Property developers beware! Accreditation under new regulations might be on the horizon

Triggered by an 18-month study that commenced on 13 November 2021, an independent Developer Review Panel (Panel) was appointed under the Queensland Building and Construction Commission Act 1991 (QBCC Act) to review the role of property developers in Queensland's building and construction industry. Just like builders, developers have a large influence in the industry. They can set the tone of projects, influence safety, security of payment, solvency and building quality in several ways and this influence can be both positive and negative. 

Early this year, the Panel released its Discussion Paper, which was open for public consultation until the latter part of January 2023. Their final report titled "Setting the tone - The role of developers in Queensland's building and construction industry” (Final Report) was released on 9 June 2023 and has now been tabled in the Parliament.

The Final Report contains a suite of recommendations developed by the Panel to promote a more level playing field for the industry (Recommendations). The Recommendations are as follows:

• Recommendation 1 - Establish an accreditation, disclosure and registration framework for developers.
• Recommendation 2 - Improve industry education.
• Recommendation 3 - Clarify developer responsibilities in relation to non-conforming building products.
• Recommendation 4 - Promote fairness in contracting in Queensland.
• Recommendation 5 - Promote the uptake of digital tools for recording design and construction information.

The Queensland Government is now considering the Panel’s Recommendations.  If adopted, they could have a profound effect on Queensland’s property development industry.

Recommendation 1

The Panel proposes to establish a framework to set minimum standards for developers and increase transparency for various stakeholders (Framework). The Framework will require individuals and corporate entities to obtain accreditation before entering contracts involving Project Trust Accounts (PTAs) under the Building Industry Fairness (Security of Payment) Act 2017 (Qld).

Contracts requiring PTAs includes contracts where at least 50% of the work is “building work” (as defined in the QBCC Act), work performed by engineers, architects or surveyors, electrical works and associated civil work.

Under the Framework, the participating developer would have to submit an application to the regulator for assessment. At this stage, it is not clear whether the Queensland Building and Construction Commission (QBCC) will assume this regulatory role or whether the Government will establish a new regulatory body to fill this role. Considering the regulatory burden that is already on the QBCC, the latter might be the more practical approach.

For the purposes of the review, the Panel “defined a developer as an entity that:

• causes construction activity to be carried out
• for the primary purpose of improving the value of property, and
• in which the entity has an interest”.

The Panel acknowledged that this is a wide definition and would capture many different types of developer, not all of whom should be caught.  As a result, the Panel aimed many of its Recommendations at “accredited developers” (i.e. those who would need to be accredited if Recommendation 1 is adopted because they are entering contracts involving PTAs).

In addition to the necessary qualifications to be eligible for accreditation, a developer must meet the “fit and proper” threshold. To be “fit and proper”, a developer must not entered into insolvency or administration, not committed a serious criminal offence or certain regulatory offences, and not been refused of QBCC licence or had their QBCC licence cancelled, within the past five years.

If a developer is a corporate entity, the “fit and proper” test applies to all person of influence (POIs) – it is not clear who those would be, but we think it would be decided on a case-by-case basis and probably at least includes the company’s executive team.

Associated entities and special purpose vehicles (SPVs) of a developer will be included under a single accreditation application. If successful, that accreditation can then cover SPVs that the entity forms.

Upon accreditation, relevant details of the developer will be publicly accessible via a register established and maintained by the regulator to enhance transparency. The Panel recommends holding accredited developers to the same standards aa other regulated professionals and imposing a code of conduct that encompasses issues such as unreasonable tendering, project timeframes, and documentation practices.

To establish accountability for accredited developers' conduct, the Framework includes measures to ensure compliance with ongoing requirements, with disciplinary action and potential accreditation cancellation as consequences for non-compliance. The licensing regulator is authorised to conduct audits, address complaints, and investigate instances of non-compliance, applying penalties and disciplinary actions, when necessary, which vary from warnings and demerit points to temporary suspension or complete cancellation of accreditation. Accredited developers are also obliged to notify the regulator of any changes to its associated entities and SPVs.

Additionally, accredited developers must disclose certain information to head contractors before entering relevant contracts. This includes providing a declaration of appropriate financial capacity, fitness and propriety of SPVs, and compliance with accreditation requirements. Arguably this measure by itself, if adopted, could reduce perceived poor behaviour amongst property developers by ensuring that only those who are serious about remaining in the industry would take the time and effort to comply.  Failure to fulfil these disclosure obligations may lead to investigations and potential disciplinary action against the developer. 

Recommendation 2

Recommendation 2 includes "minimum" educational requirements and compulsory continuing professional development (CPD). Accredited developers are expected to maintain records of their CPD courses and hours, and they may be subject to potential audits by the regulator. Similar schemes are already operated for other professions in the industry, including Registered Professional Engineer of Queensland and lawyers.

The lack of educational requirements for developers has been linked to issues in procurement, contracting, risk allocation, ethics, legislative compliance, and handover practices. By imposing educational requirements, the Panel aims to address alleged issues related to substandard conduct by developers. A transitional period is proposed to allow developers to meet the initial education requirements, with ongoing CPD requirements thereafter.

