John Lowry

Feb 28, 20184 min read

Are you ready for the BiF?

The Building Industry Fairness Act 2017 starts TOMORROW, 1 March 2018, replacing the BCIPA.

What's in?

Project Bank Accounts (PBAs) are required for Queensland Government building and construction projects between $1 and $10 million;
It is intended that the PBA provisions will be rolled out to all subcontracts, subject to a review of the Act in September 2017.

What's out?

PBAs are not required for:

Residential houses and duplexes (Government);
Maintenance work;
Busways, roadways and railways, including tunnels;
Some work for Resource Authorities under the Minerals & Energy Resources Act 2014.

What's new?

Head contractor's are required to establish trust accounts entitled Project Bank Accounts (PBAs) for each new PBA contract within 20 business days of signing up the first subcontract. Subcontractors are beneficiaries of the trust accounts.
Subcontractors Charges are rolled into the BiF Act, although you still can not run an adjudication and a subcontractor's charge together.
Penalties and fines may be imposed for infringements under the Act;
Practical Completion is defined;
There is a statutory defects liability period of 12 months.
Scaffolding is now included as building work (this may affect other temporary work).

What's changed?

A Payment Claim does not have to be identified as served under the Act. All invoices are payment claims under the Act.
The maximum period for serving a payment schedule is extended to 25 business days (from 10), the same period as the maximum payment term for a subcontractor;
BUT, a contractor MUST serve one if a payment claim is disputed. There is no second bite of the cherry.
The adjudication application cut-off is extended to 20 business days if there is a payment schedule and 30 business days if there is no payment schedule;
Terminating a subcontract automatically establishes a final reference date for a payment claim.
Professional consulting services, including quantity surveying, are included.

What are the major effects?

Where PBAs are required, initially on a very limited range of jobs:-

There will be a considerable change in contractors processes and procedures. if you do not have systems in place to manage these processes efficiently the administration is likely to be expensive and you will risk fines for non-compliance;
Head contractors will not be able to fund projects from general cashflow or divert cash from one job to another. Every job will stand on its own. Many contractors will need more and better lines of credit;
Transparency in the payment chain between Clients, banks, contractors and subcontractors will be totally transparent to all;

Other effects

Contractors must be proactive in serving payment schedules. There is no "reminder" if a subcontractor decides to apply for an adjudication of a payment claim. No payment schedule means no chance. It will be essential to have robust systems and processes to guard your entitlements;

The practice of terminating a subcontract in order to prevent a reference date arising has been curtailed with the declaration of a final reference date;

The cutoff dates for payment schedules and adjudication applications have been extended.

Scaffolding is specifically included. This may have ramifications for other temporary works.

How will PBAs Work?

Each PBA job will have three PBAs:

1) A General Trust Account (GTA) for payments made

2) A Retention Account, and

3) A Disputed Funds Account

Principals must pay the full amount of progress payments into the GTA;
The head contractor must transfer (by payment instruction) all retentions owed to subcontractors to the Retention Account;
The head contractor must transfer (by payment instruction) disputed amounts of payment claims owed to subcontractors to the Disputed Funds Account. A disputed amount will be any difference between a payment claim and a payment schedule under the Act;
Deposits and withdrawals can only be by electronic funds transfer;
Withdrawals and transfers can only be made using a payment instruction given to the Bank (includes other trust account holders);
The Principal is entitled to view trust fund transactions;
Head Contractors must make up shortfalls in the GTA;
Subcontractors' payments and retentions take priority over head contractor withdrawals;
Head contractors can not invest PBA funds, other than interest eearned on account funds.
Trust funds can not be used to pay Head Contractors' creditors or be taken to execute a court order in favour of a creditor;
Head Contractors can not charge PBAs for account fees;
Head Contractors must manage and document all trust account transactions;
Head Contractors must advise the Principal in relation to each subcontract;
Head Contractors must give the Principal and subcontractors a copy of payment instruction to the Bank;
The Principal must advise the QBCC of any discrepancies in payments;
If a head contractor becomes insolvent the Principal can step in as trustee;
PBAs are a declared a statutory PPSA priority interest;
The Trust Accounts and Trust Acts of 1973 do not apply;

That's enough for now. There is plenty more to digest.

But you had better be ready, tomorrow.

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