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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.
A Project Bank Account (PBA) creates a trust over the following amounts:
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.
PBAs are required for building contracts where:
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.
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:
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.
PBAs must comply with the following operating rules:
The head contractor must:
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.
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:
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).
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.
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