capital in trust accounts means that banks will likely be revising their risk assessments on head contractors. The result will mean that for many head contractors, there will be a real risk that access to bank finance disappears as risk assessments will not include monies held the trust accounts. The analysis therefore appears flawed in this respect.

Finally, the report itself noted, but appears to downplay, the impact of the financial cost for having to administer these new bank accounts for projects in relation to the head contractor’s overall budget. It has done this with an estimate of seven hours per month, per contract, for administering these new bank accounts.

It has based this assumption on an insight from the WA Government’s own Auditor General Report. However, that report only reported in a qualitative way that “[Project bank accounts] require demanding administration of the monthly payment process”. Seven hours per month seems to be a major underestimation of the time necessary. Leaving aside any concern you could have with the estimation of the time required to administer these new accounts, the quantification of the additional cost is concerning. On page 12 of the report, it says: “This time assumption is linked to average estimated hourly wage for a construction manager of $52 per hour, which produces an estimated cost per month per PBA”. The real cost will, of course, be much greater than that. A construction manager, dedicated bookkeeper and legal or head office support will no doubt be required also.

It is also worth noting that the report also revealed that the NSW Government trialled project bank accounts on government projects from November 2013 – December 2015. The result of the trial was that using project bank accounts still “remains an option” for government departments, it has not been mandated in NSW and clearly therefore was not endorsed as a way forward for the industry.

2. No cogent evidence to our knowledge has been presented that Queensland is experiencing a unique/unusual and unwarranted rate of insolvency in the construction sector

It is important to understand that the reasons for the collapse of each building contractor’s business is not the same. The downfall can be the result of poor management, poor cashflow, financial misconduct, a change in the economic climate, or a major change in personal circumstances.

Take, for example, one of the recent high-profile collapses, the Cullen Group in Queensland.

On one view, is this yet another example of an insolvency crisis facing the industry, or is it the tragic result of tragic life events which led to a loss of focus on the business? A Gold Coast Bulletin report outlined the sad personal circumstances in the lead up to the company’s collapse. If the report is accurate about the apparent cause of the demise of Cullen Group it is a complete tragedy and understandable why a loss of focus might occur at such a difficult time. It is also something that reform cannot prepare for. If it is true (and only a proper examination of the facts will reveal the truth), the Cullen Group insolvency should not be used as a valid reason or justification for industry-wide reform.

In March 2016, reports were circulating that 400 construction sector companies in South-East Queensland were likely to hit the wall within 12 months. Fast-forward to today and reality shows only 30 of the sector’s companies have become insolvent. That number, needs to be compared against the size of the industry, the average rate of insolvencies in similar economic conditions, and the current degree of competition in the industry. The quality of the analysis is what matters, particularly when the proposal is for radical reform of an entire industry, and that industry is of such a scale of importance to the economic output of an entire state.

It is not unlawful to fail in business, and it is not the role of the state government in a functioning market to attempt to entirely remove counter-party risk in private business.

Industry reform of the scale proposed under the new law, given the importance of the construction industry to Queensland’s prosperity, needs to be carefully set after all details are considered.

3. It reduces the bank-ability of the industry

The new law requires:

1. Principals to pay money directly into a Project Bank Account, and must not pay the head contractor directly; and
2. Project bank accounts are trust accounts; the funds in them are held on trust for the beneficiaries (subcontractors); the head contractor being only entitled any balance after subcontractors have been paid in full. The head contractor is also responsible for any shortfalls.

The consequence of this is that, overnight, what was once a head contractors’ financial asset is no longer. Now it belongs, legally, to someone else and those funds are not therefore accessible to creditors (such as banks) who may financially support the head contractor’s project(s).

This is a dramatic change in position.

Banks (or any secured creditors) who assess credit risk of head contractors could, up until now, secure any loan against monies held in the borrower’s bank accounts (working capital) via a floating charge. If the contractor defaulted on the loan, creditors could seize any working capital, and unsecured creditors (subcontractors) would usually lose out to a major degree, if not totally. The new law puts an end to this situation, which may be good news for subcontractors, were it not for one thing.

It is reasonable to assume most banks may now pull out of funding head contractors unless the contractor has sufficient personal and business assets which now excludes the majority of working capital tied up in bank account trusts. The resulting choke on working capital for to those who cannot meet credit requirements may sound a death knell.

