Legislation update

Minimum Financial Requirements in the Queensland building and construction industry

By Blake Frost / 24 September 2018

Key issues

  • New discussion paper has been released
  • It discusses new financial requirements for licensing in the building and construction industry
  • This is of particular importance for QBCC licence holders

A discussion paper has now been released titled “The proposed improvements to the Minimum Financial Requirements for licensing in the building and construction industry” (Discussion Paper). For anyone who holds a QBCC licence, this is a must read.

The Discussion Paper can be found here on the Queensland Government, Department of Housing and Public Works website. 

What has changed?

Whilst nothing has changed yet, the Building Industry Fairness (Security of Payment) Act 2017 (Qld) now allows for the Minimum Financial Requirements (MFRs) to be prescribed by regulation and this Discussion Paper identifies a number of future changes.

Why do the MFRs need to be improved?  

The key reason cited in the paper is the impact of ongoing insolvencies.  

One view is that, with the impact of project bank accounts yet to be realised and increased security for contractors (including subcontractors and suppliers) provided through the Ipso-Facto reforms, it will be interesting to see what further protections can be afforded to the industry through revised MFRs, without imposing further administrative obligations on parties already concerned about the raft of reforms about to hit.  

That said, for those who have been impacted by insolvency in the building and construction industry, the Discussion Paper represents welcome reform.

What are the proposed changes?

There are five ‘key areas’ of change are:

1. Introducing risk-based, targeted annual reporting requirements

The rationale is that, if the QBCC has access to more detailed financial information sooner, the effects on subcontractors, suppliers and consumers may be mitigated (see Proposals 1 to 5). To ensure that not all licensees are burdened in the same way, there is a risk-based scale proposed which aims to focus increased reporting requirements on those licensees who are at greater risk.

2. Fostering improved accountancy practices that meet the objectives of the MFRs 

This reform seeks to improve the quality and independence of MFR Reports (see Proposals 6 to 8).

3. Ensuring forms of assurance can provide financial security

Deeds of Covenant and Assurance are often used where a licensee does not have adequate Net Tangible Assets (NTA) to justify their level of maximum revenue. This issue is that the covenantor does not always have sufficient net unencumbered assets to satisfy their promise under the deed.  Proposal 9 aims to address this risk by requiring further information about a covenantor’s financial position.

4. Ensuring funds from related entity loans can be readily accessed

To better understand a licensee’s financial position, two alternate proposals are being considered. Either related entity loans are excluded (as part of their NTA and current ratio calculations)(Proposal 10), or if a licensee wishes to include a related entity loan, it must be secured (Proposal 11).  

5. Clarifying definitions and requirements for the calculation of assets

Proposals 13 to 17 aim to improve the standard accounting tests used to improve the reliability of information and better allow the QBCC to make informed assessments about an applicant or licensee’s financial position.

The discussion paper addresses the issues and proposals for each of these five areas in further detail.  

Finally, the Discussion Paper suggests introducing a position obligation for licensees to notify the QBCC when they reasonably become aware of non-payment, and seek to make failure to comply with this obligation an offence (Proposal 18).

What’s next?

There are ‘questions’ contained throughout the Discussion Paper. If you are impacted by the MFR Policy, then familiarise yourself with these questions and consider providing a response. The response paper is a seven page document which is helpfully structured to address all of the issues identified in the Discussion Paper.

Submissions close 5.00 PM on Tuesday, 9 October, 2018 and can be made by downloading the response form (contained at the back of the Discussion Paper) and emailing it to mfr@hpw.qld.gov.au.

If you have any concerns, questions, or would like any assistance to better understand how these reforms may impact you, please contact HopgoodGanim Lawyers’ Construction team.

Authors
Blake Frost
Special Counsel
Blake is a Special Counsel and senior member of our Construction practice.
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