The building and construction industry is heavily regulated by Work Health and Safety (OH&S). On January 1st, 2012 Safe Work Australia began the implementation of a new harmonised national model for Work Health and Safety (OHS). If you are a licensed builder or work for a licensed builder then this impacts you. It would be wise for you to be aware of the changes, and implement the new practices where required.

The best site for information on the new model is:
Safe Work Australia Website

Safe Work Australia has a guide to the new regulations that you can download from their website:
Safe Work Australia WHS Regulations

There are transitional arrangements for the regulations and these have been developed as a set of principles that set out how existing WH&S (OHS) regulations will change and move to the new harmonised system. Again these are available for download:
Safe Work Australia Transitional Arrangements

The changes to the regulations will affect everyone in different ways. In the past there have been different WH&S (OHS) regulations in each state. So depending on which state you reside in the changes may be minor or major.

A very brief recap of the changes that might impact you as a licensed builder or someone working under contract to a licensed builder are:

1. The new act has a broader definition of what is a “worker” and work environments.
2. The new act makes it clear that company officers have a defined obligation to exercise due diligence in relation to duty of care.
3. Unions will no longer have any rights or power to prosecute for an WH&S (OHS) offence. Unions will also have their rights of entry to a workplace redefined for WH&S (OHS) matters.
4. New guidelines will be implemented in relation to employee consultation requirements.
5. Incident notification procedures will be harmonised across all states and territories with strict guidelines for all employers and principle contractors.
6. The role and actions of regulators and inspectors will be made consistent across all states and territories and there will be changes that include a new Code of Practice.

If you are in the industry and haven’t already, then now is the time for a full review of your current policies and procedures. Then consider and implement the changes required to comply with the new Act. The transitional period will be temporary and you could be liable and responsible for the changes.

On January 1 2011 the (ACL) Australian Consumer Law was introduced.

For more information you can go to the Australian Consumer Law Website.

What’s in it?

1. A national law that sets out unfair contract terms, covering standard form contracts.

2. A national law guaranteeing consumer rights when buying goods and services, which replaces existing laws on conditions and warranties.

3. A new, national product safety law and system for enforcement.

4. A national law to regulate unsolicited consumer agreements, which replaces existing State and Territory Laws on door-to-door sales activity and other direct marketing activity.

5. Simple national rules for lay-by agreements.

6. New penalties and enforcement powers and options for consumer redress which will apply nationally.

The ACL will apply on a national level in all States and Territories. It will be applicable to all Australian Businesses.

In summary, it simply means that every consumer now has the same rights across the entire country and that therefore affects the relationship that licensed builders have with consumers in the market. It would be wise for you to visit the government web site and learn more about what the ACL means to you and your business.

Currently every state has slightly different rules. There are rumblings however that much like the recent Harmonisation of OHS Legislation to form a national standard, the Federal and State Governments are discussing the process of creating a similar nationally consistent builders licence qualification.

After all, the Building Code of Australia is a single standard. Engineering qualifications are nationally recognised and the current standard qualifications; Certificate IV in Building and Construction and Diploma in Building and Construction are nationally recognised qualifications.

So what is the likely outcome of a national standard for builders licensing?

Well let’s take a look at the current requirements:

Of those states that are most similar: NSW, Qld, ACT, Tasmania and NT are very close. Licences are based firmly on the two main qualifications being the CPC 40110 Cert IV and the CPC50210 Diploma.

WA has their own specific qualification which is a variation on the Diploma course, and SA has their own which is a variation on the Cert IV.

Victoria does not require a specific qualification in most cases where experience is the more important requirement. However, the Cert IV program is looked upon favourably when it comes time to be assessed for the builders licence application.

The likelihood is that the combination of formal qualifications, trade certification and experience will take the shape of a hybrid between the NSW/ACT system and the Qld system. Why? Because every state, bar one, is already in agreeance that a mandatory qualification is required and they are not going to drop that requirement. So the industry is now planning with that in mind.

If the last 10 years of change is anything to go on… it is not going to get any easier to get a builders licence – anywhere in Australia. If you are in the Construction Industry and plan to obtain your builders licence sometime in the next 2-3 years then the time to prepare is now.

With that in mind we are putting together a series of articles which will delve more deeply into the Certificate IV in Building and Construction and the Diploma in Building and COnstruction program. If you are planning to undertake either of these courses, then be sure to read the articles to help you be preapred for your studies.

