On 23 July 2020, the Queensland Government’s Building Industry Fairness (Security of Payment) and Other Legislation Amendment Act 2020 (Qld) (BIFOLA Act) received royal assent, bringing significant changes to the licensing requirements for head contractors under the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act).
The amendments introduced by the BIFOLA Act will remove section 8 of Schedule 1A of the QBCC Act, known as the ‘head contractor exemption’. The impending removal of this section will mean unlicensed head contractors no longer have the benefit of a current exemption which allows them to contract for building work on the proviso that they engage an appropriately licensed subcontractor to carry out the work. This amendment is set to bring head contractors back into line with other contractors performing building work in Queensland – or risk facing serious penalties for non-compliance.
Going back over old ground – background and the proposed change
In late 2013, significant reforms to the licensing regime in Queensland were introduced, including the amendment to permit unlicensed head contractors to subcontract building work to licensed subcontractors. This resulted in head contractors becoming exempt from the consequences and penalties associated with undertaking to carry out, and carrying out, unlicensed building works in Queensland under section 42(1) of the QBCC Act.
This section provides that unless a person (or entity) holds a licence of the appropriate class for the building work, they must not carry out, or undertake to carry out the building work (i.e. enter into a contract). ‘Carrying out’ building work will include personally carrying out the work, directly or indirectly causing the building work to be carried out, or providing advisory, administrative or supervisory services for the carrying out of building work.
However, since its introduction, the head contractor exemption has been criticised by some industry members who claim that it provides a loophole for head contractors by allowing them to enter into contracts for building work without being subject to the strict obligations placed on licence holders.
The legislative change will have far-reaching implications for building and construction contracts and tenders across Queensland and will pose serious potential consequences to unlicensed head contractors if they enter into contracts for, or carry out, building work.
One example is civil contractors who perform minor building work as part of their scope of work – such as concrete pads or concrete retaining walls – but who are unlicensed to carry out these works. While these civil contractors have long relied on the exemption to engage licensed subcontractors to fulfil certain components of building work, once the exemption is removed, they will need to ensure they hold a licence in their own capacity.
It is important to note that this change goes much further than civil contractors – it extends to any contractor unlicensed for a specific scope of work who has been relying on the fact that their subcontractor holds a licence for those works.
It does not matter how small a portion the unlicensed building work is compared to the overall scope – any unlicensed building work is sufficient to attract the penalties under the QBCC Act. The consequences for failing to comply with section 42(1) of the QBCC Act are serious and include:
- not being entitled to monetary or other consideration for the unlicensed building work carried out, aside from the limited amounts permitted by section 42(4) of the QBCC Act (i.e. the amount paid in supplying materials and labour, but excluding the unlicensed party’s own labour, profit, and any supply costs unreasonably incurred);
- significant monetary penalties of up to $45,692.50; and
- possible jail time for third offences, or if the unlicensed building work is also tier 1 defective work.
There are also implications for the unlicensed party’s entitlement to recover progress payments under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (‘BIF Act’). The adjudication process under the BIF Act is regularly used by contractors as a quick means of recovering disputed progress payments. However, the Queensland Courts have held in a number of decisions that a breach of section 42(1) of the QBCC Act, even if confined to a minor portion of a contractor’s overall scope of work, will disentitle the contractor from using the adjudication regime.
What should construction companies be doing now?
As some companies may have to undertake substantial licensing updates or implement structural organisational change, it is advisable they start preparing for the amendment now. Unlicensed head contractors who have subcontracted or tendered for building work should seek advice as to whether they need to commence steps to become licensed. It may also be necessary for larger companies to look at their operations on a project by project basis and consider whether structural changes are required to ensure that head contractors are appropriately licensed.
While the BIFOLA Act received royal assent in July 2020, the head contractor exemption has not yet commenced and is awaiting proclamation (with no indication as to when this will occur). It is possible (although, unlikely) that the change will apply retrospectively, however it is expected that further clarity will be provided around transitional provisions over the coming months. In any regard, head contractors are being advised to be prepared for this significant change – especially when non-compliance brings such hefty penalties.
Original article from Build Australia, by Alex Power, Special Counsel, McCullough Robertson Lawyers.