This is an incredible shift in bank-ability of the biggest industry in the State.

The law will benefit large builders who can self-finance, but it risks decimating the rest who cannot meet any revised lending criteria. If this occurs it will not be good for competition, pricing and demand. A lack of funding may mean some builders will be unable to sustain a business case for continued operation as funding is often needed to secure cash flow, the irony is this along with the increased administrative costs of running project bank accounts may exacerbate insolvencies in the industry.

The financial implications of the new law do not seem to have been well considered.

4. The law ignores the already significant and strict legal remedies that are open to subcontractors who are not paid for work they do

The law is proposed to ensure subcontractors get paid for work they perform.

This standpoint ignores the reality that subcontractors in Queensland who are not paid on time already have a lawful right to suspend performance of their work under BCIPA without legal consequence, or can exercise the option of lodging a charge over monies payable to the head contractor by the principal, forcing a re-direction of that payment straight to the subcontractor under the Subcontractors’ Charges Act process. Alternatively, subcontractors can currently suspend work and obtain rapid adjudication of any payment dispute under BCIPA.

These legal rights are powerful and, if used promptly, work effectively at getting subcontractors paid.

If recourse to these avenues is delayed, their effectiveness diminishes.

Delaying action and hoping for the best sees the subcontractor’s financial position deteriorate daily, while the risk of non-payment also increases day by day.

The above must be said, however, with cognisance of reality, as many subcontractors will confirm that if they exercise their rights, they fear being blacklisted and not receiving any further work from that head contractor again. My view about this, from experience, is that often it is a case of how these steps and remedies are used. Respectful but firm, stepped-escalation of payment issues in a commercially astute way often works. If subcontractors find a lawyer or other advisor who is sensible and capable of working behind the scenes to coach the subcontractor on respectful payment issue escalation, positive results often follow. If, after this course of action has been completed, the subcontractor remains unpaid, or the head contractor reacts aggressively to the sensible pursuit of overdue money, the subcontractor may well have uncovered a serious liquidity issue early on, enabling them to reassess the situation and either cease working until overdue payments have been settled, or to stop work completely. If that results in the head contractor not engaging that subcontractor again, the question might be asked whether that head contractor is someone the subcontractor would want to do business with again anyway.

The law also ignores the reality that the Federal Government has recently taken significant steps to clamp down on company ‘phoenixing’. Phoenxing is the liquidation of one company, only for the same owners/directors to restart it in a new form, and that there are already strong laws that see directors who use such practises face criminal consequences. For example, Bradley Young, a former director of the Kleenmaid Group, was sentenced to three and a half years jail for criminal insolvent trading; Ms Anula Kumari Kauye, a former director of International Consulting Group Pty Ltd (ICG), was sentenced to 12 months imprisonment for dishonest insolvent trading. The long arm of the law is long, and sometime slow, but it does catch up with people in the end.

The best form of deterrence may be more prosecutions in criminal instances of insolvent trading in the construction sector. This would require a co-joined and co-ordinated effort with the appropriate federal regulator ASIC, as opposed to trying to reinvent the wheel with new laws in Queensland. Nothing would sober the focus of company directors in the construction indsutry more not to run the gauntlet of trading whilst insolvent than seeing a fellow industry participant wind up in jail.

Finally, if the law has a dampening effect on industry, the same subcontractor who currently has legal rights to stop work, or promptly obtain payment if unpaid using the legal remedies above, will be made materially worse off having been moved from a position of choice (to assume the risk or not and to take action using currently available remedies) to a position of having no choice if the knock-on effect of this law sees less available work or no available work following a potential industry downturn. We only have to recall the depths of despair in the industry post GFC to understand how hard it can be, and that was at a time when the mining sector was still firing.

In addition to the above, there are other more strictly legal policy concerns with the new Act:

