Retention requirement changes
The Queensland Building and Construction Commission Act 1991 (QBCC Act) provides for requirements for retention monies.
The Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) made changes to the QBCC Act around retentions and securities withheld under a contract, and defects liability periods.
The changes strengthen and protect the rights of contractors where a retention is withheld. They commenced on 17 December 2018.
The new requirements apply to:
- all existing building contracts
- any building contracts entered into from 17 December 2018.
See more details in Part 4A of the QBCC Act.
On this page:
- Statutory defects liability period
- Notification of defects liability period ending
- Penalty for not releasing retention amounts
At the end of the defects liability period, retention monies can no longer be retained to fix defects in the building work. Previously it wasn’t always clear when a contractor was entitled to claim and be paid retention.
A new statutory defects liability period of 12 months from the date of practical completion will apply if a contract doesn’t provide for one.
The statutory defects liability period applies only if the building contract doesn’t state an identifiable period for releasing retentions (e.g. a defects liability period).
This applies to any existing contract where a retention amount is still being held and practical completion passed less than 12 months earlier.
The practical completion date is usually stated in a contract.
The QBCC Act provides a definition for practical completion that can be used to calculate the relevant date when the 12 months defects liability period commenced.
If the contract doesn’t provide a date or time frame for work completion, practical completion is the day the work is completed in compliance with the contract, including all work plans and specifications, and all statutory requirements applying to the work, without any defects or omissions (see section 67A of the QBCC Act).
The party withholding retentions or securities under a building contract (excluding principals) must notify the party they’re withholding the amounts from within 10 business days of the defects liability period ending (or within 5 business days after receiving notice if the defects liability period is linked to another building contract).
The notice requirements don’t apply retrospectively; however, if a party is holding a retention amount for a historic or completed contract, the party may use a S67NC Notice of end of defect liability period (PDF, 40KB) to remind contractors of their right to make a payment claim.
A maximum penalty of 200 penalty units or one year’s imprisonment may apply for failing to release a retention amount to the contracted party in accordance to the contract without a reasonable excuse.
When retentions must be paid
The party holding retention monies must release them according to the building contract unless they have a reasonable excuse. A contractor may not be required to pay retentions immediately when the defects liability period expires if the contract provides for a ‘due date’ for payment.
The new penalty provision applies to any retention amount withheld under a building contract, not just a final retention.
Therefore, if the contract specifies the release of part of the retention amount at practical completion or any other time, a penalty may apply for failing to do so without reasonable excuse.
Working out the due date
Contract provisions and other payment claim provisions of the BIF Act (see sections 73 and 75) are used to work out the due date for paying a retention amount.
If the contract has a specific retention release date, this is the date the retention will need to be paid.
If the building contract requires a contracted party to make a ‘final payment claim’ for any withheld retention amount at the end of the defects liability period, the ‘due date’ for paying the retention will be in accordance with the agreed payment terms (e.g. 25 business days from receipt of the payment claim).
If a contract doesn’t provide for making a final payment claim, section 75(3) of the BIF Act applies: a final payment claim must be provided within 28 days after the end of the last defects liability period.
Contractors should ensure they make a ‘final payment claim’ within the required timeframe, otherwise they may not be able to make a valid claim for their retentions at a later date. New section 67NC will remind contractors that the defects liability period is ending. If a final payment claim for retention amounts isn’t provided in the required time frame, the payment claim may be invalid.
The BIF Act doesn’t prevent a contractor releasing retentions earlier and/or without a payment claim if they believe the full amount is payable (i.e. there are no defects to correct).
What is a reasonable excuse
As retention amounts are held to cover the cost of correcting building work defects or secure the contract performance, a reasonable claim on retentions would need to relate to these matters.
For example, defective or incomplete work is the contracted party’s responsibility if the contract allows the use of retention monies in that instance.
The QBCC Act allows retentions to be withheld to the extent that they’re the subject of a dispute or a subcontractor’s charge.
- Last updated:
- 3 June 2020