- From 1 January 2022, builders engaged under private sector contracts worth $10 million or more are required to open a new project trust account for each project if they intend to subcontract all or part of the work.
- Principals and developers paying into project trust accounts and holding retention monies as security are also required to establish a one-off Retention Trust Account.
- Principals and developers entering into construction contracts falling under the regime should take steps to verify a project trust account is established for contracts signed from 1 January 2022.
This is the next phase of the building and construction industry regulations, introduced in March 2018, designed to ensure subcontractors are paid and do not lose out in contractor insolvencies. For background information see our previous article.
The new law does not make the contracting party responsible if a builder fails to set up and use a project trust account to receive construction payments. However, it does not allow contracting parties to turn a blind eye either and penalties do apply.
There are certain matters contracting parties are compelled to report to the Queensland Building and Construction Commission (QBCC) if the contracting party knows, or ought reasonably to know, the matters exist, including failure to set up a project trust account when required. Keeping in mind knowledge of an employee or consultant may be deemed knowledge of the contracting party, we recommend all principals and developers entering private sector contracts worth $10 million or more make direct enquiries with their builder as to whether a project trust account has or will be established and if not, why the builder says it is not required. The contracting party should consider obtaining its own advice if there is any uncertainty as to the builder’s position.
What do you need to report?
The key matters contracting parties are required to report are:
- Where a project trust account has not been opened and the contracting party knows, or ought reasonably to know, one is required, it must be reported to the QBCC. The penalty for not reporting is 100 penalty points or $13,785.
- Where the builder engages a subcontractor, the subcontractor does not have to open its own trust account to receive payment unless the subcontractor is a related entity of the builder. A related subcontractor must open a project trust account to pay its own subcontractors; this removes the risk contractors can avoid the requirement by subcontracting to related entities. If a contracting party knows (or ought reasonably to know) the builder has engaged a related entity subcontractor, this must be reported to the QBCC. The maximum penalty for failure to do so is 50 penalty units or $6,892.
Retention trust account
If you are required to establish a retention trust account, there are strict requirements and timeframes which must be adhered to, or penalties apply. The key matters required to be noted are:
- The account must be opened before withholding any retention amounts.
- The account must be held under a name that includes the trustee’s name and the word ‘trust’.
- Within five business days of opening the account, the trustee must notify the QBCC. The QBCC publishes on its website details of all project and retention trust accounts opened.
- The account must only be drawn on for paying defined beneficiaries, the trustee, or others to complete defective work. The maximum penalty for breach includes a possible two years’ imprisonment.
You can read more about further shake-ups to building and construction industry regulation in Kristy Dorney’s recent Alert: Building and construction industry review: calling all developers.
Get in touch with our lawyers for help with your project trust account requirements.