Unlicensed parties beware – Head contractor exemption to be removed from QBCC Act

In late 2013, significant reforms to the licensing regime in Queensland were introduced, including an amendment to permit unlicensed head contractors to subcontract building work to licensed subcontractors and thereby be exempt from the consequences and penalties associated with undertaking to carry out, and carrying out, unlicensed building works in Queensland.  However, proposed amendments to the Queensland Building and Construction Commission Act 1991 (QBCC Act) moved in Parliament on 15 July 2020, will result in this exemption being removed.  This will mean that it will no longer be possible for an unlicensed head contractor to avoid contravening section 42(1) of the QBCC Act by subcontracting building work to a licensed party. 

By way of a quick refresher – section 42(1) of the QBCC Act provides that unless a person (or entity) holds a licence of the appropriate class for the building work, they must not carry out, or undertake to (i.e. tender or enter into a contract) carry out the building work.  ‘Carrying out’ building work will include personally carrying out the work, directly or indirectly causing the building work to be carried out, or providing advisory, administrative or supervisory services for the carrying out of building work.

This legislative change will have far-reaching implications for building and construction contracts and tenders across Queensland, and as outlined below, there are serious potential consequences for unlicensed head contractors if they tender for, or enter into contracts for, building work, or carry out building work. 

It is not presently clear when this change will take effect, and it is not known if it will apply prospectively or retrospectively (which could have drastic consequences for existing contracts and tenders).  Further, it is unclear whether there will be a transition period permitted for unlicensed head contractors. 

To prepare for this change, it is advisable that unlicensed head contractors who have subcontracted or plan to subcontract building work to a licensed subcontractor, or have submitted a tender or offer to carry out building work, for which they are not licensed, seek advice about applying for relevant licenses as soon as possible. 

The proposed change to the licensing exemption

On 5 February 2020, the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Bill 2020 (Bill) was presented to the Queensland Parliament.  During the legislative assembly on 15 July 2020, the Minister for Housing and Public Works, Digital Technology, and Sport, Mick de Brenni MP (Minister) successfully moved a series of amendments to the Bill. 

The purpose of this article is to highlight one significant proposed amendment, which affects the operation of section 42 and Schedule 1A of the QBCC Act.  The proposed amendment will mean that unlicensed head contractors will no longer have the benefit of the exemption under section 8 of Schedule 1A of the QBCC Act (other exemptions in Schedule 1A will remain unamended).  In its current form, section 8 of Schedule 1A to the QBCC Act provides that it is permissible for an unlicensed party to subcontract building work (which is not residential building work) to a licensed party.  By doing so, the unlicensed party will not breach section 42(1). 

On 15 July 2020, the Minister was successful in seeking that this exemption (i.e. section 8 of Schedule 1A) be entirely removed from Schedule 1A to the QBCC Act (refer to page 1666 of the relevant Hansard record for 15 July 2020).

Serious consequences for unlicensed parties

There are serious consequences for failing to comply with section 42(1) of the QBCC Act.  These include:

• not being entitled to any monetary or other consideration for the unlicensed building work carried out, aside from being permitted to claim the reasonable remuneration recognised by section 42(4) of the QBCC Act (which is not to be more than the amount paid in supplying materials and labour, and excludes the unlicensed party’s own labour, profit, and any supply costs unreasonably incurred);

• significant penalties of up to:
  • $32,637.50 for a first offence;
  • $39,165.00 for a second offence; and
  • $45,692.50 (or possible jail time) for a third offence or if the unlicensed building work is also tier 1 defective work.

The penalty amounts referenced above are accurate as at 23 July 2020 but may change in the future. 

Importantly, there are also implications for the unlicensed party’s entitlement to recover progress payments under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act).  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’.

When will the proposed amendment to the QBCC Act take effect?

There is a lack of clarity regarding when the removal of section 8 of Schedule 1A of the QBCC Act will take effect.  It is possible (although, in our view, unlikely) that the change will apply retrospectively (e.g. apply to contracts on and from 1 July 2020).  We await additional clarity from the Minister in this regard and expect that an updated version of the Bill will be published which includes transitional provisions.  Such provisions should clarify whether and how existing contracts and tenders are affected. 

Practical implications

To prepare for this significant legislative change, it is advisable that unlicensed head contractors who have subcontracted or tendered for building work for which they are not licensed, seek advice as to whether they need to commence steps to become licensed.  McCullough Robertson can assist you with this process.

Other changes of note

We will continue to provide analysis of the reforms affecting the building and construction sector in Queensland and other jurisdictions in which we are presently guiding clients with their project.  Please look out for the focus alerts we will shortly publish regarding other changes to the Bill moved by the Minister on 15 July 2020. 

For further information on any of the issues raised in this alert, please contact a member of our team below.

Many thanks to Milan Gandhi, Lawyer, and Jason Liu, Lawyer, for their assistance in putting together this article.

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.