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Intro

If you undertake building work in Queensland, your QBCC licence is your most valuable asset.  Without it, no work can be done and no money can be made.

You may be granted a licence subject to conditions that the QBCC considers appropriate, including that your financial circumstances at all times satisfy MFR.

Section 35 (3) QBCC Act provides:

“(3) Without limiting subsection (1), a contractor’s licence is subject to the condition that—

(a) the licensee’s financial circumstances must at all times satisfy the minimum financial requirements for the licence; and

(b) variations of the contractor’s turnover and assets must be notified, or notified and approved, in accordance with the minimum financial requirements for the licence.”

In Queensland, it is an offence to undertake building work unless a licence is held. A contractor is licensed according to the value of work they are entitled to undertake and must be found fit and proper to hold a licence.

Section 42 QBCC Act Unlawful Carrying out of building work provides:

“(1) Unless exempt under schedule 1A, a person must not carry out, or undertake to carry out, building work unless the person holds a contractor’s licence of the appropriate class under this Act. Maximum penalty—

(a) for a first offence—250 penalty units; or

(b) for a second offence—300 penalty units; or

(c) for a third or later offence, or if the building work carried out is tier 1 defective work—350 penalty units or 1 year’s imprisonment.”

Lesson 4.1 Purpose

In 2019, there were a number of high profile suspensions related to compliance with the financial requirements for licensing.  One of your coaches, Michael Chesterman, has written about them here and in other insight articles.

Lesson 4.2 QBCC Power

The QBCC has the power to suspend or cancel a licence under Division 9 of the QBCC Act.  Section 48 of the QBCC Act sets out that:

“(1) The commission may suspend or cancel a licence if—

….

(h) the licensee contravened a condition to which the licence is subject under section 35 or that is imposed under section 36 on the licensee’s licence; or …”

Suspension may be immediate if the QBCC reasonably believes that there is a real likelihood that serious financial loss or other serious harm will happen (section 4A QBCC Act).  For the most part, it is not something that happens overnight, as there is a process of procedural fairness to be followed, this includes providing the opportunity to provide information, evidence and make submissions.  Any opportunity given by the regulator to engage should never be ignored.

Failing to provide financial records when requested is an offence and will result in suspension.  It is not a reasonable excuse to say that the information you are being asked to provide might incriminate you.

(1) This section applies to a licensee if—

(a) the licensee is selected to be audited under an approved audit program; or

(b) the commission is satisfied, because of information received by the commission, there are reasonable grounds for concern that—

(i) the licensee does not satisfy the relevant minimum financial requirements; or

(ii) the licensee is not, or has not been, complying with the provision of an Act mentioned in section 50A(1).

(2) The commission may give a written notice to the licensee requiring the licensee to give the commission copies of, or access to—

(a) the financial records described in the notice; or

(b) the documents described in the notice that relate to the licensee’s obligations under the provision of an Act mentioned in section 50A(1).

(3) The written notice may describe only—

(a) the financial records of the licensee the commission reasonably requires for deciding whether the licensee satisfies the relevant minimum financial requirements; or

(b) the documents the commission reasonably requires for deciding whether the licensee is, or has been, complying with the provision of an Act mentioned in section 50A(1).

(4) The licensee must comply with the written notice within 21 days after the licensee receives the written notice, unless the licensee has a reasonable excuse. Maximum penalty—100 penalty units.

(4A) It is not a reasonable excuse to fail to comply with the written notice that complying with the notice might tend to incriminate the person.

(5) Also, if the licensee does not comply with the written notice within 21 days after the licensee receives it, the licensee is taken, for section 48(1)(h), to have contravened a condition imposed under section 36 on the licensee’s licence.

Lesson 4.3 Why you should pay attention?

There is nothing more effective at bringing a project to a grinding halt then the suspension or cancellation of the contractor’s QBCC licence.  In Queensland, an entity cannot carry out building work unless it holds a licence which means that:

  1. during any period of suspension, works on all projects being undertaken by that entity must stop; and
  2. following any cancellation, usually, principals will hold grounds to immediately terminate the contracts in existence.