1. It exposes the principal to liability, creating a further compliance burden relating to the new bank accounts and prosecution risk if they fail to immediately notify the regulator of any discrepancies in payments made by the head contractor form the Project Bank Accounts.
2. In my view there appears a new risk that principals may now face common-law liability for a knowing participation in a breach of trust (what lawyers call second limb Barnes v Addy liability), should a principal continue to pay funds into a head contractor’s project bank account with notice or knowledge that the head contractor does not appear to be distributing the funds correctly. For an excellent summary of this state of law, read Justice Jackson’s 2014 W A Lee Equity Lecture paper here. This risk exists notwithstanding section 58 of the new Act which seems directed at attempting to limit liability of the Principal as a result of the legislation. This is because Barnes v Addy liability arises from the common law once a trust exists, not from this new Act itself. If the intention was to exclude second limb Barnes v Addy common law liability, clear words should have been used to ensure this outcome.
3. It erodes the role of the courts to regulate contracts and places too much power in a government regulator to police contract compliance.
4. For the regulator to be able make regulation at its will (rather than through the more heavily debated and parliament scrutinised law) which mandates certain clauses must exist in every construction contract is an unusual overreach of legislative power and constraint on freedom of contract. It also ignores the reality that new small business unfair contract terms federal legislation already makes unfair terms in standard form contracts (including subcontracts) entered into with small businesses unenforceable, and that very expeditious and cost-effective processes under the BCIPA, the Queensland Civil and Administrative Tribunal, and QBCC dispute resolution process already exist to allow low-medium-value building disputes to be rapidly resolved. Access to justice and fairness of building contracts with subcontractors who are too small to exercise commercial leverage is not an issue.
5. The number and scale of new offences under the Act is alarming. There are more than 35 offences possible under the new legislation, resulting in potential fines ranging from $6,000 to $315,000 (under the current penalty pricing) with the majority of them having around $25,000 limits for individuals and $126,000 limits for corporates. Some carry terms of possible imprisonment and some penalties are for simple oversight or omissions (e.g. not giving a payment schedule in response to a payment claim – which would already result in the head contractor being liable for the full amount of the progress claim anyway). Whilst some of the penalties may be warranted, whenever a government is vesting power in itself to prosecute and fine or imprison individuals and corporations, it needs to be very seriously considered whether such a drastic response is appropriate. Deprivation of liberty and imposition of pecuniary penalties should never be a position rushed to lightly and, for the reasons explained above, adequate justification for such a radical shift in policy setting has not yet been presented.

The wash up

In short, over-regulation stifles business productivity and risk taking, deflating competition, innovation and economic activity.

By now regulating the construction sector in Queensland in the manner legislated, at a time when economic stimulation could be necessary to ride out any post-Commonwealth Games economic hangover, the new law risks flattening the sector and economic output of the entire State of Queensland, which is already in a precarious post-mining boom state.

Risk management is, at its core, sensible practice for all businesses. It is not the role of the state to entirely remove the risk of being paid in business unless there is a systemic market failure of such a scale that warrants state intervention. Before we arrive at that view, careful assessment of the rate of insolvency and whether what is occurring is exceptional on an historical measure in similar economic climates is necessary, as is full education of subcontractors on the legal rights they already have at their disposal, along with encouragement to use them to get paid.

If, after careful examination, an alarming trend is emerging, then government policy should be developed and transitioned gradually so as to not bring down the entire house of cards with radical changes to liquidity in an already volatile industry.

A more appropriate response right now would be to adopt some of the good parts of the new legislation but do away with the more drastic measures:

1. Introduce Project Bank Accounts only on government projects and never apply it to private projects;
2. remove the second-chance notice in the BCIPA process, thus speeding up adjudications and requiring prompt, full and proper response to payment claims at the first instance;
3. Improve audit rights of the regulator to get accurate up-to-the-minute visibility on the financial health of builders and expect action to be taken to limit building licences to lower turnover if the builder’s financial health is a concern
4. Proceed with the extension of the industry regulator’s right to exclude individuals with influence over the control of building companies to prevent phoenixing of failed construction companies
5. Co-ordinate work with ASIC on prosecutions of criminal insolvent trading in the construction sector to send a clear message to market about the risks run in insolvent trading
6. Invest in more infrastructure spending post Commonwealth Games.

