New laws on security and retention have now commenced

Construction Laws and Compliance

The big news recently is that the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act) came into force on 17 December 2018.

While the most focus has been spent agonising over the changes in relation to requirements for project bank accounts, payment claims, payment schedules and adjudications, one of the lesser known, but no less important, changes brought on by the BIF Act are the amendments made to the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act).

These changes are relevant to contractors and subcontractors of all tiers.

Failure to comply may result in liability for significant financial penalties and/or imprisonment.

What’s new in the QBCC Act?

The changes amend the QBCC Act Part 4A by inserting:

  • Section 67NA— This section establishes a statutory defects liability period. If a building contract does not provide for the release of retention or security at the end of an identifiable period, the contract is subject to a condition that the retention amount or security must be released to the person entitled to it at the end of 12 months starting on the day of practical completion for the contract.
  • Section 67NB— There may be penalties applied if a contracting party does not release the retention amount to the contracted party in accordance with the building contract.
  • Section 67NC— There are now notice requirements concerning the ending of the defects liability period and the retention amount due to be released to the contracted party. Penalties apply for non-compliance.

As these new provisions may involve penalties, contractors and subcontractors must check if they may apply to you.

These new sections will apply to ‘building contracts’ as defined in the QBCC Act.

What is a building contract?

A building contract is currently defined under the QBCC Act as “a contract…for carrying out building work in Queensland but does not include a domestic building contract or a contract exclusively for construction work that is not building work.”

The two types of contracts that will not be building contracts are building work for:

  • Domestic Building Contract
  • Contract exclusively for “construction work” that is not “building work” as defined.

Domestic building contracts are generally contracts for the construction of detached dwellings, renovations, repairs or other works on homes (a building for use as a residence) plus associated works such as landscaping, paving and fencing.

Contracts which are exclusively for construction work (as defined under the BIF Act) and not for building work include, for example, construction of roads for public use, construction of sewerage systems, stormwater drains, work on busways, work on public bridges, work on airport runways and the erecting of scaffolding.

Otherwise, if the contract involves ‘building work’ it will likely be a ‘building contract’.

So the question remains, when is ‘building work’ being carried out? The circumstances when ‘building work’ is being carried out are broader than it may intuitively seem.

What is ‘building work’

‘Building work’ is defined in the QBCC Act and generally includes the construction, renovation, repair or provision of lighting, heating, drainage etc, of a building. It will also include any site work such as constructing retaining structures in relation to buildings, the preparation of plans or specifications for the performance of building work (except that prepared by engineers or architects in their professional practice), fire protection work, site testing and building inspections.

Clearly the most important aspect of this definition is the definition of a ‘building’.

A ‘building’ under the QBCC Act generally includes any fixed structure. Commentary and caselaw on point consider the definition to be a very broad definition and generally the only limitation is that a fixed structure must be placed in a permanent position. Accordingly, the definition will include the obvious such as what one would typically consider to be a building but will also include perhaps the not so obvious, like swimming pools and roads and footpaths not for the public use.

So if you’re carrying work out on a ‘building’, unless it is excluded under the QBCC Regulations, you will be performing building work, meaning your contract is a building contract — building contracts are indivisible “entire contracts”, so if any part of the contract is for building work, the entire contract is a contract for “building work”.

So you’ve got a building contract— how do you comply with the new QBCC Act provisions?

In order to comply with the new amendments, keep the below in mind:

  • Section 67NA– Be aware that any building contract entered where retention or security may be held, which does not provide for the release of the retention amount or security, will be subject to a condition that the retention amount or security must be released by the end of 12 months after the date of practical completion of the contract.
  • Section 67NB— If retention is being held, ensure it is released in accordance with the contract if provided, or if not, after the 12 month period as stipulated in s67NA. Failure to do so, without reasonable excuse, may result in a maximum penalty of $26,110.00 or 1 year’s imprisonment.
  • Section 67NC— If you hold retention money, ensure you notify (in the approved form) the expiry of the defects liability period and the amount of retention to be paid at the end of the defects liability period, otherwise you may face a penalty of $13,055.00.

Complying with these provisions simply requires good contract administration, even after practical completion has been achieved. Ensure it is known when the defects liability period is to end and when and how much retention is to be released and have a mechanism in place to be alerted when to comply with these new provisions.

If you need help to determine whether your contract is a ‘building contract’ or how to comply with the QBCC Act, get into contact with us.

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