Nationally recognised qualifications are coming and we will do our best to help you prepare you for the future.

Problem No. 1: Shortage of qualified trades across many sectors of the building and construction industry.
Problem No. 2: High levels of illiteracy within the building and construction industry.

The industry is saying they need more qualified tradespeople and the federal government is aiming to tighten the English Language Literacy Testing for all inbound skilled migrant applicants. So the tougher testing regime is likely to worsen the growing trade shortage, according to the article.

The Master Builders Australia has responded by submitting to the Federal Government to reconsider these stricter changes to the English Test process amid a shortage of qualified workers in both the construction and mining industries. 

“These new tests will make it almost impossible for migrant tradesmen to enter the country”, according to employers. And they say we need more foreign qualified tradespeople because young Aussies “don’t want to get their hands dirty”.

In the MBA submission to the recent federal inquiry into sustainable population, they have expressed concern about the Government’s move to introduce a much higher English testing standard for prospective skilled migrants from July 1.

“It will make it virtually impossible for most tradespeople to pass the new points test,” said the submission to the Department of Sustainability and Environment inquiry.

William Harnisch, MBA Executive Director, has urged the Government to consider a more balanced approach.

“The level of English competency should really be commensurate with the requirements of the trade or the skill level and shouldn’t necessarily just be university-focused,” he said.

But the opposing argument from Monash University migration expert Dr Bob Birrell said allowing low-skilled workers with poor English into the country was unnecessary.

“The immigration program is supposed to be about skilled workers and we’ve got lots of potential people in Australia who are not gainfully employed who could be doing semi-skilled work,” he said.

Dr Birrell said there was no need to “dilute English standards because many tradespeople could still pass on their work experience and demand for their skills”.

Mr Harnisch said many young people were choosing more “attractive” careers. “Some don’t want to start at 5 or 6 o’clock in the morning, some don’t want to get their hands dirty,” he said.

“That’s a disappointment because the building industry remains a very rewarding and profitable career for young people.”

A spokesman for Immigration Minister Chris Bowen said an independent review had found that English skills were critical to ensuring foreign workers were less vulnerable to exploitation.

“Australia is and will continue to be an attractive destination for skilled migrants, putting us in the enviable position of being able to select the best and brightest from that pool,” he said.

It is interesting that amongst all these points there was no mention of the occupational health and safety risks posed by having people in the building industry having poor english literacy skills. I guess we can sum it up by saying more training across the entire industry, at many levels, is needed to meet the future needs of both the building and construction industry and the mining sector. Stay tuned for more industry and government announcements as they try to tackle it in their different ways.

Occupational Health and Safety impacts the building industry at every point. We are all aware of how difficult it is to comply and in particular how to manage compliance across different state boundaries.

Currently all states, territories and the Commonwealth are responsible for making and enforcing their own health and safety laws. Although these laws are similar in foundation and approach they are different in how they apply in the workplace.

As builders and trades people, how are we affected by these inconsistent laws?

• They cause confusion and frustration because they create opposing environments and safety standards across jurisdictions. 
• They lead to duplication and inefficient work practices that chew up valuable time and resources within our businesses.
• There has been quite a bit of news over the last couple of years about industry calls for greater national consistency in the area of OH&S (WHS). In response the Commonwealth and State Governments have finally agreed on a framework and will implement a nationally consistent OHS (WHS) legislation platform commencing on the 1st of January, 2012.

The model will be one in which the Governments will be responsible for making and enforcing the laws which are set down in the legislation within their jurisdictions. However the laws themselves will be harmonised (made consistent) so that the jurisdiction will not determine the difference in the law.

The benefits to the building and construction industry from the introduction of the Harmonised OHS (WHS) legislation will be positive progress for our industry. Some of these benefits will include:

• A uniform, effective and equitable safety standard and protection system for all workers in the building and construction industry. 
• All jurisdictions will apply the same compliance and regulatory standards so that licenced building companies can operate under one OHS (WHS) system regardless of the jurisdiction. 
• The interaction between government agencies and the building industry will be more efficient and consistent. 
• There should be a significant and continual improvement in workplace safety within the building and construction industry, resulting in lowering incidents of injury and death on our work sites.

We will continue to cover this in more detail in coming months as we lead up to the introduction of the legislation framework in early 2012.

