Developer Review Panel recommendations09 December 2022
Following the release of the 2017 Queensland Building Plan, along with its 2021 update, recommendations were made to the Minister, which included undertaking a review of developers. Consequently, the Minister appointed an independent Developer Review Panel (Panel) to complete the review, taking into consideration the impact of developers’ financial and operational capacity, ethical behaviour and work practices. The Panel’s main task is to identify practices and behaviours of developers that contribute to non-payment and insolvency in the industry; as well as consider the impact developers have on the quality and safety of design, construction and certification of buildings.
Since the Panel was convened in November 2021, key industry stakeholders have provided recommendations for improvement. The Panel recently published a Developer Review Discussion paper, which canvasses the issues raised to date and provides preliminary recommendations. The Panel is currently accepting submissions, which will close on 16 December 2022, in response to the recommendations made. Submissions received by the Panel will go towards a final report to be presented to the Queensland Government. Some of the key recommendations currently put forward to the Panel are set out below. It is important to note that the options reflect suggestions that have been raised with the Panel to date and do not represent the Panel’s view or Government policy.
For more information, you can find the Developer Review Panel - Discussion Paper here.
Developers are not currently licensed. A licensing scheme for individuals/corporations carrying out development activity has been recommended. The scheme may have similar entry requirements to the Queensland Building and Construction Commission (QBCC) licensing framework for contractors, including qualification, experience and whether fit and proper to practice. Implementation of a licensing regime would mean that developers would be subject to higher standards of conduct and competence, particularly in relation to minimum financial requirements. It is proposed that licensees must have a financially sustainable business and appropriate level of working capital as part of the fit and proper requirement. Additionally, developers would undergo a historical check of security of payment issues. The implication of a licensing regime would mean that contractors and subcontractors are also at less risk of non-payment and insolvency.
Developer ranking system
This recommendation is based off the current iCIRT (independent Construction Industry Ratings Tool) rating system, recently introduced in NSW for medium-high density residential developers. The proposed system would be similar to the iCIRT system and rank developers on a prescribed list of principles or behaviours, which would be available to the industry and public to review before deciding to engage a developer.
To promote improvement in the financing stages, the Panel is considering increasing the level of disclosure from a principal to a head contractor before entering a contract for development. The type of disclosure would include information such as the level of experience and level of financial capacity. However, the Panel is also considering whether it would be fair and reasonable for a developer to have compulsory disclosure arrangements. Disclosure arrangements will assist in improving understanding by counterparties of the risk they are taking on.
Expansion of project trust accounts
Another option put forward to the Panel to improve the finance stage of the contractual chain is to expand project trust account requirements to developers to quarantine funds for particular projects. This reduces the ability for developers to use projects funds for alternative purposes and enhances transparency and certainty between head contractors and other parties in the contractual chain.
The Panel consistently heard that current tendering practices are highly competitive with short time frames. It highlighted that most of the industry stakeholders that were interviewed reported that a 25-30% tendering conversion rate was deemed to be good practice. This raises immediate questions about the quality and capability of tendering consultants and practitioners. Therefore, an option to introduce minimum standards to tendering mechanisms was put forward to the Panel. Alternatives to hard tendering were also recommended by industry players such as promoting early contractor and subcontractor involvement in the design process for tenders.
Expand ‘fairness in contracting’ laws
During the contracting stage, one key issue raised was that contracting parties are not aware of the risk transferred to them. Contracts are often drafted to shift risk downstream, with unfair contract terms, unreasonable time bars, power imbalances, truncated project timeframes; all placing downward pressure on building quality and safety. Expanding legislation that mandates and prohibits unfair contract terms to include developers would ensure that the prescribed requirements, restrictions and penalties also apply to them.
Power to suspend construction work
As outlined throughout this paper, payment practices within the construction industry is a consistent theme that requires a streamlined response. Hard costs incurred by parties are at times not certified and available to be paid. This appeared to be a common issue within the Panel’s discussions and constitutes non-payment. The power to suspend construction work by head contractors was an option put forward to the Panel if there has been non-payment of progress claims by a developer. This also relates and is interchangeable with other options put forward, such as licensing, disclosure arrangements and the expansion of project trust accounts.
Extend the chain of responsibility to developers and certifiers
Queensland’s non-conforming building products (NCBP) legislation (Part 6AA of the QBCC Act) does not include developers or certifiers. The legislation is worded so that a person is in the ‘chain of responsibility’ for building products if they design, manufacture, import, supply or install the building product. This would expand the extent of liability and risk allocation to include developers and certifiers, promoting accountability and due diligence. This assists all parties in understanding counterparty risk, requiring due diligence to flow down the contractual chain.
This option involves introducing insurance for consumers, such as owners of residential apartment buildings, who experience defects post-completion. This means an insurance scheme such as decennial liability insurance (currently being implemented in NSW), which means that buyers will have more confidence in purchasing residential apartments and buildings and limit the exposure they face.
Dispute resolution reforms
The Panel reported that adjudication and dispute resolution processes were underutilised and most of the construction industry rely on contractual arrangements rather than existing regulatory arrangements to recover money in disputes. It heard and noted that industry players find the dispute resolution process difficult to understand and there were perceptions of bias, in that some subcontractors thought that they may be penalised on future projects. Thus, the options put forward were that a review of the current processes be undertaken and to investigate alternative dispute resolution services.
The Panel has reported that it received close to 500 pages of information and submissions made by interviewees, indicating a huge reform within the construction industry involving developers, is on its way. It will be looking closely at elements such as the consequences of any of the options, which will then be balanced against the outcomes achieved. The Panel will be taking market fluctuations into consideration and will be looking to establish practices that are sustainable throughout market fluctuations. It will also be paying close attention to enhanced market attributions, such as iCIRT. The Panel has advised that upon the provision of its report to Government, Government-led changes will be introduced using regulative approaches.