Principal construction contractors in Queensland could risk substantial fines and jail time under new laws if they perform unlicensed work or rely on licenses held by their subcontractors, a leading law firm says.

In its latest statement, commercial law firm McCullough Robertson has warned that head contractors could face significant consequences from the impending removal of an exemption to the need to hold licenses for specific types of work where they engage suitably licenced subcontractors to carry out the work.

Passed into law on July 15, the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Act 2020 (BIFOLA Act) makes amendments to a range of existing laws in Queensland in order to improve building regulation throughout the state.

One such change which will have ramifications for head contractors will be the removal of an exemption to requirements under the Queensland Building Construction and Commission Act 1991 (QBCC Act) for contractors to hold appropriate licences for work which they carry out where they engage licenced subcontractors to perform the work in question.

As things stand, Section 42(1) of the QBCC Act requires that contractors must hold an appropriate class of licence for all building work which they carry out.

However, Section 8 of Schedule 1A in that same Act allows an exemption to this where contractors engage subcontractors who hold appropriate licences to perform the work in question.

Once the amendments foreshadowed under the new law have been enacted, however, this exemption will be removed and contractors will need to themselves hold relevant licences for all building work which either they or their subcontractors perform.

(Note: the exemption has not yet been removed, but rather is set to be removed under the BIFOLA Act. Exactly when this will happen remains unclear. Also unclear is whether or not any transitional provisions or arrangements will apply.)

McCullough Robertson Special Counsel Alex Power said the changes will impact all contractors who do not currently hold a licence for specific works and who have relied on subcontractors to perform the work in question.

“For example, we regularly see civil contractors who perform minor building work as part of their scope of work – such as concrete pads or concrete retaining walls – but who are unlicensed to carry out these works,” Power said.

“While these civil contractors have long relied on the exemption to engage licensed subcontractors to fulfil certain components of building work, once the exemption is removed they will need to ensure they hold a licence in their own capacity.

“But this is just one example – the change would extend to any contractor unlicensed for a specific scope of work who has been relying on the fact that their subcontractor holds a licence.”

Moreover, the Act provides significant penalties for breaches of the law.

According to Power, these include:

• Not being entitled to payment for the relevant work which was carried out, except for a very limited payment allowance under the Act for reasonable costs associated with materials and labour purchased by suppliers but not to cover the contractor’s own labour or profit or to cover supply costs which are unreasonably incurred.
• Financial penalties ranging from $32,637.50 for a first offence up to $45,692.50 or possible jail time in the case of three offences.
• Potential implications for the contractor’s entitlement to recover progress payments under the contractor’s own ability to recover progress payments under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act)[1]

Power says Schedule 1A including the exemption referred to above was introduced in 2013 to better enable private public partnerships to participate in public infrastructure projects by using special purpose vehicles to carry out work on behalf of the PPP (which often involves a consortium of players).

Since its introduction, the exemption has been criticised by certain industry members who claim that the exemption provides a loophole for head contractors by allowing them to enter into contracts for building work without being subject to the strict obligations placed on licence holders.

Despite the precise date of the change remaining yet to be determined, Power advises head contractors to prepare now.

He says some companies may need to undertake licensing updates or implement significant structural change.

“We are advising unlicensed head contractors who have subcontracted or tendered for building work to seek advice as to whether they need to commence steps to become licensed,” Power said.

“It may also be necessary for larger companies to look at their operations on a project by project basis and consider whether structural changes are required to ensure that head contractors are appropriately licenced.

“If they don’t take the steps now to ensure their projects are set up for the change, companies could find themselves liable for significant penalties – fines of up to $45,000, potential jail time, and strict limitations on the amounts that they can recover for the completed but unlicensed building work.

“The timing of this change is not yet clear, nor is there any guidance as to whether any transitional provisions will apply, so the best advice is to be prepared – especially when non-compliance brings hefty penalties.”

[1] According to Power, Queensland Courts have held in a number of decisions that a breach of section 42(1) of the QBCC Act, even if it is confined to a negligible proportion of a contractor’s total scope of work, will disentitle the contractor from recovering progress payments under the Security of Payment regime.  This is because a contract for unlicensed building work is illegal and therefore void, and one of the preconditions to utilise the BIF Act is the existence of a valid ‘construction contract’.