In this Q&A we speak with Redchip Director and head of our litigation department, Robert Champney, about what builders and subcontractors need to be aware of with a suite of new regulations coming into play in 2021.
Please note that this conversation provides an overview of these topics only and that the information discussed should not be taken as legal advice. You should always seek professional advice specific to your situation.
Jennifer Cavanagh (JC): Thank you, Rob, for having this chat with us to go over some hot issues for contractors and sub-contractors in the Building and Construction industry right now.
To start things off, can you give this conversation a bit of context and tell us why this topic is currently relevant?
Robert Champney (RC): Yep, thanks Jen. So, the last 12 months has seen some pretty significant regulatory change within the QBCC Act, some of which comes into effect very soon. One of the most relevant is a change to Schedule 1A of the QBCC Act, which changes the licensing requirements for head contractors and contractors with the removal of the Head Contractor Exemption. Changes have also come into effect regarding payment claims and enforcement of adjudication decisions. So a lot is happening in an industry that is already one of the most heavily regulated in the country, and it’s well worth getting on top of this now, before things pass and contractors aren’t ready for it.
(JC): Great, thank you. Very timely with regulatory changes coming in soon. Can you dive a bit deeper into what those changes are concerning licensing and when they apply?
(RC): The biggest change is to the Head Contractor Exemption in schedule 1A of the QBCC Act. Until now, a head contractor who was unlicensed could enter into contracts for building work, provided they had engaged a subcontractor who was appropriately licensed to carry out the part of the work requiring the license. Effective as of July this year, that exclusion has been removed from the QBCC Act and will no longer apply.
To give you an example, a civil contractor would commonly use this exemption to carry out civil work contracts that would include a component of building work. As of July 2021, if that civil contractor without a QBCC license enters into such a contract, then that civil contractor will be engaged in unlicensed contracting in contravention of section 42 of the QBCC Act. Now, that’s important because contravention of section 42 severely prejudices the contractor’s right of recovery of payment under the contract.
(JC): What does this mean for our head contractors and civil contractors then – what do they need to do to ensure they’re not caught out by this change?
RC: A lot of contractors out there would have structured themselves in such a way over the last few years to take advantage of the Head Contractor Exemption. Structuring yourself in this way had obvious advantages, but now contractors will need to revisit their arrangements and the way that they’re structured to ensure that they don’t fall foul of the schedule 1A exclusion in July when this amendment comes through.
In terms of next steps, I’d say speak to your accountant first and find out whether you took advantage of schedule 1A in your structuring and, if you did, then speak to a lawyer to assess your corporate structures and determine whether you are engaging in building work when you don’t have a license. Establishing what is and isn’t building work is a minefield in itself, so that can take quite a bit of time and skill to work out whether in fact you’re undertaking the work or not. Your lawyer can then help you determine what you need to do about it so you don’t fall foul of the removal of the Head Contractor Exemption when it comes into effect in July.
(JC): Thanks, Rob – it’s a critical one to get on top of immediately for those affected by the sounds of things.
Moving on, you also mentioned earlier that there have been some changes related to collection of payments. What do we need to know about those?
(RC): The QBCC Act has introduced a number of enforcement mechanisms to give some real teeth to enforcing an adjudication decision. So, the successful recipient of an adjudication decision now has several alternative methods of enforcement which it previously didn’t have. The first significant change is a withholding request, which means the successful recipient of an adjudication decision can issue a withholding request up the contractual chain. For example, a subcontractor receives an adjudication decision in its favour against a contractor, the subcontractor can issue a withholding request to the principal requiring the principal to withhold the amount of the adjudication decision. If the principal doesn’t withhold that amount, then the principal becomes liable for that amount together with the contractor.
The second significant change in this area is an amendment to the Act which allows a successful recipient of an adjudication decision to register a charge over the real property of the respondent to the adjudication decision, and sell the property to satisfy the adjudication decision. This is a big, big change as it really gives the successful recipient of an adjudication decision some teeth with respect to how they enforce a decision.
Of course, all of this is premised on the recipient getting the adjudication decision to enforce, and that is where a lot of contractors run into problems because their paperwork is not up to scratch. For example, a payment claim is issued before a reference date arises or the contract hasn’t been followed for the mechanisms for claiming payment. So the contractor or subcontractor never gets to the position where they get an adjudication decision in their favour, because they miss out on jurisdictional grounds such as reference date or compliance issues with the contract.
(JC): So if the adjudication decision is a vital piece of the puzzle, how can contractors or subcontractors ensure they get to that point and maximise their collection prospects?
(RC): The key takeaway in all of this is early engagement and active contract administration. Be aware of what’s in the contract and your obligations with respect to claiming variations, extensions of time and payment claims. For example, issuing payment claims on and from the reference date, not before the reference date (which will result in an invalid payment claim and a failed adjudication application).
Also, issues such as delayed payment or late payment, or promises of payment with no payment, are probably red flags of potential problems for the upstream contractor. So get proactive about it and speak to your lawyer. We see these things all the time and we can generally sense when a dispute is coming, and when you’ll need to take advantage of the adjudication process. We can guide you through the process and set your documents and paperwork up in such a way that you start setting the evidence trail well in advance of when you need it, so that when it does come time for the adjudication application, all your paperwork’s in order, your payment claim’s been issued on time, it complies with the requirements of the Act, and you’re in the best position possible to get a successful adjudication outcome. That’s when you can take advantage of the amendments that have come in, giving enforcement some real teeth.
(JC): Some great tips and takeaways there and I think a great place to wrap it up. Thanks, Rob, for your time.
If you have any further questions regarding the upcoming changes or processes we’ve discussed today, you can contact Rob on 07 3223 6100 or email robertc@redchip.com.au.
