Following major reforms to the Queensland Building and Construction Commission Act earlier this year, Government is now considering a significant review of the role property developers play in the construction industry, and is considering a regime that could require property developers to undertake licensing requirements - similar to that of contractors or subcontractors.
As property developers are not currently regulated in Queensland, the State Government is considering the various roles of developers in the sector, including the impact of their financial and operational capacity, ethical behaviour, and work practices.
The effects of a licensing scheme for property developers would no doubt be far-reaching. We sat down with Alex Power of McCullough Robertson Lawyers to understand what a licensing regime might look like, its impacts, and how developers can prepare for potential changes.
Alex, how did this proposal to Government come about?
The Bill was passed by Parliament on the recommendation of the Transport and Public Works Committee, following the receipt of written submissions, along with a public hearing on 3 and 4 March 2020.
The Committee made 12 recommendations to Parliament, including a recommendation that Minister Mick de Brenni MP (the then Minister for Housing and Public Works), review the role that property developers play in the broader building and construction sector.
A full copy of the Committee’s report can be found here.
What exactly do the proposed changes include?
Based on the submissions and evidence provided at the hearing, the Committee recommended that the Minister ‘review the role of property developers in the building and construction industry, including considering the impact of their financial and operational capacity, ethical behaviour, and work practices’ (Recommendation 11).
In accordance with Recommendation 11, the Minister successfully moved the following amendment to the Bill before the Legislative Assembly earlier this year:
(1) The Minister must ensure a review is conducted of the role of developers in the building and construction industry.
(2) The Minister must appoint a panel of not more than 4 appropriately qualified persons to conduct the review.
(3) The Minister must give the panel directions or a terms of reference to guide the review.
(4) The Minister must table in the Legislative Assembly a report on the outcome of the review as soon as practicable after the review is completed.[1]
What are the benefits of a potential licensing regime that are being advocated by those who consider it should be introduced?
Those who are advocating for the introduction of a property developer licensing regime are making submissions which can be generally summarised as follows:
• That a licensing regime should require property developers to meet specific financial requirements. The concern that has been advocated is that if a developer has inadequate finances, it can result in money not ‘flowing down the chain’ to contractors and subcontractors. It is argued that this raises the risk of the developer being wound up either during the project or after the project, which can impact on the quality of the project for purchasers as well as payment to contractors, along with the potential of ‘cutting of corners’ on work health and safety due to financial and time pressures on contractors.
• That any regime should include anti-phoenixing provisions, to prevent developers from winding up their companies and starting new companies with the same decision makers involved. It is argued that this practise harms not only purchasers, who will not be able to contact the developer in respect of any defects, but contractors and subcontractors to the extent they have not been paid.
• That the government should also consider, as part of any licensing regime, involving developers in the chain of responsibility for non-conforming building products, to the extent they are responsible for such products being used in a project. Non-conforming building products are products that are not safe or do not comply with regulatory provisions.
• That consideration should be given to involving property developers in the project trust accounts regime. Under the current project trust accounts regime, contractors establish trust accounts to secure payment of money to subcontractors.
In response, property developers have advocated that a licensing regime would constitute ‘red tape’ that would deter developers from investing in Queensland.
It is also the position of developers that it is the contractor that has the responsibility for building the project in accordance with its contractual obligations, and that a licensing regime regulating developers in respect of issues such as financial requirements, payment, non-conforming building products and defects is unnecessary and would be a significant burden.
Lastly, the Corporations Act 2001 (Cth) already contains provisions addressing anti-phoenixing issues which is enforced by ASIC.
What are the impacts for developers should this scheme be implemented? What should developers be doing now to prepare for future changes?
Although some states have been reluctant to adopt a licensing scheme, efforts are already underway in the Australian Capital Territory to explore the creation of a licensing scheme for developers.[2] If Queensland adopts a similar position, we may see further reforms to the QBCC Act and BIF Act following the consideration of any report that is due to be handed down by 1 July 2021.
Accordingly, developers should maintain awareness of any proposed reform relating to licensing, bearing in mind that a licensing regime may require developers to comply with some of the same rules currently in place for other licensed industry participants.
We anticipate the review may investigate whether developers should be required to do the following:
• Only undertake projects for which the developer is authorised to carry out
• Participate in the project trust accounts regime
• Comply with annual financial reporting obligations through the QBCC minimum financial requirements regulation (i.e. producing profit and loss statements, balance sheets, statement of cash flow, debtors and creditors report)
• Ensure compliance with safety regulations
It should be noted that without knowing the outcome of the review, the above factors are merely speculative. Notwithstanding, if Parliament is prompted to create a statutory framework around the activities of developers following the Minister’s review, there may be significant changes to the way in which projects are carried out between developers, contractors and subcontractors.
Furthermore, if developers are required to submit to licensing requirements, it is possible that the QBCC’s powers will be further expanded to investigate the activities of developers, re-affirming the status of Queensland’s building and construction sector as being one of the most heavily regulated in the country.
What are the next steps in relation to this change?
The Minister is to undertake the review in consultation with industry stakeholders and is to report the findings of the review as soon as practicable after the review is completed.
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