The Queensland Department of Housing and Public Works has released a discussion paper seeking consultation from the building and construction industry, in response to reforms it has considered to respond to perceived problems within the industry.
The discussion paper seeks to address four key problems, including:
- insolvency in the contractual chain leaving subcontractors unpaid for work they have already completed
- retention money that is being used as cash flow by contractors and head contractors, instead of being kept aside for defects
- protracted and unjustified delays in payment for work done
- a lack of financial management skills in the industry.
In response to the perceived problems, the discussion paper highlights 5 key areas for reform and encourages the public’s response.
Option 1: Creation of a Project Bank Account to facilitate simultaneous payment
This option introduces the idea of a Project Bank Account (PBA) to remove the contractual chain between head contractor and subcontractor, and facilitate simultaneous payment to both head contractors and subcontractors through a trust arrangement.
In this option, the subcontractors will submit payment claims to the head contractor. The head contractor then submits a progress claim to the principal for the work done.
Upon approval by the principal through the superintendent, the principal makes payment for the work into the PBA.
The bank, upon receiving signatures of the principal and the head contractor on the progress claim, will distribute the payments in accordance with the progress payment claim.
In this instance, the bank will pay the head contractor and all subcontractors from the PBA at the same time, transferring funds into both the head contractor and subcontractors accounts.
The PBA ensures that funds are held on trust. In the event the head contractor becomes insolvent, there is no risk of non-payment as the money is held on trust directly for the subcontractor and the subcontractor becomes a secured creditor.
Option 2: Retention trust fund scheme
The retention trust fund scheme requires subcontractor’s retention money to be held in a separate trust account. The trust account requires a head contractor to hold retention money in a bank and prevents the head contractor from using the retention money as cash flow.
The subcontractors will become beneficiaries of the trust account and are therefore seen as secured creditors. This means that if the head contractor becomes insolvent, the retention money is securely held on trust and cannot be accessed by liquidators.
Option 3: Insurance Schemes
The Insurance Scheme replaces the idea of retention money with insurance. This option introduces a range of insurance schemes to safeguard against factors like late completion of work, defects and insolvency of contractors.
The insurance scheme would eliminate the need for contractors to hold retention money.
Option 4: Federal legislative changes
This option seeks to action the other states and territories to lobby the Commonwealth Government to reform the Corporations Act 2001 (Cth) and Bankruptcy Act 1966 (Cth) to grant subcontractors a priority payment in the event a head contractor becomes insolvent.
Option 5: Education
This option proposes to increase financial and business skills within the building and construction industry through education.
Have your say
The Department of Housing and Public Works is seeking feedback from the building and construction industry in response to the above options.
The Department is also seeking response in relation to the 2014 Building and Construction Industry Payments Act 2004 (Qld) amendments.
You can send written submissions by:
Mail: Security of Payment discussion paper, GPO Box 2457, Brisbane QLD 4001
Troy Lewis, Partner & National Head of Construction and Infrastructure
T: +61 7 3135 0614
Stephen Burton, Partner
T: +61 7 3135 0604
Suzy Cairney, Partner
T: T: +61 7 3135 0684
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