For more information visit the QLD Govt Website that sets out the Harmonisation process in more detail. 

There are many other sites (Govt and Non-Govt) that are putting information out there into industry sectors. Please seek out this information and begin planning for the new rules. Your business will benefit.

If you or your staff need specific training in Occupational Health and Safety then please contact us or visit Cert IV in Occupational Health and Safety.

PSI – Are You Caught?

A trade or building contractor is compliant if they pass the Results Test or the 80/20 rule. Alternatively a tax ruling can be sought.

However, in most cases that have been closely examined, the methods and documentation used to comply under the results test is not compliant. So it’s best to get it checked out thoroughly by an expert.

Do I have to pay Super for my Subbie?

You have a carpenter who wants to contract with you as trade contractor. You draw up a contract that makes it clear that the carpenter is a sub-contractor. But do you have to make Superannuation Contributions for this person?

Generally speaking, the answer is ‘no’ if your contract is with a corporation (i.e proprietary limited company) that is supplying the services of the worker. However, if the contract is with the individual directly (i.e sole trader), it becomes a bit more difficult.

The fact that the carpenter has an ABN and invoices you for his or her services is irrelevant – instead, the first question you need to ask yourself is whether the person is technically an employee under the law. If ‘yes’, then you will have to make Superannuation Contributions.

Remember though, if the relationship is one of employment, you cannot change that fact by merely having the written contract state that the person is a contractor.

The following factors might point to a contractor relationship:

• The person operates an independent business.
• Payment under the contract is conditional upon satisfactory completion of work (i.e based on work performed rather that time worked).
• The worker has their own insurance and indemnity policies.
• The worker provides their own tools and equipment and pays all business expenses.

Even if your worker is not technically an employee under the law, you might still have to make Superannuation Contributions if your contract with them is wholly or principally for their labour (instead of labour and goods). Your contract with the worker will not be wholly or principally for their labour if one or both of the following applies:

• The contract allows the worker to engage someone else to perform the contracted services, even if this right to delegate the work is not actually exercised.

and/or

• The contract provides for payment of a fixed sum on satisfactory completion of the project, as opposed to an amount paid by reference to hours worked. That fee can be calculated according to an estimate of the time and labour cost that is necessary to complete the project.

In the May 2011 budget, just released, $146 million was allocated to investigations tied in with the Unions move to cut out self employed or flexible arrangements. This will have a major impact on the building and construction industry.

As the regulators start to measure and test compliance it is important for all in the building and construction industry to be aware of these issues. It is fast becoming like the OHS legislation. If you are found to be non-compliant then saying you didn’t know unfortunately will not be enough of a defence.

Every time a trade contractor is paid (including the white collar workers) the building companies will need to report the amount and to whom. This is a massive compliance burden and once again we implore you to seek out good advice.

A recent news article that highlights the impact of these budget changes can be found at the Business Spectator.

Government regulation affects every one of us every day. You only have to look at the recent budget announcements to see how. It is an onerous task but a critical one to manage your financial risk in light of this ongoing regulation. This article does not necessarilly seek to answer all the questions but to raise awareness and hopefully get you asking the right questions of experts who are there to help solve these compliance challenges.

The Building and Construction Industry is not the only industry with these challenges but it is certainly one of the main ones and so we thought it worthy to talk to some people who know about these things and pass it along in a relevant article.

Are Your Contractors Really Contractors?
 
There are many reasons why licensed builders engage contractors and the most common are:

• The desire for a simple arms length engagement structure.
• Flexibility within the engagement, such as mutual ‘no cause’ termination provisions, etc.
• The engagement falls outside industrial law.
• Evidence that contractors are more productive and task oriented, requiring less supervision and time off.
• Higher skills retention due to project ownership.

Many licensed builders will enter into contracting arrangements without the full knowledge or understanding of the factors that impact upon the engagement, potentially to the detriment of both parties. These can be considered in the following way:

• Do the contractual terms and substance of the assignment reflect the common law characteristics of an Independent Contractor?
• Is the arrangement a Sham Contract (Fair Work Australia Act)?
• Is the arrangement fair to both parties (Independent Contractors Act)?
• Is the arrangement compliant from a taxation perspective (Personal Services Income (PSI) provisions of the Income Tax Assessment Act)?

