Proctor : July 2017
12 PROCTOR | July 2017 Constructing good law The QLS Construction and Infrastructure Law Committee The legal framework, regulations and guidelines that characterise Queensland’s construction and infrastructure industry are considered by many to be some of the most complicated in the world. As a result, the QLS Construction and Infrastructure Law Committee is kept busy reviewing the effectiveness of legislation, advancing practitioners’ knowledge on how laws and procedures will affect their practices, and collaborating with key stakeholders in the development and improvement of legislation and judicial process. More than anything else, the committee advocates for good law. Of late, this has been exemplified by its commitment to campaign for harmonised and uniform legislation across Australia, where possible. This effort was illustrated recently by the committee’s contribution to a QLS submission on the Queensland Building Plan Discussion Paper. In this submission, the committee raised concerns about the Government’s introduction of new laws which would attempt to ensure security of payment for subcontractors in the construction and building industry through an initiative known as ‘project bank accounts’ (PBAs). While the committee supported the policy objectives behind making sure people get paid in full, on time and every time, it resolved that the proposal contained a number of fundamental flaws that could result in a series of unintended consequences. Echoing issues raised by key industry stakeholders (including Master Builders Queensland and the Housing Industry Association), the committee raised the following areas of concern: Introducing PBAs would lead to a significant increase in costs and administrative burdens. • For example, owners/principals will need to employ additional professional services to assess claims submitted through the head contractor on behalf of the subcontractor. Legal practitioners and accountants will also likely need to be consulted to ensure beneficiaries are clearly established and the trust is properly set up. As a result, the industry will be deprived of cashflow and working capital. This will have a detrimental impact across the industry. The substantive benefit is uncertain. • PBAs will operate on two levels – (1) for progress payments and (2) for retention of moneys. The committee is concerned that, for progress payments, there will be little likelihood of any substantive benefit. The ‘quarantine’ period is short (that is, the limited period during which the money is held in the PBA). Additionally, the money is still paid out at the direction of the head contractor. Therefore, the proposed changes will not provide assurance or prevent a head contractor from siphoning money off to prop up its financial distress (for example, to other unprofitable projects). PBAs will delay payment processing times. • In ‘Fact Sheet 1 Security of Payment’, the Department of Housing and Public Works states that PBAs “can also increase speed of payment”. The committee questioned the evidence behind this claim and was concerned that, in fact, the opposite might be true – by introducing additional regulatory layers, the payment process will actually be slowed down. QLS highlights that the administration of a PBA (as a trust account) is a complex process. For example, if the money is held in a PBA at the time of the head contractor’s insolvency, various questions arise, including: • How does a subcontractor prove its entitlement? • Who assesses the amount to which each subcontractor is entitled and what if there is a shortfall? No one will know whether there is a shortfall until all subcontractors’ entitlements are established. That could take a long period, particularly if there are disputes (including among subcontractors) over each subcontractor’s entitlement. Further, if a head contractor has (perhaps innocently) undervalued a subcontractor’s entitlement from past progress payments, presumably the head contractor has acted in breach of trust. If so, the money paid out in breach of trust could be subject to being traced – a costly and time- consuming process. The proposal will not afford the desired protection to all stakeholders. • The committee was concerned that the PBA scheme only dealt with the first layer of subcontractors. Sub-subcontractors and suppliers are denied the same level of industry support and protection. The QLS Construction and Infrastructure Law Committee ... helping to construct good law.