While many parties in construction projects are well aware of the importance of a written contract, it is surprising the number of contracts we see that do not comply with the requirements of the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act).
Schedule 1B of the QBCC Act regulates domestic building contracts, however, Part 4A of the QBCC Act regulates building contracts other than domestic building contracts (which includes subcontracts on a residential project).
In this article, we outline how Part 4A of the QBCC Act regulates the form and content of building contracts (other than domestic building contracts), ie:
- commercial head contracts; and
- subcontracts and sub-subcontracts (whether for commercial or residential building work
We see many contracts (including subcontracts) that do not comply with the requirements of Part 4A of the QBCC Act. It is an offence for a building contractor not to comply with these requirements. In most cases, failure to comply with Part 4A will attract a maximum penalty of 80 penalty units (which equates to four (4) demerit points and/or fines totalling $10,676) per offence.
To assist contractors in ensuring their building contract complies with Part 4A of the QBCC Act, below is a checklist considering the key requirements for commercial head contracts and subcontracts:
- Is the contract in writing?
- Does the contract contain the name of the building contractor and the QBCC licence number as it appears on the licence of the building contractor who will carry out the works?
- Are the site details (including the address of the land where the building work is to be carried out) clearly set out in the contract?
- Does the contract clearly state the scope of works?
- Does the contract clearly state a date for completion of the building works?
- Does the contract state the amount to be paid for the building work, or how the amount is to be worked out?
- Does the contract set out any agreement between the parties about retention amounts and securities to be held?
- Does the contract set out payment terms?
- Does the contract provide a process for dispute resolution?
If your answer is “no” to any of the above, or you are unsure if your contract adequately meets any of these requirements, you should seek legal advice as your contract may be void or unenforceable under the QBCC Act. Even if you answered “yes” to each question, it may be a good idea to have your contract reviewed as this checklist only reflects the minimum requirements to satisfy the QBCC Act and you may still be unprotected against certain risks.
Written Requirements
Any agreement reached, even if it is an agreement relating to only a small part of the works, should be recorded in writing in the contract.
Notably, section 67G of Part 4A of the QBCC Act requires contracts for more than $10,000 to be in writing before commencement of the building work, however if the value is $10,000 or less, the QBCC Act only requires that the contract be in writing before the building work is “finished”.
Despite this exception, we consider it a good idea for all contracts to be in writing as soon as possible to reduce the potential for confusion as to the terms of your agreement.
Retention / Security
Generally sections 67K and 67L of the QBCC Act provide that the value of retention/security held must not exceed 5% of the contract price at any time before practical completion.
After practical completion, section 67N of the QBCC Act provides that the value of retention/security held cannot exceed 2.5% of the contract price.
Section 67M of the QBCC Act further provides that cash retentions are limited to 10% from each progress claim.
Practically speaking, for example, this means that a principal of a project can only withhold a maximum of 10% as cash retention funds from each of the contractor’s claims for payment claims, up to a maximum of 5% of the total contract price.
Payment terms
A payment provision will be void if, in the case of a head contract, it provides for payment of a progress payment by a contracting party to a contracted party later than 15 business days after submission of the payment claim. Therefore, payment clauses should be drafted with care.
In the case of subcontracts, the maximum period for payment is 25 business days after submission of the payment claim.
Additional considerations
In addition to the contractual requirements detailed above, Part 4A of the QBCC Act also provides for:
- whether directions given under building contracts may initially be given other than in writing;
- how a building contractor may use a security or retention amount to obtain an amount owed under the contract;
- the release of security or retention at the end of the statutory defects liability period and the requirement to notify the contracting party about the end of the defects liability period;
- the consequences of a failure to release a retention amount in accordance with the contract;
- how the building works may be suspended;
- how late progress payments are to be dealt with;
- how security instead or, or in the place of, retention amounts of security in money form is to be lodged; and
- how a building contractor to a construction management trade contract must warn the contracting party of the possible dangers of entering into a construction management trade contract rather than a subcontract.
The BIF Act has certain additional requirements not addressed here. For example, the BIF Act provides that “pay when paid” provisions have no effect for construction work carried out, or related goods and services supplied, under a construction contract. For example, a clause in a subcontract which states that a contractor is not required to pay any amount owing to its subcontractor until that contractor has been paid by someone higher up the contractual chain would be a “pay when paid” provision and would be unenforceable at law.
If you require assistance reviewing your contract, drafting further clauses to ensure your contract’s compliance with the QBCC Act and the BIF Act, or require a bespoke contract drafted specifically for your project or business, please contact our experienced team at Construct Law Group on (07) 3139 1874 or email us at info@constructlaw.com.au.
This article is provided for general information and educational purposes only and does not constitute legal advice. Readers should obtain appropriate independent legal advice based on their own specific circumstances.