Industry experience and research shows that most licensed builders would have difficulty answering these questions. It is these questions that we are encouraging licensed builders and in fact every one in the building industry to be conscious of in their contract arrangements.

The ABN Myth!

It is a common misconception that the provision of an ABN by an individual is sufficient to establish their status as an independent contractor. Many building companies wrongly believe that anyone providing an ABN automatically relieves them of statutory responsibilities for PAYG tax and superannuation guarantee contributions. On its own, the holding of an ABN simply means that the individual is registered with the ATO for the purposes of collecting and remitting GST.

Specific taxation and superannuation rulings defer to the common law principles for determination of an individual’s status as employee or independent contractor, and those rulings make it quite clear that an ABN is not automatic presumption of contractor status for the purposes of PAYG and SGC.

Are you Compliant?

If a building company merely relies on the provision of an ABN as validation of a contractors status without knowing absolutely that the arrangement is compliant; then chances are their contract engagements are not providing an appropriate structure and are more likely to expose one or both parties to statutory liabilities and penalties.

Companies and Family Trusts

The ATO is very clear that contractors working for one company only cannot set up partnerships, companies and trusts to reduce their tax liability.

Managing Your Risk

The Personal Services Income (PSI) legislation is very clear in that: An individual providing skilled labour or services only is automatically caught under the PSI legislation.

Having an ABN, company structure or family trust does not convert what is PAYG income into business income.

This is quite a complex issue and we will cover more information in our next article. The message is this. If you are a licensed builder or trade contractor then it is critical that you know your financial and taxation risks in managing your relationships.

Why? It’s all about liability and risk. Government bureaucracies do not like being exposed to any possible risk, and the building industry is a playground for it. Therefore the government is overly cautious about issuing builders licences.

Here’s some things that might shed some light on the challenges:

The issuing of a domestic builders licence, for example, is all about 3 things:

1. Trade Skills/Qualifications,
2. Relevant Industry Experience, and
3. Business Qualifications.

People who want a domestic or residential builders licence generally fall into two categories:

1. Those who want a builders licence so they can undertake and manage their own building projects above and beyond the limitations of being an owner builder.
2. Those who want a builders licence so that they can enter into contracts with consumers and build domestic housing/renovations, etc. for which they require a licence.

Government Departments do not differentiate between people seeking a builders licence to do their own projects and those seeking a builders licence to contract out to the consumer. The exception is the owner builder process (which is again slightly different in each state). So if it’s a one off dream building excercise then you have the right to build your own home. If you then decide you want to make a living out of it, then you must be prepared to match the same skills developed over a 5-7 year period by a trade qualified carpenter or bricklayer. These are the two most recognised trades as being the foundation for a builders licence.

For those who have the right experience and trade qualifications there is a clear path towards achieving their builders licence. For everyone else there needs to be a process of:

• assessment,
• direction,
• work at developing skills,
• getting experience, and
• obtaining qualifications that will assist your application.

It may seem a challenge now, but remember you are working towards an asset for your future.

One of the first subjects tackled in the course is the issue of insurance. If you are a trade or self employed contractor then you may already understand the necessity of good insurance cover.

Recently, Construction Courses joined forces with FD Beck and Sons, who provide a high quality insurance product and service to our licensed builders and trades. Be sure to check out FD Beck’s Professional Builder’s Construction Insurance calculator.

Unfortunately, the Australian work place continues to remain a litigious and sometimes dangerous landscape. It is vital to understand what your responsibilities as a licensed builder are, and the best risk management processes that ensure you are adequately protected in the event of an accident.

Whilst there is currently a lot of publicity surrounding Builders Warranty Insurance, it is equally important to ensure that your Builders Insurance is appropriate for your needs. Unfortunately, some Builders are under the mistaken belief they don’t require any other insurance other than Warranty Insurance and Workers Compensation Insurance.

Builders Insurance protects you, the builder, against loss, theft, or damage to buildings while they are under construction due to fire, vandalism, wind, lightning and other hazards. Builders Insurance is the coverage that protects the builders insurable interest in the materials, fixtures and equipment being used in the construction or renovation of a building should those items sustain physical loss or damage from a covered cause.

During the construction phase it is the responsibility of the Builder to take out Builders Insurance for the project and should include cover for contractors and sub-contractors involved in the project. 

What sort of Insurance is available?

