A government-initiated review of the role of developers in the building and construction industry in Queensland has concluded with a suite of recommendations set to significantly impact the way developers do business if accepted by the Queensland government.
Read on for a discussion by partner Kristy Dorney highlighting the review panel's report and what happens next.
WHY ARE DEVELOPERS BEING REVIEWED?
Builders, contractors, and subcontractors operating in the Queensland building and construction industry are subject to a robust legal framework, focused primarily on securing payment for services, ensuring quality and safety of designs and minimising defective workmanship. The legislation applies to contractors and subcontractors, but also extends some obligations and protections to landowners and developers engaging builders and contractors.
In late 2021, the Queensland government convened a panel, tasked with reviewing the role developers play in the building and construction industry. The review came on the heels of a formal review of the existing regulations where a few submissions loosely pointed the finger at 'developers' as the cause for some issues builders were said to be facing.
Developers have historically been subject to regulations designed to protect consumers in the development industry, for example the introduction of disclosure obligations, a past licencing system (under the now repealed Property Agents and Motor Dealers Act), cooling off periods, and automatic rights of termination. However, there has been a developing shift toward attaching building and construction risk to developers in addition to the builders and contractors they engage.
It is a curious approach given, in the building and construction industry, the developer takes the role as consumer of the builder's services, relying on the expertise and regulation of the builder to deliver a safe and fit for purpose building. The justification appears to arise by viewing the developer not as a consumer of building services offered on a free and open market, but as akin to an employer of services who dictates the price paid and can influence the overall behaviour and performance of the builders it engages. We are not convinced this reflects the way the building and construction industry operates in practice.
Nevertheless, the 2022 developer review has continued in this same vein. The core activity of the panel for the last 12 months has been data collection, principally the collection of anecdotal stories about the practices and role of developer's engagement with builders when undertaking building and construction projects.
Significantly, there was no explanation as to the meaning of 'developer' in the context of the review and why developers were under review as opposed to any other category of principal engaging a contractor under a construction contract.
WHAT IS THE OUTCOME OF THE DEVELOPER REVIEW?
The review has culminated in a formal report (Panel Report), including five recommendations, handed down to the Queensland government in June this year. The government must now consider these recommendations and determine which, if any, they will pursue. The government is not bound to accept any of the recommendations, and financial feasibility of the options is likely to play a large role in determining where we go from here. No time frame for completion of this step has been indicated.
For now, the following key points and observations arise from the Panel Report:
Purpose
1. No significant or systemic problem or behaviour of developers has been identified in the Panel Report to support introduction of the recommendations. At best, it is observed developers 'influence' the industry and 'set the tone' of projects.
2. Matters relied upon to support recommendations appear largely already within the control of builders and contractors themselves or protected by existing legislation.
3. Notwithstanding this, the recommendations seek to present "a benchmark for a better standard for developers in Queensland".
Wide application beyond developers
4. The recommendations are founded on the introduction of an accreditation, disclosure, and registration framework. Certain developers will require accreditation before they can contract with a builder and will face monetary penalties for failure to do so.
5. Although the Panel Report refers to 'developers', the recommendations are in no way limited to the participants any industry would typically understand to be a developer (think-businesses procuring and delivering new assets; residential apartments, flat land, new retail, industrial or commercial builds).
6. A developer is said in the Panel Report to be anyone causing construction activity to be carried out for the primary purpose of improving the value of the property.
7. Developers will only require accreditation if the contract they propose to enter into is subject to the project trust account (PTA) regime currently being introduced in Queensland. Whether a PTA is required (and therefore whether accreditation is required) is likely to rise and fall on little more than the value of the construction works. At present, the PTA framework captures construction contracts in the private sector valued at $10 million and over. By October 2025, this threshold will reduce to $1 million.
8. The wide definition of developer means, on the terms of the current recommendation, most principals and landowners engaging a contractor to undertake works (of any nature, not limited to what is commonly understood to be development works) at a cost of $1 million or more will be required to apply and qualify for accreditation before they sign the contract. Failure to do so will constitute an offence with monetary penalties expected.
Accreditation of developers
9. Accreditation will require the developer and 'persons of influence' to the developer (POIs) to meet and maintain a fit and proper person test. Persons will not meet this test if, within the preceding five years, they have entered into insolvency or administration or committed a serious criminal or other offence. A cancelled or rejected Queensland Building Construction Commission (QBCC) licence will also rule them out.
10. Once accredited, it is proposed a code of conduct and specific legislative requirements will then apply with discipline and offence provisions.
Mandatory education and continuing professional development of developers
11. The Panel Report recommends developers be required to undergo mandatory training, initial and then continuing, around matters such as risk management and the triggers for project failure, procurement practices and good tendering practice, financial management, risk allocation and fairness in contracts, safety, ethics, and legislative requirements.
Disclosure and registration
12. It is recommended developers be required to give pre-contract disclosure to establish they have appropriate finance to complete the proposed contract and current accreditation.
13. Establishment of a public, searchable register of developments is recommended, where each development activity undertaken by an accredited developer will be registered, including relevant identifying information such as the real property description and development application number.
CONCLUSION
The Queensland government was quick to respond to the Panel Report to confirm it had not committed to implementing any of the recommendations and would undertake its own analysis, including cost and benefit, before proceeding with any recommendations.
In our view, the starting point for the Queensland government must be identifying the category of 'developers' it intends to regulate and why. The Panel Report oversteps its terms of reference to the extent it seeks to require all persons wanting to hire a builder to undertake works of $1 million or more to first undertake training and secure accreditation.
However, in order to identify a narrower class of developers, the Queensland government must first identify an issue or systemic wrongdoing on the part of those developers which requires regulatory intervention and control. It is here the Panel Report stops short.
In the meantime, developer industry body the UDIA has proposed introduction of a voluntary industry-led code of conduct as a viable alternative which it understands the state government is considering in conjunction with the Panel Report recommendations.
For now, we await the government's response.