This would mean:

1. Not extending the new project bank accounts to the entire private sector
2. Not proceeding with many of the additional civil offences being imposed by the new law on the sector, which require high compliance costs
3. Not empowering the regulator to prosecute alleged deliberate breaches of contract by parties – leaving this to the courts
4. Not removing the requirement to specify when a progress claim is a payment claim under BCIPA
5. Not making other changes to the BCIPA process

The medium-term future of the construction sector and the State of Queensland could depend on a measured as opposed to a sledgehammer response to industry concerns right now. I should add that given the timing of things, I have no allegiance to any particular political party. Aside from being interested in good policy, business and sensible law reform, I have no interest in politics.
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A more detailed summary of what the new law means:

Modified payment process for construction work in Queensland

1. All head contractors to open three trust accounts for each contract (a General Trust Account, Retentions Account and Disputed Funds Account) when engaged on government projects under a contract worth between $1m and $10m, and in 2019 this is planned to be extended to all private construction contracts over $1m in value. The reform is therefore an intended industry-wide one.
2. Each of the bank accounts must be established as a trust account, with funds paid into it by the principal being held on trust for subcontractors of the head contractor.
3. The parties must then follow a new payment process:
• Principals must pay progress payments only into the General Trust Account (not directly to the head contractor).
• The head contractor must then pay all subcontractors out of the General Trust Account only, and if there is a shortfall, they are liable to deposit sufficient funds into the Trust Account to pay subcontractors
• In terms of effecting payment, the head contractor must forward any payment/transfer directions it gives the bank in relation to payments from the Trust Accounts to the principal
• The principal must notify the regulator if they notice any ‘discrepancies’ in payment directions and they may be fined if they fail to do so
• The head contractor is prohibited from withdrawing money from the Trust Account unless all subcontractors are first paid what they are owed in full
• Retentions withheld by a head contractor must be held in a separate Retentions Accounts on trust for the subcontractor and must identify which subcontractor they are held for. The head contractor can only use this money for defect rectification or to cure non-performance by the subcontractor
• In the case of a head contractor not giving a payment schedule or paying amount less than the amount it said it would pay in a payment schedule, the difference/disputed sum must be transferred to the Disputed Funds Account by the head contractor and held there until the dispute is resolved.
4. The head contractor must keep detailed records of each Project Bank Account for each contract, sufficient to explain all transactions, enable a full account to be prepared from time to time, as well as independent audits to be carried out. A failure to do so will result in a fines or imprisonment.
5. Many new civil penalties, some with terms of possible imprisonment, have been created under the new Project Bank Account regime for head contractors or principals who fail to comply with certain obligations (e.g. failure to open a project bank account, failure to notify the regulator of a discrepancy the principal becomes aware of in relation to a payment made by the head contractor..)

Amendments to BCIPA process

1. The new law removes the current requirement to expressly say, on a progress claim, that it is a payment claim made under BCIPA, effectively following NSW’s lead. This means, almost every progress claim under a construction contract is automatically a payment claim under BCIPA, whether stated to or not, and will require a proper response under the Act, otherwise the principal will become immediately liable, without a second chance or warning, to pay the full amount claimed.
2. Removes the ‘second chance’ warning that a claimant is currently required to give a respondent under BCIPA before commencing adjudication.
3. Removes the current ability to provide further reasons (which were not raised in the payment schedule) for not paying the claimed amount in an adjudication response for a complex payment claim (a claim over $750k).
4. Introduces new requirements for submissions under the BCIPA adjudicator process not to exceed a certain number of pages in length, and for the adjudicator to consider the ‘conduct of the parties’ in the adjudication when awarding adjudication costs.
5. Introduces new offences under the BCIPA process, attracting substantial fines for e.g.: failing to submit a payment schedule in response to a payment claim, failing to pay an adjudicated amount.

Increased QBCC supervision and industry compliance reform

1. Extends the reach of the definition of an ‘influential person’ in relation to a building company, to allow the regulator to exclude people to who indirectly control or have influence in a building company, from holding a building license if they were involved in a failed construction company, for a period of 2 years following its failure.
2. Increases the penalties for carrying out unlawful building or fire protection work on an escalating-stepped basis for first, second and third offences, with third or later offences potentially attracting a term of imprisonment.
3. Includes ability for the government to regulate certain terms as mandatory and automatically applied to all construction contracts, and prohibits contractor’s entry into contracts which do not contain such contract terms.
4. Imposes a statutory defect liability period of 12 months before release of retentions is required under a subcontract that does not otherwise set a DLP, but allows retention monies to be withheld. It also requires contractors to notify subcontractors of an upcoming expiry of a defects liability period and to return retentions, failing which the contractor commits an offence which may attract a penalty of imprisonment.
5. Includes a new offence attracting fines for deliberately avoiding or breaching (without reasonable excuse) a term of a construction contract which causes another person to suffer significant financial loss.

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The above article constitutes editorial opinion only and should not be construed, reproduced or used as legal advice.