Back with a vengeance … Queensland’s head contractor exemption lives to see another day (for now)

April 4, 2022

Queensland’s head contractor licensing exemption is likely to remain after plans to abolish it appear to have been scrapped.

The exemption, which allows unlicensed head contractors in Queensland to perform building work if they subcontract the work to a properly licensed subcontractor, had been due to be abolished on 24 July 2022.  However, a recently introduced Bill amending the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act) effectively reinstates the Head Contractor Exemption, and amends regulations requiring only limited classes of head contractors to obtain a licence (for example, those who engage in high-risk work).

What it means

Assuming the safe passage of the Bill, the status quo will persist, and unlicensed developers and builders will be permitted to deliver building work provided it is carried out by appropriately licensed contractors.

Developers and head contractors will need to stay alive to the introduction of more certainty around the definitions of what is high-risk work to ensure that the protection afforded by the Head Contractor Exemption does not fall away in certain circumstances.

The Head Contractor Exemption – a brief history

Ordinarily, section 42 of the QBCC Act provides that, unless exempt under schedule 1A, a person must not carry out, or undertake to carry out, building work unless they hold an appropriate licence.

Since December 2013, head contractors in Queensland that are unlicensed to perform building work have been exempt from the requirement to hold a licence, provided they subcontract that building work to a properly licensed subcontractor.

The Head Contractor Exemption essentially allows anyone without a licence to procure building work, provided that the subject work is commercial and is undertaken by appropriately licensed contractors.  It is also well-known that the exemption is widely used through various complex business models and transactions in a range of industries where building work is procured, such as civil contracting.

As recently as 2020, the Head Contractor Exemption was repealed by section 125A of the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Act 2020, following a recommendation made by the Transport and Public Works Parliamentary Committee relating to alleged misuse of the Head Contractor Exemption.

On 8 July 2021, a postponement regulation was made to extend the automatic commencement of the abolishment provision from July 2021 to 24 July 2022, following further stakeholder feedback and to allow a smooth transition to the new requirements.

However, the introduction into Parliament this week of the new Bill seeks to reinstate the Head Contractor Exemption.  Despite the reinstatement, the amendment provides that the Head Contractor Exemption will not apply in cases were head contractors are undertaking high-risk work such as fire protection and mechanical services.  There is currently no definition in the QBCC Regulation of what is classified as high-risk work.

Complementary amendments to the Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) will also be made to ensure retention trust account protections apply to the majority of subcontractors in contractual scenarios involving the Head Contractor Exemption.

Head Contractor Exemption or no Head Contractor Exemption?

Those opposed to the Head Contractor Exemption argued that the original reasons for the exemption were no longer justified as a result of further specific exemptions being enacted since the Head Contractor Exemption came into effect.  These further exemptions have ensured special purpose vehicle participants in Public Private Partnership (PPP) delivery models and participants in prescribed government projects were not in breach of building licencing laws by undertaking to carry out unlicensed building work if they were otherwise contracting downstream with a properly licenced contractor.

Subsequent consultation has revealed reliance on the exemption in commercial contracting, including development agreements, agreement for lease, and numerous projects and contracts that involve a minor element of building work. If the Bill is passed, such businesses would likely face increased administrative and cost burdens to undertake work which is ancillary to their business.

Concerns remain

The main concerns that remain regarding the existence of the Head Contractor Exemption are that:

  • the Head Contractor Exemption may allow entities to circumvent Queensland’s licensing system, including the minimum financial requirements and security of payment protections; and
  • when unlicensed persons or entities assume the role of head contractor, they may not have sufficient skills and experience to administer and manage the procurement of building work, particularly in complex projects or high-risk work that impacts life and safety, such as mechanical services or fire protection.

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