The next phase of the new trust account regime under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act) is here. So, what do you need to know for the next phase that was rolled out on 1 January 2022? Let’s explore this further below.
Amendments to the BIF Act trust account regime
For background, the Queensland construction industry introduced project accounts to protect contractors under the BIF Act back in 2018. Now, the BIF Act has been amended to attempt to provide a simplified trust account framework in replacement of the project bank account regime.[i] Though, the fact of the matter is that this new regime is very complex which makes compliance extremely difficult for all parties involved.
The amendments to the previous regime attempt to:
- reduce the number of trust accounts required by removing the disputed funds account i.e. it requires a head contractor to establish one project trust account rather than three trust accounts required under the project bank account regime;
- add protections for subcontractors by extending the application of the project trust accounts to a broader range of works and monetary values;
- implement statutory charges over retention amounts to make beneficiaries secured creditors in the event of bankruptcy;
- remove viewing access of trust accounts for principals, which will relieve principals from trust account oversight; and
- increase the regulatory functions and oversight of the Queensland Building and Construction Commission (QBCC), including audit powers over trust accounts.
How do you comply?
There are two types of trust accounts that may be required if you meet the eligibility requirements:
- one project trust account (PTA) per eligible project; and
- one retention trust account (RTA) per contractor (if applicable) to hold cash retentions across multiple projects and subcontracts.
Compliance by Principals
A principal must deposit amounts due and payable under a contract for which a PTA is required, into a PTA. The principal may do this as progress payments for works completed as opposed to being required to deposit the entire contract sum in one lump sum amount.
An RTA is required by a principal if a PTA exists and the principal is withholding cash retentions from progress payments of a head contractor. A principal is both the trustee and beneficiary of the RTA.
Within 5 business days of opening the RTA, the principal must notify the QBCC. The principal then must notify the head contractor before any amounts are withheld from a progress payment. Any retention amount must be deposited immediately to the RTA from the PTA.
A principal must use its own funds if there are insufficient funds in the PTA.
Compliance by Head Contractors
A head contractor must open a PTA at an approved financial institution within 20 business days after it enters the first subcontract. Subcontractors must each be given written notice by the head contractor about the use of a PTA.
Within 5 business days of opening the PTA, the head contractor must give written notice to the principal and the QBCC that the PTA has been established. The PTA details will subsequently be published on the QBCC’s website.
The head contractor must open an RTA when they are a party to a PTA and they are withholding cash retentions from subcontractors. A head contractor is a beneficiary of the RTA.
A head contractor can withdraw funds from the PTA in order to pay subcontractors, paying amounts into the RTA for payment of work, rectifying payment errors or paying pursuant to a court order or adjudication decision. The head contractor must notify the subcontractor in relation to the withdrawal within 5 days after the withdrawal of funds. A head contractor must use its own funds if there are insufficient funds in the PTA.
Are you eligible for the regime?
You are only required to comply with the trust account regime for ‘eligible contracts’. In ‘eligible contracts’:
- more than 50% of the contract price is for ‘project trust work’[ii]; and
- at least one subcontractor is engaged for all or part of the contracted work.
The QBCC has released a useful trust account tool to determine if your contract is eligible and requires a PTA.[iii]
An RTA is required if your project requires a PTA for the head contract and you are withholding a retention amount, if you are an eligible contracting party.
It can be difficult to determine whether you are eligible, particularly in circumstances where a contract has been amended or varied or if there are multiple contracts between the same parties for the same or adjacent sites.
Should you require, GRT is able to advise whether you are required to comply with this regime on a case by case basis.
When will you need to comply?
The new regime will be phased in gradually to all eligible contracts valued at $1 million or more by 1 January 2023, so you will have time to prepare for the changes. The table below summarises each of the phases including the third phase which was rolled out on 1 January 2022:
What if you don’t comply?
The amendments to the BIF Act now include 60 offences for non-compliance with the new trust account regime, imposing the following penalties[iv]:
- A maximum of 29 years in jail;
- A maximum total of 11,840 penalty units; and
- Maximum fines of $1,580,048.00.
With this latest rollout, all Queensland building and construction industry participants should review the changes carefully to avoid these heavy penalties.
If you have any questions about the operation of the new trust account regime and/or how it affects you and your operations, don’t hesitate to contact Ashley Hill (Director) or Kathryn Te’o (Special Counsel).
This article was written by GRT Lawyers, Kathryn Te\’o (Special Counsel) and Elizabeth Dowrie (Solicitor).
[i] Under the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Act 2020 (Qld) (the BIF Act). [ii] A ‘Project Trust Account’ is defined in detail in the new Section 8A of the BIF Act, which includes for example (amongst many other things) the erection or construction of a building and any associated site work etc. [iii] Queensland Building and Construction Commission trust account tool <https://my.qbcc.qld.gov.au/myQBCC/s/trust-accounts-guide>. [iv] Note that these are the maximum penalties that may be imposed. The Courts of course have the discretion to impose lesser penalties.