BCI code of conduct: a Construction industry game changer?

The Western Australian Building and Construction Industry Code of Conduct 2016: Is this really a “game changer” for Subcontractors and the construction industry?

It has been reported that the introduction of the Western Australian Building and Construction Industry Code of Conduct 2016 (the BCI Code) will assist in levelling the balance of power between Building Contractors and their Subcontractors during the lifecycle of construction projects.1 This reporting is fueled, primarily, by the penalty provisions under the BCI Code which can see non-compliant Building Contractors excluded from consideration for future government funded works.2

Whilst it is undoubtedly the intention of the BCI Code to level the playing field between Building Contractors and their Subcontractors and Building Industry Participants3, it remains to be seen whether this will be achieved in practice.

The BCI Code: what is it?

The BCI Code came into effect on 1 January 2017.

The BCI Code applies to a limited number of projects, namely:

  • government funded construction projects valued at more than $10 million; and
  • private construction projects (i.e. non-government projects) where the work was in a tender phase or procured at a time when the Building Contractor was subject to the BCI Code on any other project.

For those projects which are subject to the jurisdiction of the BCI Code, its terms place a series of obligations on Building Contractors4, particularly in relation to their dealings with Subcontractors and Building Industry Participants. The purpose of the BCI Code is to (amongst other things)5:

  • promote fair subcontracting practices and timely payment of Subcontractors within the building and construction industry; and
  • ensure that Western Australian government agencies, when expending public funds, contract with Building Contractors that conduct themselves in a reputable, fair, safe and responsible manner.

The BCI Code is monitored and implemented by the Building and Construction Code Monitoring Unit (the BCCMU) – a newly created division within the Department of Commerce.

Compliance with the BCI Code: the “reasonable steps” test

Part 2 of the BCI Code sets out the requirements which must be met by Building Contractors in order for them to be compliant with the code.

Sections 8.1 to 8.3 of Part 2 of the BCI Code sets out a “reasonable steps” test, such that a Building Contractor is required to:

  • take all reasonable steps to ensure that they comply with the requirements of the BCI Code; and
  • take all reasonable steps to ensure that their Subcontractors and Building Industry Participants comply with the requirements of the BCI Code.

Given the reasonable steps test outlined above, it can be argued that the BCI Code does not impose a strict compliance regime. Rather, to avoid prosecution or penalty a Building Contractor needs only to demonstrate that it has taken all reasonable steps to comply with any sections of the BCI Code that it (or its Subcontractors or Building Industry Participants) is found to have breached, or to have potentially breached.

The term “all reasonable steps” is not defined in the BCI Code. That being so, the reasonable steps test will inevitably add a level of complexity and ambiguity when it comes to determining whether or not Building Contractors have complied with or breached the BCI Code, and whether or not they should face penalties.

What exactly constitutes reasonable steps remains to be seen, although that question would seem to fall (in the first instance) to the absolute discretion of the BCCMU6. Given the importance of the BCCMU in this process, Building Contractors will wait with anticipation to view the attitude adopted by the BCCMU when conducting investigations into alleged or potential breaches of the BCI Code7.

Penalties when a breach of the BCI Code is established

It is not the case that that each and every breach of the BCI Code by Building Contractors will attract the penalty of exclusion from consideration for future government funded works.

There are no mandatory penalties to be imposed against Building Contractors for breaching the BCI Code. It instead remains at the sole discretion of the BCCMU as to whether it:

  • further investigates any breach or potential breach;8
  • simply discusses the breach with the Building Contractor;9
  • invites the Building Contractor to remedy the breach;10
  • reports the breach to an appropriate government agency or statutory body;11 or
  • issues the Building Contractor with a draft Code Compliance Report12.

The issuing of a draft Code Compliance Report is the harshest penalty that can be imposed against a Building Contractor. If a draft report is issued by the BCCMU and it contains a “finding of material Code non-compliance”, then the Building Contractor faces the prospect of that finding adversely affecting or preventing its prospects of success in future tendering for government funded work13.

