In the landscape of construction law, it’s crucial for developers to stay ahead of regulatory changes that may impact their operations. One key area under scrutiny is the Head Contractors Exemption, subject to recent debates in parliament.
This exemption, a linchpin for developers, may face curtailment via the Building and Other Legislation Amendment Bill 2022 (Report No. 18, 57th Parliament Transport and Resources Committee) (the Bill).
At Helix Legal, we like to “future proof” our clients when it comes to what’s ahead. In this article, we delve into the nuances of the Head Contractor Exemption, its recent reintroduction and potential legislative shifts, and the strategic steps developers can take to ensure compliance and mitigate risks.
What is the Head Contractors Exemption?
The Head Contractor Exemption allows developers to engage in projects without holding a licence, provided certain conditions are met.
Diagrammatically, the contract chain typically looks like this:
Understanding the Legislative Landscape
The Head Contractor Exemption, outlined in Schedule 1A of the Queensland Building and Construction Commission Act 1991 (the Act), provides developers with a pathway to bypass the licensing requirement under specific circumstances. To qualify for this exemption, developers must ensure that the building work is:
a) not residential construction work or domestic building work; and
b) to be carried out by a person who is licensed to carry out building work of the relevant class.
The Head Contractor Exemption has been subject to change and remains a topic of debate in parliament. While the recent reintroduction is a positive advance, developers must be aware of the ongoing legislative landscape.
For context, here is the legislative timeline:
As with all law, nothing is set in stone. At page 17, the Bill outlines that it is the department’s intention to:
“…retain the head contractor licensing exemption, but allow a regulation to prescribe certain circumstances where it is considered critical that a head contractor be licensed.”
The Bill goes on to say that:
“The department will conduct comprehensive industry consultation before prescribing any circumstances by regulation and these would also be subject to regulatory impact assessment requirements. This will allow all relevant and interested stakeholders to contribute, consider and address any issues or unintended consequences during the policy development process and ensure the prescribed circumstances are fit for purpose.”
Given the potential for limitations on the Head Contractor Exemption in the future, prudent developers will keep abreast of any legislative developments to safeguard against any unintended consequences.
This is so particularly in a legal landscape where section 42 of the Queensland Building and Construction Commission Act 1991 makes it an offence to undertake building work without a licence and amounts to “no licence, no pay”. Any changes implemented by the Bill can have huge consequences for a developer’s business.
Due diligence and the Head Contractors Exemption
The case of Trustee For Hardev Property (Dev 10) Unit Trust v Palmgrove Holdings Pty Ltd [2019] QSC 208 emphasises the importance of the developer’s intention to engage appropriately licensed subcontractors. In that case, although the contractor did not have the necessary licence for certain anticipated work to be carried out, the intention to engage subcontractors who did have the requisite licence was sufficient to enliven the exemption. It is essential for developers procuring subcontractors and consultants to ensure that every element of work that could reasonably be considered building work has a contract with a licensed entity.
To implement the Head Contractor Exemption successfully, developers must:
- Identify what works in the contract scope of works are “building works” for the purpose of the Act therefore requiring a licence to be carried out;
- Perform due diligence to ensure all subcontractors maintain the appropriate licence during the building works;
- Incorporate terms in subcontract agreements requiring subcontractors and their agents to hold the necessary licences;
- Ensure they do not personally carry out or cause to be carried out unlicensed building work or building work services; and
- Seek legal advice if unsure about a subcontractor’s licence status.
For developers relying on the Head Contractors Exemption, we recommend that you proceed with caution and always undertake your due diligence. Our Diligence by Helix tool can assist you in ascertaining all the information you need to proceed.
The Long-Term Solution
While it is open to developers to operate under the Head Contractor Exemption, we consider that there is likely no issue in conducting your building business this way.
However, as outlined above there is a risk that the exemption may face challenges in the long term, making it commercially prudent to explore options like licensing to future-proof business operations.
The Head Contractor Exemption, a valuable tool, requires a nuanced approach. By understanding its intricacies, performing due diligence, and staying informed about legislative changes, developers can make informed decisions that align with their business objectives.
Our advice is to be prepared for change. One option to keep in mind for future is the Construction Management arrangement, another may be to implement a Project Management agreement. These approaches provide developers with external licensing coverage, allowing them to navigate the evolving legal landscape strategically and successfully. Of course, it is always an option to bring construction in-house. But this requires more than simply appointing a site manager and can create administrative and licensing issues in and of itself.
In a time of regulatory uncertainty, strategic decisions become paramount for developers. This article aims to empower developers to navigate legislative changes, choose the right model, and ultimately ensure the success of their projects. As your legal partner, we are committed to providing tailored solutions that align with your business objectives and mitigate potential risks.
If you need advice on how best to structure your next construction business venture or project, contact Laura King at laura@helix.legal for a chat.
Not intended as legal advice. Read full disclaimer.
