8 March 2019
Master Builders recently responded to the BIF Reforms Implementation and Evaluation Panel Discussion Paper.
While we had a lot to say, the following are the key messages to government:
Project Bank Accounts
We highlighted once again how Project Bank Accounts (PBAs) will significantly increase the cost of construction and the concerns that many small/mid-size builder members have about the impact on their cashflow, and the extensive administrative obligations. As well as subcontractors’ concerns about losing the flexibility for early/interim payments due to the additional administration required for all payments out of PBAs.
We determined that PBAs must apply across the entire supply chain to improve security of payment for all the parties involved – from principals/developers through to suppliers.
We’re asking that the requirement for three accounts for each PBA project needs to change to a single account for multiple projects to address the enormous cost of administering PBAs.
We recommended a $10 million minimum for PBAs in the private sector, a minimum subcontract value of $20k or more, and a minimum payment amount.
The principal’s viewing rights need to be removed as providing access to the builders’ business costs and profit margins is an intrusion into commercial-in-confidence information.
Progress payments and adjudication
More needs to be done to raise awareness that the majority of the reforms under the BIF Act apply to the entire industry and to address the huge complexity of the reforms. Currently there is widespread misunderstanding. There have already been cases where contractors have lost their rights to use the new reforms to deal with payment disputes; and/or lost the right to challenge payment claims.
Specifically, we asked for a return of the requirement that payment claims must state that it is a payment claim made under Chapter 3 and removal of the restriction for resident owners.
Retentions and security of performance reforms
The complexities surrounding retention moneys and beneficial interests under the legislation is confusing for both builders and subcontractors. Misinformation leads to mistakes which, in turn, leads to unnecessary disputes.
Many subcontractors believe that their retentions are protected and cannot be accessed by the builder under a PBA; which is not correct. As a result, we are concerned that subcontractors may decide not to take active steps to improve their position under the contract and/or the legislation.
Similarly, builders need to understand their obligations and the restrictions under the legislation to ensure that they can manage their financial position.
Under the new rules, we are already seeing cases where subcontracts are being amended to insist on forms of security other than cash retentions in order to protect builders from inadvertent breaches of the new requirements. This will not benefit subcontractors.
Timing for commencement of the suite of reforms
The reforms that have been introduced all commenced too soon. There was insufficient time from when the legislation was finalised to when the changes commenced.
We recommended that Phase 2 for PBAs commences no earlier than six months after the legislation is finalised; that is six months from when industry knows for certain what the new regime will look like.