Developers Warned as Contractor Loophole Closure Delayed

The Queensland government has postponed the closure of what many see as a loophole licensing exemption misused by contractors to enter into construction contracts and carry out building work in the state without being properly licensed.

The licensing regime for carrying out building work in Queensland is notoriously the country’s most draconian.

The consequences of falling foul of the prohibition against carrying out building work—or even entering a construction contract—without a licence issued by the Queensland Building and Construction Commission (QBCC) can be dire.

They range from a fine to a complete prohibition against receiving payment for carrying out unlicensed building work.

There are a small number of exemptions to the requirement to hold a QBCC licence—one in particular has been criticised for permitting entities who would ordinarily require a QBCC licence to avoid the need to hold one.

The head contractor exemption in the QBCC Act provides that if a person or entity subcontracts out the whole of the building work to properly licensed subcontractors, that person or entity enjoys an exemption.

For developers, the exemption can be a double-edged sword.

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It permits flexibility in procurement structures, such as project delivery agreements. Under such agreements, often an unlicensed development entity contracts with another to deliver a development, but also exposes developers to risk where unlicensed main contractors misuse the head contractor exemption.

In either case, the loophole will remain open for another 12 months, so contracting parties should exercise caution both in terms of their own licensing status and those they contract with.

Introduced in 2013, the head contractor exemption was introduced largely in response to concerns that development entities which would contract with the state for the delivery of the 2018 Commonwealth Games infrastructure were developers or special-purpose vehicles that were unlikely to hold a QBCC licence.

The head contractor exemption is often relied on by contractors who have been caught out for failing to hold a QBCC licence in order to deliver significant design and construct projects under the relevant head contracts.

In July 2020, the state government passed legislation which in effect abolished the head contractor exemption. The provisions of the legislation which removed the head contractor exemption were due to commence on July 24, 2021.

However, prior to the slated introduction date, the government postponed the removal of the head contractor exemption for a further 12 months to July 24, 2022, ostensibly to permit further industry consultation.

Authors

Andrew Kelly

Partner, Thomson Geer

Thomas McKillop

Special Counsel, Thomson Geer