While further consultation is required to determine the appropriate quantum of CPD hours, the Panel recommends 2 to 10 CPD hours per year, provided the courses are fit for purpose. Like other regulated professionals, the educational requirements would probably have to be provided by key industry operators such as the Property Council of Australia and the Urban Development Institute of Australia.  

Recommendation 3

The Panel recommends clarifying the QBCC Act to ensure developers are explicitly included in the chain of responsibility for non-conforming building products (NCBPs). While the Government passed amendments to the QBCC Act in 2017 to establish a chain of responsibility regarding NCBPs, the extent to which developers are to be held responsible (if at all) has remained unclear.

Considering the power imbalance between the developers and contractors, and the influence and control over building design and construction decisions that developers often hold, it is not unreasonable to include developers expressly in the chain of responsibility. This has the potential to promote consistency across the development industry, improve standards, and eliminate (or reduce) contracting practices that place unreasonable risks on contractors.

The Panel also suggests further investigation into whether the existing QBCC Act provisions regarding executive officer liability are sufficient to prosecute offences committed by responsible individuals in a corporate entity if the entity or SPV no longer exists. Further, the Panel suggests that the regulator consider NCBP breaches as grounds for disciplinary actions. That is, if accredited developers or their executive officers commit offences, the regulator may reprimand them or cancel their accreditation.

Recommendation 4

The Panel also recommends amending the QBCC Act to include developers expressly in the ‘fairness in contracting’ provisions. The Government already addressed this in 2017 by introducing ss 67GA and GB in the QBCC Act. These sections allow for the regulation of mandatory and prohibited building contract conditions. “[M]andatory” and “prohibited conditions" are void, and it is an offence to enter into a contract that includes them. However, it has not been clear that these provisions apply to developers too, which arguably has allowed the unfair risk transfer to continue, and maybe contributing to unprecedented levels of contractor insolvencies in the industry.

Being at the top of the contractual chain, developers often have the power to control contract terms and conditions. Anecdotally developers sometimes apply commercial pressure and impose short negotiation periods, leaving counterparties with limited time and resources to review contracts properly. As a result, contractors can enter contracts without fully understanding the associated risks or they can choose not to undertake the work at all. Contractors identified unfair provisions such as onerous time bars, unreasonable indemnity clauses, and unreasonable preconditions to practical completion.

To resolve these issues, the Panel believes it is necessary to include developers explicitly in the fairness in contracting provisions of the QBCC Act. Furthermore, the Panel suggests that industry collaboration, similar to the United Kingdom's Society of Construction Law's Delay and Disruption Protocol, could lead to the development of additional protocols to address complex issues. If these protocols prove effective, they could potentially be included as mandatory terms in the future.

Recommendation 5

Lastly, the Panel recognises the ongoing need for modernisation and recommends the Government takes a leadership role in implementing a robust digital scheme for capturing building and construction-related information. For instance, the implementation of Building Information Modelling (BIM), a centralised and accessible digital platform that allows multiple stakeholders, including architects, engineers, contractors, and facility managers has been successful.  It allows parties working on major infrastructure projects to work simultaneously on a 3D model of the structure and access and update relevant information in real time.

The construction industry has been relatively slow to take up the opportunities offered by digital disruption, perhaps because the industry has had so much else to handle in the last few years.  With the potential to streamline construction management, and building maintenance, resolve documentation gaps, and empower investors and consumers to make informed decisions based on compliance and product information, it is no surprise that there is strong support from the relevant stakeholders when it comes to the utility of digital tools in the industry. The question is though, where the money to implement this uptake will come from?

Also, appropriate digital tools must be available, and must be fit for their intended purpose and also prioritise privacy, security, and the safety of building users. In other words, there is a lot of potential out there but query how much of it is practicable and scalable?

Conclusion

The Recommendations address issues that are well-known in the industry and have been for a long time. The question is whether these reforms, if adopted, will make any difference in practice?

While these may add complexity and costs to the developers, implementing the Recommendations in the industry could arguably foster transparency, accountability, and improved standards. However, the Recommendations, particularly Recommendation 1, is meeting some resistance from key industry players such as the Property Council of Australia. Their view is that there is no problem that needs fixed so the Framework is unnecessary. However, is this missing the point?

Members of the public might be quite surprised to learn that in 2023, in a heavily regulated industry like construction, developers do not need to be educated in construction or to meet any minimum standards or have any qualifications.  To them and maybe other regulated professions, these Recommendations might seem like a good idea. They are certainly a standard to aspire to and we should not wait until there is a problem to fix before we consider implementing the Recommendations in the industry.

The other question is of course timing.  It will take months or years to implement the Recommendations if the Government decides to proceed.  Given the state of the construction industry today, Recommendation 1 by itself has the potential to further dampen the already dampened property development activities, which could worsen the current market (including housing supply).  It would probably add cost and time onto major developments in a market where rising materials costs, rising interest rates and a serious skills shortages are already making many developments unfeasible.  But is that a good enough reason to reject Recommendations that might make the industry safer, more transparent, and maybe even fairer?