Visit our COVID-19 HUB for our latest updates and resources

25.02.2020

News

Project bank account system for private developments

Since March 2018, the Queensland Government has been trialling a project bank account (PBA) system across its development projects. The intention was to pave the way for a PBA system to be rolled out across private developments in Queensland, and a Bill has now been introduced into Parliament to achieve this.

Below, Kristy Dorney discusses the PBA system and what it will look like for the public sector.


Background

Affectionately known as 'BIF', the Building Industry Fairness (Security of Payment) Act, introduced the PBA system to secure payment for subcontractors involved in development projects. In short, head contractors are kept honest by the creation of three trust accounts into which all monies paid by the principal must be filtered. The principal plays a role in monitoring the flow of cash out of these trust accounts and the Queensland Building and Construction Commission (QBCC) Commissioner can investigate the head contractor if any anomalies arise.


How does it work?

Under the current regime, when a head contractor enters into a contract and the PBA system applies, the head contractor must open three trust accounts which are, collectively, the PBA for the project:

  • General Trust Account—All monies owed by the principal to the head contractor are paid into this account. The head contractor uses these funds to pay itself money it is owed, but it must exclude sums owed to its subcontractors. Subcontractors are required to be paid directly from this account. If monies are owed to a subcontractor, and there is not enough money in this account, then the head contractor is required to top up this account from its own funds and then pay the subcontractor. Through a series of notice requirements, the principal is given full details of all subcontractors engaged and has access to the PBA so it can cross-check payments made against those subcontractors notified. The principal is required to review its records against the trust account and report discrepancies to the QBCC Commissioner who may then investigate the head contractor.
  • Disputed Funds Account—Where a subcontractor makes a progress payment claim and the head contractor disputes some or all of the amount claimed, the disputed sum must be transferred from the General Trust Account into the Disputed Funds Account. It will sit in that account until it is dealt with pursuant to the dispute resolution process provided for in BIF (this is the old BCIPA progress payment claim and adjudication regime which now sits in BIF).
  • Retention Account—Similarly, where the subcontract terms permit the head contractor to withhold retention money from a subcontractor's progress payment, those retention monies are required to be transferred and held in a third trust account until either the head contractor or subcontractor become entitled to payment.

Who will it impact?

Extension of the regime to the private sector is proposed to be staged as follows:

  1. From 1 July 2021 for building contracts valued over $10 million or more.
  2. From 1 January 2022 for building contracts valued over $3 million or more.
  3. From 1 July 2022 for building contracts valued over $1 million or more.

What are the changes?

The PBA regime proposed to be extended to the private sector is an entire rewrite of the existing regime. Whilst the concept and framework are by and large the same, there are several administrative and practical changes arising from the public sector trial and extensive consultations and submissions from relevant industry bodies. A change of note is the removal of the principal's 'watchdog' obligations. Whilst the principal is required to report any failure to set up a PBA and general compliance with the regime, the obligation to proactively monitor the accounts and report anomalies to the QBCC Commissioner has been removed. Further, the requirement to set up a disputes account is also missing from this redraft.

This Bill will undergo a consultation process of its own and it is anticipated it will commence in June this year.


What do you need to do?

In some shape or form, the PBA system is coming to the private sector. The commencement dates above are likely to be met as they allow enough time for this current Bill to move through the consultation phase and be passed. Principals should expect a minor increase in their contract administration burden as the PBA system is introduced but, by and large, the new system will be principally for the contractor and its subcontractors to manage and navigate.

From the principal's perspective, it remains to be seen what flowthrough effect this might have on the cost of construction. Contractors will bear the increased administrative burden and will likely need to manage the impact retention trust accounts will have on their cashflow.

The Bill includes amendments to BIF unrelated to the PBA system which will have some impact on principals in connection with payment disputes. This includes a proposal to allow head contractors to register charges over the principal's land where payment dispute adjudications are made against the principal but not paid.

We will update you on the review of the Bill and what you need to do next.


Authors

Kristy Dorney

Kristy Dorney

Partner

Contact McMahon Clarke

Brisbane
T +61 7 3239 2900
A Level 7, 100 Creek Street, Brisbane Qld 4000

Melbourne
T +61 3 9909 1400
A Level 2, 696 Bourke Street, Melbourne Vic 3000