Just like any other type of insurance the scope of cover available under various Builders Insurance products is extremely broad and varied. Therefore you should first consult an expert broker that has a history in Builders Insurance or Builders Contractors Insurance. 

With that in mind, there are essentially two types or cover available:

1. Annual Construction/Liability Insurance policy, and
2. Job by Job or “One Off” Construction/Liability.

Annual Construction/Liability Insurance covers Builders:

• over the course of 12 months, and
• protects you for all work conducted over the course of 12 months subject to a maximum turnover value over 12 months as well as pre-agreed limit on a per contract basis (i.e. $2,500,000 annual declared turnover subject to a maximum of $750,000 any one contract).

Some of the benefits of taking out an Annual Construction/Liability Insurance policy are as follows:-

• Generally better premiums can be negotiated with insurers for annual policies compared to One Off Construction Liability.
• Continuity of Legal Liability cover as the limit of liability is a blanket cover over the twelve months instead of being purchased for specific contract sites.
• Generally Annual Construction/Liability insurance policies can be extended to provide limit Products Liability cover however the same can not be obtained under a One Off construction policy.

Job by Job or One Off Construction/Liability provides Insurance for Builders on a per contract basis and has specific application to the listed build site. 

When Should You Invest in Builders Insurance?

You should invest in Builders Insurance before any works are undertaken on a site. Being prepared ensures all elements of project have been resolved and that you, as the builder, get the right type and level of coverage. It will also allow the insurance company to get a better understanding of the risk, size and scope of your project. Information such as start date and projected date of completion of each stage of the project, security measures adopted and risk management procedures will all help reduce the applicable Builders Insurance premium.

Protection from 3rd Party Lawsuits

Insurance for your physical assets is one thing, but protection from litigation from 3rd parties is another issue altogether. Therefore whenever you are organizing or reviewing your Builders Insurance you need to ensure that your Public Liability Insurance is tailored to your specific needs. With the ever increasing cost of litigation, if you are not adequately insured you may not be able to afford the legal defence costs, let alone the spiraling awards being made by the courts.

Summary

The temptation for most new licensed builders once they have their licence is to go out and start quoting and working. We would urge you to refer back to your early units in the Certificate IV in Building and Construction Course. It’s essential that your Builders Insurance requirements are tailored to match your risk, and therefore vital that you review all aspects of the cover to ensure you are fully insured in the event of a loss. Remember that it’s too late to seek cover after the event, so ensure your insurance broker provides you with the appropriate cover from the outset so you can get on with the business of building.

Once again for help with your Building Insurance needs, FD Beck and Sons are there to help you.

If you haven’t had a chance to read the information then you might consider doing so now, as we’ve discovered an article on the Mondaq website in regards to a recent legal case about “What is the meaning of a Construction Contract and if and when residential construction work is actually exluded from the Building and Construction Industry Security of Payment Act 1999 (NSW)”. It might be worth a look but be warned there is alot of legal gobblededook:

Mondaq Article ‘What is the Meaning of a Construction Contract?’

This Security of Payment Case titled Levadetes Pty Ltd v Iberian Artisans Pty Ltd [2009] NSWSC 641 is relevant to all builders.

In this decision, the NSW Supreme Court considered the meaning of ‘construction contract’ under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) and the relevant issues to determine whether an arrangement amounts to a ‘construction contract’. The decision also deals with whether a contract concerning the carrying out of ‘residential building work’ is excluded from the operation of the Act by section 7(2)(b).

One of the important issues was that there was no construction contract between the parties and the subject work was residential building work and therefore excluded from the Act by virtue of section 7(2)(b).

When payment and outcome disputes occurred the whole process ended up in front of the courts which is costly and difficult.

Contractors should draw from this case the lesson that the term ‘construction contract’ is interpreted broadly, so that agreements that are less than a binding contract or agreement can still be a ‘construction contract’ under the Act. In addition, if works are residential building works they will not be afforded the protection of the NSW Act, regardless of whether such works are paid for by a company. Note that whether residential building works are excluded from the security of payment legislation in a particular State depends on provisions of the relevant legislation for that State.

A wise stance is that you should always operate under a written contract no matter what work you are doing in the building and construction industry. It is too high a risk to do otherwise. Also when you enter into a contract know what your obligations are.

Many of the courses here at Back to Basics provide skills development in managing contracts. If you need more information please contact us.