The proposed changes to the Building and Construction Industry Payments Act 2004 (BCIPA) could mean a substantial shift in terms of how subcontractors are paid under certain construction contracts and affect subcontractors’ rights. Should all proposed changes be eventually implemented, the result could be a significant shift in the dynamics of a general contractor subcontractor relationship and generally within the building and construction industry.
The changes would likely result in increased security of payment for subcontractors receiving monies owed. However the potential changes would restrict the workings of the primary/head contractor’s business and in doing so possibly encourage restrictive or cautious business practices.
The BCIPA has already been changed substantially recently in ways which affect subcontractors, subcontractor contracts, and the payment relationship between subcontractors and primary/head contractors. For example penalties have increased for contractors who do not pay their ‘subbies’. Further, the Queensland Building and Construction Commission (QBCC) is now a ‘one stop shop’ for both Contractors and Subcontractors. However further more radical and controversial changes may be on the horizon.
Project Bank Accounts or PBAs are not a new idea. PBAs have been trialled in New South Wales. Government projects in Western Australia of between $1.5m and $100m are currently subject to corresponding legislation. PBAs were recommended in 2015 by Senate Economics References Committee.
A PBA is a trust account set up for the purpose of an appropriate project. The trust account is the recipient of all progress payments. In turn the funds of the trust must be distributed to the primary/head contractor and subcontractor at the same time.
Currently, the payment system inherent in a building project means subcontractors get paid last. If there is some hitch once the funds are in the hands of the primary/head contractor but before they have been paid to the subcontractor, the subcontractors will be the ones left in the lurch.
In so far as building and construction issues, a subcontractor not paid by a contractor is a common complaint. It is safe to say there is room for improvement when it comes to subcontractor payment rights.
While being a subcontractor offers other benefits, examples of situations which could arise that would have a devastating affect on subcontractors include:
This list is non-exhaustive. In each of these situations the subcontractor does not get paid for work already carried out whether partially or completely.
The introduction of PBAs would likely provide protection for the subcontractor in any of the above situations as well as faster payment. While likely this will start with just government subcontracting and/or major scale projects, it would seem there is a general shift in the direction of implementing PBAs. Contractors paying subcontractors directly may become a thing of the past.
PBAs would significantly affect the freedom of a primary/head contractor to operate its business in an internally directed manner. The operation of the business would be externally controlled to some degree and the business workings restricted.
The primary/head contractor would have no control over the progress payments. Further, the primary/head contractor would be liable for the costs of the PBA.
Aitken Whyte Lawyers can assist you in any disputes between primary/head contractors, contractors and building owners or internal disputes within a building firm or company.
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