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Legislative contract reforms are MIA.

Michael Chesterman
Michael Chesterman January 26, 2022

This is the third article of my Statutory Trust Series.

In this article, I will outline my concerns about stalled contract reforms, which may result in the creation of contracts designed to negate or nullify the effectiveness or coverage of Project Trusts.

Proposed contract reforms.

In an article I published on 27 September 2017 titled ‘What will building contracts look like after Project Bank Accounts (PBAs) come into effect?’, I pointed out new legislative contract provisions under the QBCC Act, namely:

Section 67GA of the QBCC Act Section 67GB of the QBCC Act

Explanatory Notes.

Concerning section 67GA of the QBCC Act, the Explanatory Notes states:

“The type of mandatory conditions that are intended to be imposed include ‘best practice’ conditions contained in relevant Australian Standards for contracts. However, these standards are subject to regular review. Placing the conditions in a regulation will provide greater flexibility for the government to amend conditions following such reviews. Further, it is expected that the suite of security of payment reforms, including PBAs, will necessitate changes to standard industry contracts and the way that industry does business generally. The department will be monitoring these changes and again, the regulation-making power will allow the government to respond to these changes in industry practice.”

Department advice.

The Department of Public Works advised a parliamentary committee reviewing BIFA that:

  • “The proposed new powers to prescribe by regulation mandatory conditions and prohibited conditions for building contracts will create a fairer and more accountable industry.
  • The types of mandatory conditions intended to be prescribed by regulation include ‘best practice’ conditions contained in relevant Australian standards for contracts and conditions which will facilitate the implementation of PBAs.
  • The types of prohibited conditions intended to be prescribed include certain unfair and unconscionable conditions in building contracts.
  • Including a power to address conditions such as this via a regulation provides the government with the flexibility to prescribe the technical detail in the regulation and to respond to rapid changes in Australian contract standards for the building and construction industry.”

Parliamentary committee report.

An October 2017 report was presented by the parliamentary committee to the Minister, and the government responded to the recommendation. Both parties stated:

October 2017 Parliamentary Report recommendations

Panel review.

In a subsequent March 2019 report published by a panel established to assess the implementation and effectiveness of these BIFA reforms, it stated that BIFA contained seven measures intended to improve Security of Payment in the construction industry, one of which is:

  1. “Improving the fairness of contracts. There is a new requirement for building contracts to include ‘mandatory conditions’ prescribed by regulations. The content of these new regulations is under development.”

Ministerial Construction Council.

While I have identified this initiative being the subject of consideration by the Ministerial Construction Council on several occasions, presently there are no relevant regulations in effect.

What has happened?

To say I am baffled about this outcome would be an understatement.

If one of seven measures to improve SOP was to create a fairer and more accountable industry through regulations mandating and prohibiting contract provisions, then I am at a loss to explain why this has not happened.

Having said that, while I can see the good intentions behind such an initiative, I have doubts that any government can promptly and effectively “respond to rapid changes in Australian contract standards for the building and construction industry”.

I can also envisage a situation arising where in good faith, a contract lawfully drafted at the time, may unintentionally continue to be used despite having a provision subsequently deemed prohibited by regulation (or failing to include a mandatory provision).

I would be interested in hearing the views of others.

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Not intended as legal advice. Read full disclaimer.
Michael Chesterman
Michael Chesterman January 26, 2022

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