Idea in brief
- For many years, Queensland’s building contactor licensing regime has contained an exemption from the need to hold a building licence for head contractors who subcontract all building work to licensed subcontractors (“Head Contractor Licence Exemption”).
- The Queensland Government recently passed amending legislation that seeks to remove that exemption.
- If removed this would require all contractors who contract to carry out building work (which is broadly defined to include the construction of any fixture upon land, and subject to a wide range of specific exclusions for certain work deemed to not constitute ‘building work’, such as earthmoving and excavating) to hold a building licence, regardless of whether they subcontract the building work to properly licenced subcontractors.
- This Head Contractor Licence Exemption removal was due to be commence automatically (if not proclaimed earlier) by 24 July 2021, however the Queensland Government has now deferred that automatic deadline until 24 July 2022, enabling further time to decide when to proclaim the removal of the exemption.
- We expect this deferral is in response to industry feedback raising concerns about the removal of the exemption.
- The deferral will allow more time for further industry consultation about the potential implications of the proposed removal of the exemption.
- If the exemption is removed, contractors that currently rely upon the exemption to not hold a building licence would need to apply for and maintain a building licence of the relevant class for the building work they contract to perform for clients in order to not commit an offence under the Queensland Building and Construction Commission Act 1991 (Qld), to avoid the risk of the payment provisions of their works contracts being unenforceable and the Security of Payment legislation being rendered unavailable to to recover payment for work performance as a result of unlawfully undertaking to perform unlicensed building work.
The idea in detail
Since December 2013, head contractors in Queensland that are unlicensed to perform building work have been exempt from the requirement to hold a licence, provided they subcontract that building work to a properly licensed subcontractor (the ‘Head Contractor Licence Exemption’).
The Head Contractor Licence Exemption is understood to have originated from the LNG projects boom in Queensland, with the exemption reportedly created to ensure that the entities who contracted to construct those projects were not in breach of Queensland’s building licencing laws by failing to hold a building license, provided they subcontracted the relevant building work to appropriately licensed subcontractors.
It has also been suggested that the exemption was originally created to ensure special purpose vehicle participants in Public Private Partnership delivery models were not in breach of building licencing laws by undertaking to carry out building work unlicensed if they were otherwise contracting downstream with a properly licenced contractor.
The Queensland Parliament has recently passed legislation to abolish the Head Contractor Licence Exemption, however the commencement of the section of that legislation which would have the effect of abolishing the exemption was deferred to commence on ‘a date to be fixed by proclamation’ (which has not yet been done) or absent any proclamation, on 24 July 2021.
On 8 July 2021, before the abolishment of the Head Contractor Licence Exemption would have otherwise occurred on 24 July 2021, the Queensland Government made regulation (Building Industry Fairness (Security of Payment) and Other Legislation Amendment (Postponement) Regulation 2021) further deferring the abolishment of the Head Contractor Licence Exemption to a date to be fixed by proclamation or otherwise, 24 July 2022, providing up to another year for the Queensland Government to abolish the Head Contractor Licence Exemption.
The Head Contractor Licence Exemption has long been the cause of debate in the industry, with differing views held by different industry stakeholders.
Those in opposition to the exemption contend that it is at odds with the purpose of the building licensing regime, being to ensure that those who contract to carry out building work are properly licensed to do so, meet the minimum experience and financial requirements to hold a building licence (and submit to associated annual financial reporting and audit requirements), irrespective of whether they happen to subcontract the building work. They contend that all building contractors (including head contractors) should be subject to the same regulatory regime in order to enhance consumer protection and improve quality throughout the industry. It is also contended by opponents to the Head Contractor Licence Exemption that there is no sound public policy position for justifying why a person who contracts to perform building work that otherwise requires a building licence should somehow be able to avoid the requirements of the building laws in Queensland by simply subcontracting the building work to a licensed subcontractor.
Those in opposition to the Head Contractor Building Licence Exemption further note that the original rationale for the exemption existing in the first place is no longer justified because since it was passed further specific exemptions have been enacted exempting special purpose vehicles in Public Private Partnerships and participants in prescribed government projects from the requirement to hold a building licence (ss10, 11 Schedule 1A, Queensland Building and Construction Commission Act 1991). This argument was supported by the Transport and Public Works Parliamentary Committee with it ultimately recommending on 20 March 2020 to the Queensland Parliament that the exemption be abolished.
Those opposed to removing the Head Contractor Licence Exemption contend that so long as the person ultimately doing the work (the subcontractor) is properly licensed, the regulatory regime has achieved its policy intent and that removing the Head Contractor Licence Exemption would only create further unnecessary red tape for the industry, undermine currently viable contractor business models and impose unnecessary financial burden on those who contract to carry out mostly work that does not require a building licence (e.g. bulk civil earthworks) and subcontract any incidental building work (such as building a wall or other fixed structure on the land that is not exempt from the definition of ‘building work’) to properly licensed subcontractors as required.
Where to from here?
If the exemption is ultimately removed, all contractors who currently contract to carry out any building work as part of their scope of work (that is not exempt from requiring a building licence) will be required to hold a building licence of the relevant class in order to not be in breach of the building licencing laws in Queensland.
A failure to do so may otherwise result in the contractor committing a civil offence (repeat offences of which can attract large fines and potential terms of imprisonment), see their contractual entitlement to payment under their works contracts deemed unenforceable against their clients, and their entitlement to use the Security of Payment Legislation to recover payment unavailable due to the performance of unlawful building work.
Industry participants should therefore continue to monitor this situation and prepare to comply with any changes that do eventuate to ensure compliance.