Depending on your company and your contracts, ramifications of suspension or cancellation can include:

  • termination of all of your contracts on foot;
  • loss of reputation;
  • halting of credit entirely;
  • legal claims for damages against you for breach of contract;
  • no ability to make any claim for payment during the period of suspension, meaning cashflow is turned off;
  • no building work whatsoever can be performed at any projects;
  • stress, anxiety and fear that your company may never trade again; and
  • administration, liquidation and exclusion for every one of influence in the company from ever running a construction company again.

Lesson 4.4 Suspension or cancellation of your subcontractor’s licence

Not my problem – is actually your problem

Suspension or cancellation can also be a major problem if your subcontractors are on the receiving end of a notice from the QBCC.  For example:

Imagine your project is 2 months behind, liquidated damages are accumulating at $10,000 per day, and your formwork subcontractor receives a notice of suspension of its licence.  The director of the company calls to tell you his guys won’t be on site tomorrow.  You need the formwork done this week or the entire job will stop.  Getting in anyone else at this stage will involve flying in a new team who will take 3 weeks to mobilise.  Clearly, your subbie’s problem is very much your problem.  Your subbie tells you not to worry, they have a family friend lawyer working on it.

It’s time to worry

Your worst-case outcomes could look something like this:

  1. Your subcontractor brings an application in the Civil and Administrative Tribunal for a stay of the decision to suspend its licence. All signs are that the stay will be successful, and work can commence in time.  You sign up the subbie on the next project which needs to start next month.  The application takes a week to be listed and is ultimately unsuccessful.  The licence remains suspended.  The week grace you had before the formwork needed to come down is spent on the time waiting for a hearing and the assurance you had that the suspension would be lifted by the Tribunal is worthless.  During the week your liquidated damages have grown by $50K and an alternative is still 3 weeks away because you were convinced that the suspension would be lifted just in time for the formwork to come down.  You press the green light on mobilising the B team, terminate the contract with your subbie, incur another $40K in cost to move the B team into the project.  The day the B team starts, the regulator sends you a letter to give you notice of a complaint being made that you have engaged in unlicensed contracting.  Entering into a new contract while the licence was suspended is an offence for which you are issued a fine.  The B team costs are three times as much as the original contract.  Your client is losing sales every day because of the delay and after 8 successful projects vows to never work with you again.
  2. Your subcontractor attempts to co-operate with the QBCC and proceed to provide, with its new solicitor’s assistance, evidence that it can meet the MFR for a category 7 licence. Unfortunately, the financials provided are materially different to the last financial information provided to the QBCC and in the last month, the QBCC has received 3 monies owed complaints and a supplier of the subcontractor served a statutory demand on the accountant of your subbie, it expired and an application to wind up the company has been lodged in the Supreme Court.  The licence is immediately suspended.  You receive 10 subcontractors’ charges which require you to freeze any funds payable to your subbie for the benefit of those still owed money further down the chain.  Your contract is terminated, and your client sues you and you are joined in the proceeding filed by the 10 subcontractors looking to protect their charge.  You spend the next 6 years in legal proceedings.

Lesson 4.5 Suspension and cancellation – a before and after analysis

Suspension or cancellation on the basis of a failure to satisfy the financial requirements for licensing is not a new concept.  By looking to the past we can make better decisions about the future, so in this module we will unpack 2 case studies.

Module 4 – Case Study 1

Hit a Home Run – Before Case Study

Home Run Projects Pty Ltd had its builder’s licence suspended on 12 October 2017 on the basis that it did not satisfy the QBCC’s financial requirements.

Home Run had the assistance of an accountant.

An application was made to the Building Tribunal for a stay of the QBCC’s decision to suspend the licence.  An application for a stay has the advantage of allowing the company to continue to trade.  In the application to the Tribunal, Home Run stated that the director’s laptop had been stolen and that a stay was needed only for 21 days to allow the company to lodge the required documents with the QBCC.

The financial information given to the QBCC on 17 June was given by the accountant.

Before the suspension was put in place:

  • In May 2018, the QBCC asked Home Run to provide specific financial documents and information.
  • After that information was provided, the QBCC advised it was inadequate.
  • In August 2018, Home Run provided more information to the QBCC which the QBCC determined was also inadequate.
  • On 27 August 2018, the QBCC gave notice of its PROPOSAL to suspend the licence.
  • On 19 September 2019, the Director of Home Run reported to police that his computer, tablet and iPad had been stolen.
  • The application for a stay was first made on 15 October 2018 and the decision of the Tribunal was handed down on 12 March 2019, some 5 months later.