However, before a final “finding of material Code non-compliance” is made, the following three step process must occur:

Step 1: the BCCMU must write to the Building Contractor setting out the alleged breach of the BCI Code;

Step 2: the Building Contractor is given the opportunity to provide written submissions in response to the alleged breach; and

Step 3: the BCCMU and Building Contractors’ respective positions are provided to the Minister for Commerce, who then may do any of the following:

  • accept the BCCMU’s draft report without any amendment;
  • amend any aspect of the report (including any “finding of material Code non-compliance”); or
  • direct that the draft report be withdrawn.

It follows that the harshest penalties contemplated under the BCI Code will only be enforced after Building Contractors have had an opportunity to persuade the Minister for Commerce both as to the existence of any breach and the appropriateness of any penalties to be applied in respect of the breach.

Lavan comment

There is no doubt that the intention of the BCI Code is to better protect Subcontractors from the imbalance of power that they historically experience under construction contracts.

However, the intent behind the BCI Code may not materialise and Subcontractors may find themselves no better off because:

  • in practice, we expect there will be considerable difficulty for the BCCMU in establishing any breach of the BCI Code by Building Contractors, especially whilst the “reasonable steps” test remains intact; and
  • even if a breach can be established, the harshest penalties under the BCI Code are not mandatory and can only be imposed after the Building Contractor has had an opportunity to provide written submissions in opposition to the Minister for Commerce.

Need help?

If you are a Building Contractor or Subcontractor who is likely to be involved in construction works subject to the jurisdiction of the BCI Code, then Lavan can assist you with:

  • co-operating with any BCCMU investigation into a breach or alleged breach of the BCI Code.
  • preparing submissions to the Minister of Commerce in the event of adverse findings being made.
  • advising on compliance with the BCI Code generally, including drafting compliant tendering and subcontracting documents and advising on what mechanisms can be implemented to satisfy the “reasonable steps” test (if ever investigated for a breach or potential breach of the BCI Code);

Contact

If you have any queries or comments about this publication, please contact Greg Nairn or Brendan Franich.

07 February 2017
Construction Updates
AUTHOR
Greg Nairn
Partner
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FOOTNOTES

1 See for example, Wilkie D, ‘Subbies empowered under new code’, BusinessNews Western Australia (online), 11 January 2017 https://www.businessnews.com.au/article/Subbies-empowered-under-new-code?utm_source=Business+News+Mailing+List&utm_campaign=315bfdb2db-dba&utm_medium=email&utm_term=0_e5391356e5-315bfdb2db-288514857>. [https://www.businessnews.com.au/article/Subbies-empowered-under-new-code?utm_source=Business+News+Mailing+List&utm_campaign=315bfdb2db-dba&utm_medium=email&utm_term=0_e5391356e5-315bfdb2db-288514857%3E.] 2 See section 30.6 of the BCI Code. 3 A “Building Industry Participant” is defined under the BCI Code to have the same meaning as that provided in the Building and Construction Industry (Improving Productivity) Act 2016 (Cth), being any of the following: a building employer, a building employee, a building contractor, a person who enters into a contract with a building contractor under which the building contractor agrees to carry out building work or to arrange for building work to be carried out, a building association or an officer, delegate or other representative of a building association. 4 See generally sections 9 to 27 of the BCI Code. 5 See generally section 5 of the BCI Code and Department of Commerce, Government of Western Australia, Frequently asked questions about the Western Australian Building and Construction Industry Code of Conduct 2016 https://www.commerce.wa.gov.au/publications/general-frequently-asked-questions 6 It remains at the sole discretion of the BCCMU to determine in the first instance whether or not a breach of the BCI Code has occurred: see sections 28 and 29 of the BCI Code. If the BCCMU makes a “finding of material Code non-compliance” then before this finding becomes final it must first be reviewed and accepted by the Minister for Commerce: see section 30.4 of the BCI Code. 7 See the BCCMU’s wide powers to investigate alleged breaches under section 28 of the BCI Code. Investigations can be commenced by the BCCMU on its own initiative or in response to any report/notification it receives of alleged breaches of the BCI Code. 8 See section 29.1(a) of the BCI Code. 9 See section 29.1(b) of the BCI Code. 10 See section 29.1(c) of the BCI Code 11 See section 29.1(d) of the BCI Code. [12] See section 30.1 of the BCI Code. [13] See section 30.6 of the BCI Code.