MFR Module 3 – Mistakes and Mishaps
An objective for all contractors must be to have good financial systems and procedures in place. In this module, we take a look at some of the financial mistakes and mishaps made by contractors, both big and small, that will attract the attention of the QBCC.
The purpose and effectiveness of the MFR is outlined in the Explanatory Notes for an SOP Bill introduced into parliament on 5 February 2020, where it is stated:
“The first phases of the MFR reforms led to a capital injection of $1.2 billion into the Queensland building and construction industry, resulting in a stronger, more confident industry. The changes help support financially healthy businesses that are capable of sustained growth, as well as providing greater certainty that subcontractors will be paid for the work they do.”
We expect that for category 4 to 7 licensees, the QBCC will continue to require them to strictly comply with all aspects of the MFR. Furthermore, we think that it is highly likely that for these high turnover contractors, they will have to get their reports in on time. It’s our view that the QBCC will not entertain any delays of this nature unless the reasons are very compelling.
It is also our view that the QBCC will require these large contractors to strictly adhere to all aspects of the MFR. Such a strong position by the QBCC is demonstrated in reported dealings the QBCC has had with CPB contractors. In an article in the Australian Financial Review, it is stated:
“CIMICs construction subsidiary CPB contractors has been told by Queensland regulators to prove it has enough cash to keep building projects such as Brisbane’s $5.4 billion Cross River Rail after concerns were raised over its financial viability.
The Queensland Building and Construction Commission (QBC) is understood to have sent a letter to CPB contractors on Wednesday asking why its licence to operate shouldn’t be suspended after it refused to provide a Minimum Financial Requirement (MFR) report when its net tangible assets dropped below 20 per cent.
CPB contractors’ net tangible assets- its total assets excluding intangible assets such as goodwill, patents, and trademarks – dropped below the required threshold earlier this year after it gave its parent company CIMIC a $700 million loan.”
What mistakes and mishaps will the QBCC be looking for?
For all contractors, big or small, any failure on their part to meet their liabilities as and when they fall due, or satisfy a court judgment or an adjudication decision, will result in the QBCC reviewing their entitlement to remain licensed.
You should also expect the QBCC to be looking at:
- Market data and intelligence.
- Legal actions involving contractors.
- The news.
- The industry – contractors with problems are normally well known in the industry.
- Information provided in Annual Reporting.
- Debtor Reports – Keeping in mind debtors of over 1 year in age are excluded as assets, it would be easy to see the QBCC focusing their attention on older debtors. If a 30 June 2019 debtor list provided by 31 December 2019 already included some debtors close to 180 days old, it would not be difficult for the QBCC to ask for an updated debtors report to prove it was collected.
- Audited accounts – These can be a rich source of disclosures as to debtor recoverability, disputes, concern and other information that may better inform a reader of what is going on.
- Profit and loss analysis – Significant legal fees could indicate jobs in dispute. This may then create a focus on which jobs those relate to and what debtors, retentions and WIP are in the accounts.
As the inaugural Compliance Manager for the predecessor of the QBCC, the BSA, Coach Michael Chesterman was responsible for managing several thousand investigations into financially troubled contractors. This position and his role at Helix Legal have allowed him to view firsthand the mistakes and mishaps of MFR compliance.