The Building Industry Fairness (Security of Payment) and Other Legislation Amendment Bill 2020 (Qld) (Bill) came into force on 15 July 2020. The Bill introduces major reforms to the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act) and Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act), including the removal of the head contractor exemption in the QBCC Act, which we addressed in a recent focus article here.
By way of background, the Bill was passed by Parliament on the recommendation of the Transport and Public Works Committee (Committee). The Committee made 12 recommendations to Parliament, including a recommendation that the Minister for Housing and Public Works, Digital Technology and Sport, Mick de Brenni MP (Minister), review the role that property developers play in the broader building and construction sector. This article examines the recommendation and its potential impact on developers.
Background to the recommendation
On 10 February 2020, the Committee invited stakeholders and subscribers to make written submissions on the Bill with a view to making recommendations for its improvement. A public hearing was held in Brisbane on 3 and 4 March 2020 in which the Committee heard evidence from individuals and key stakeholder groups including the Urban Development Institute of Australia (UDIA), Australian Institute of Architects (AIA), Masters Builders Queensland (MBQ), the Subcontractors Alliance and the Construction, Forestry, Maritime, Mining and Energy Union (CFMEU).
The Committee tabled its report on 20 March 2020 (a copy of the report can be found here).
Based on the submissions and evidence provided at the hearing, the Committee recommended that the Minister ‘review the role of property developers in the building and construction industry, including considering the impact of their financial and operational capacity, ethical behaviour, and work practices’ (Recommendation 11). In accordance with Recommendation 11, the Minister successfully moved the following amendment to the Bill before the Legislative Assembly on 15 July 2020:
123A Insertion of new s 115D
After section 115C— insert— 115D Review of role of developers
(1) The Minister must ensure a review is conducted of the role of developers in the building and construction industry.
(2) The Minister must appoint a panel of not more than 4 appropriately qualified persons to conduct the review.
(3) The Minister must give the panel directions or a terms of reference to guide the review.
(4) The Minister must table in the Legislative Assembly a report on the outcome of the review as soon as practicable after the review is completed.[1]
The Committee also advised the Minister to undertake the review in consultation with industry stakeholders and report the findings of the review by 1 July 2021. Developers are not currently regulated under any statutory scheme in Queensland. Depending on the outcome of the review, this may change.
Arguments in favour of a licensing regime
At the Committee hearing, the CFMEU put to the Committee that a licensing regime should apply to all industry participants to ensure a level of accountability at each stage of the construction process. The CFMEU submitted that even though developers are the driving force behind much of the work undertaken in the sector, it is contractors and subcontractors who bear the burden of financial risk arising from incomplete works, payment disputes and non-compliant works or products.
The CFMEU told the Committee that the construction industry has the highest rates of insolvencies across any sector, and this in part, is borne by those at the bottom of the supply chain. In its submissions, the CFMEU highlighted that developers play a vital role in ensuring funds flow down the contractual chain; accordingly, a licensing regime should apply to developers to ensure that they are captured within the security of payment supply chain:
‘[Property developers] carry the least amount of risk on [a] project and they are the ones who stand to gain the greatest reward… With licensing, you then make developers accountable for various things like MFRs, minimum financial requirements… Every other subbie and builder has to submit audited accounts to the licensing authority.’[2]
The CFMEU proposed that a licensing regime would also prevent shell companies, a practice in which another company is created to conceal funds and assets, effectively allowing the primary company to avoid debts:
‘You do not know where in the world the finance is coming from and the trail of destruction they can potentially leave as a result of their unscrupulous activity. Definitely with licensing you have them on the hook for MFRs. You then have them on the hook for non-conforming building products as well. You have them on the hook for security of payments and some of their unfair contracting practices…’.[3]
Impacts for developers
Although some states have been reluctant to adopt a licensing scheme for developers, efforts are already underway in the Australian Capital Territory to explore the creation of a licensing scheme for developers.[4] If Queensland adopts a similar position, we are likely to see further reforms to the QBCC Act and BIF Act following the consideration of any report that is due to be handed down by 1 July 2021.
Accordingly, developers should turn their mind to their business operations bearing in mind that a licensing regime may require developers to comply with some of the same rules currently in place for other licensed industry participants. We anticipate the review may investigate whether developers should be required to do the following (which are only our speculation at this stage based on the submissions made at the Committee hearing earlier this year):
- only undertaking projects for which the developer is authorised to carry out
- establishing a project trust account/or retention payments to show transparency of funds
- demonstrating financial capacity to undertake a project
- complying with annual financial reporting obligations through the QBCC minimum financial requirements regulation (i.e. producing profit and loss statements, balance sheets, statement of cash flow, debtors and creditors report)
- ensuring compliance with safety regulations
It should be noted that without knowing the outcome of the review, the above factors are merely speculative. Notwithstanding, if Parliament is prompted to create a statutory framework around the activities of developers following the Minister’s review, there may be significant changes to the way in which projects are carried out between developers, contractors and subcontractors.
Furthermore, if developers are required to submit to licensing requirements, it is possible that the QBCC’s powers will be further expanded to investigate the activities of developers, re-affirming the status of Queensland’s building and construction sector as being one of the most heavily regulated in the country.
Future updates
We will continue to monitor this space and keep you informed. If you would like to discuss anything covered in this update, we welcome you to get in contact with our Construction and Infrastructure team. To stay on top of the wider reforms affecting the building and construction sector in Queensland, keep an eye out for our future alerts.
For further information on any of the issues raised in this alert, please contact a member of our team below.
[1] Queensland Parliament, Record of proceedings, Legislative Assembly, 15 July 2020, pg 1665 https://www.parliament.qld.gov.au/documents/hansard/2020/2020_07_15_WEEKLY.pdf.
[2] Transport and Public Works Committee, Report No. 36, 56th Parliament, pg 79 https://www.parliament.qld.gov.au/Documents/TableOffice/TabledPapers/2020/5620T455.pdf
[3] Transport and Public Works Committee, Report No. 36, 56th Parliament, pg 80 https://www.parliament.qld.gov.au/Documents/TableOffice/TabledPapers/2020/5620T455.pdf
[4] https://www.cmtedd.act.gov.au/open_government/inform/act_government_media_releases/gordon-ramsay-mla-media-releases/2019/developer-licensing-scheme-in-the-pipeline.