A major construction industry lobby group has slammed a discussion paper outlining proposals to reform subcontractor payment rules in Queensland, chiding the paper for its apparent lack of practical analysis and suggesting that a number of proposals for reform should be rejected.

In its response to the Security of Payment discussion paper published by Queensland’s Department of Housing and Public Works last December, the Housing Industry Association says the paper has ‘serious shortcomings’ and contained proposals which would unduly lead to added complexity and cost from the point of view of builders.

According to the HIA, the paper contributes nothing in terms of evidence about the extent of business failure within the Queensland construction sector and puts forward solutions which are therefore difficult to assess against empirical evidence.

In addition, the association says the paper also focuses entirely upon the relationship between the head contractor and subcontractor and ignores not only problems associated with non-payment of head contractors from principals but also the difference in contracting arrangements between the various sectors of the building industry as well as impacts up the chain where suppliers or subcontractors fail along with existing measures which are available to subcontractors to receive prompt payment under current law.

“HIA’s response expresses serious concerns about the content of the discussion paper,” HIA executive director (Queensland) Warwick Temby says. “Of the greatest concern is that the paper provides no evidence about the causes and extent of non-payment issues in the building industry. This is not to deny that non-payment of contractual obligations is an issue for the industry, it is just that in the absence of this analysis proposing solutions is being done in a vacuum.

“This is not evidence-based policy development.”

The HIA’s comments follow the release of the aforementioned discussion paper last December by the Queensland Building and Construction Commission.

In the paper, the Commission outlined a number of options for reform, including that progress payments made by a principal to a head contractor be paid into a special bank account and that retention money withheld from subcontractors by the head contractor as protection against incomplete or defective work be held in a separate trust account.

Under the first proposal, progress payments made by the principal would be paid directly into dedicated project bank accounts from which money owed to both principal contractors and subcontractors would be transferred directly into each party’s bank account. The paper argues this would eliminate the phenomenon in which money relating to subcontractor work was passed through the head contractor and thus potentially able to be used by the head contractor for their own working capital purposes.

The use of special trust accounts for retention funds, meanwhile, would prevent the head contractor from using retention money for their own working capital purposes and would thus secure amounts which are effectively money earned by the subcontractor, the report argues.

According to the HIA, however, both changes should be rejected.

Mandating project bank accounts – which are currently being trialed in NSW and WA – would represent a costly and unnecessary form of legislative interference, the HIA argues, and would create confusion in terms of determining which parties in the supply chain are entitled to the use of funds. The association says it would also create a situation in which funds held in the account were not available to creditors and employees in the event of failure of an entity which is lower down in the construction chain.

As for the question of retention trusts, the HIA hotly condemns what it says is a failure on the part of the report to suggest this only for the head contractor/sub-contractor relationship whilst remaining silent on options to guarantee anything in terms of money withheld by the principal from the head contractor under similar purposes. The association says any such scheme which is enacted should incorporate all retention payments withheld from all parties within the supply chain.

Moreover, the HIA says, such trusts should be opposed on the basis that retention funds essentially represent money which is intended to secure the performance of the contract. Until the requirements for release of the funds are met, the money remains property of the head contractor should be theirs to manage as they see fit, the Association argues.

The latest comments come amid a wide ranging review of Security of Payments legislation in Queensland.

This follows substantial changes to payments system brought about the previous LNP government in 2014, which allowed respondents more time to respond to ‘complex’ claims (worth more than $750,000) and abolished authorised nominating authorities which provided administrative support to claimants.

Such changes were welcomed by building industry lobby groups on the basis that ANAs had been subject to conflicts of interest and that the changes provided head contractors with more realistic time frames to respond to claims. However, the changes were opposed by subcontractor groups and ANAs themselves on the basis that the removal of ANAs had led to a surge in the proportion of claims falling over due to the removal of administrative support for subcontractors making claims.