Home Run produced to the Tribunal:

  • a spreadsheet setting out payments received over the period 6 July 2018 to 7 December 2018; and
  • invoices rendered by it from 13 July 2018 to 4 December 2018.

Home Run filed what the Tribunal called “selective information” but still not the information originally requested or anything that demonstrated MFR compliance.

The Tribunal considered that the company did not meet the MFR and would be unlikely to win in its case and therefore the stay was refused.  In other words, the result being that the suspension was not lifted.

Home Run Case Study Lessons for you to take away:

  1. It is your licence that is at risk, not your accountant’s licence. You must take responsibility for answering the QBCC’s requests.  Yes, you should seek expert support but don’t leave your fate in the hands of others.  Take an interest.  Be active in working with the QBCC.
  2. Don’t think or act like it will never happen to you.
  3. Once the decision is made, it is difficult to get a decision from the Tribunal quickly. Here, it took 5 months just for the stay application to be determined. If this was your company, you could not afford to sit for 5 months with no licence.
  4. You must comply with the financial requirements for licensing. You cannot simply provide to the QBCC or the Tribunal what you consider demonstrates financial health.  What you think does not matter, compliance with MFR does.
  5. My “computer was stolen”, even when true, is about as effective as “the dog ate my homework”.

Module 4 – Case Study 2

After Case Study – Lessons from Laing O’Rourke

The most high-profile suspension of 2019 was that of Laing O’Rourke.  It lasted on 5 days but it is a lesson to all licensees that compliance is not negotiable and that you are not too big, too small or too high profile for the QBCC to fail to act on its legislative obligations.

On 8 March 2019, the QBCC suspended the licence of Laing O’Rourke Australia Construction Pty Ltd for failing to satisfy the MFR. In an article in “The Urban Developer”, it is stated:

“The contractor’s licence was revoked after an 11-month investigation revealed that the company’s operation in Queensland presented “a serious risk of financial harm to the sector”.

QBCC commissioner Brett Bassett said that the company wasn’t meeting Queensland’s minimum financial requirement laws.

“The company was given a show cause notice and provided updated information, however it failed to show how the company was operating within the law, and with allowable asset levels,” Bassett said.

“[The] company is operating outside its allowable annual revenue limit and this presents a serious risk of financial harm to the sector”.

In a press release, Laing O’Rourke strongly disputed the action taken by the QBCC, stating:

“Laing O’Rourke strongly disputes today’s QBCC decision. We are appealing this decision and seeking an urgent reassessment to have this matter resolved. The business maintains a strong financial position with independently audited accounts, which have been signed off in accordance with Australian accounting standards. Whilst a loss was published in June 2018 for the 2017/18 financial year, this related to an increased investment in tendering and a small number of legacy projects. The business has no outstanding creditors, a strong cash position and continues to operate profitably, holding building licences in all other jurisdictions across the country.”  

On 13 March 2019, the QBCC lifted the suspension on the company’s licence but imposed the following condition:

“The Company is required to provide internal management accounts to QBCC for each month end, commencing 31 March 2019, by close of business on the 14th of each month, until the Company’s externally audited accounts for 31 March 2019 are provided to QBCC.”

In response, Laing O’Rourke stated in a press release:

“Laing O’Rourke has undertaken internal restructuring to better demonstrate our asset base to the QBCC.

We have also demonstrated our improving business profitability, achieved through increased productivity and project performance.

Our business maintains a strong financial position and of course we have independently audited accounts.  We have no outstanding creditors, a strong cash position and we continue to operate profitably.”

The QBCC has indicated that they will be taking a facilitatory approach with licensees in categories SC1 to Category 3 throughout 2020.  This should not be taken as an indication that action need not be taken.  It should also be anticipated that where there are complaints from subcontractors about not being paid, unfavourable adjudication decisions or court actions the facilitatory approach may subside.

Not intended as legal advice. Read full disclaimer.