Since March 2018, project bank accounts have been used on certain building, construction and services contracts involving government departments and hospital and health services in Queensland. In 2020, the Queensland Government amended the Building Industry Fairness (Security of Payment) Act 2017 (Qld) to simplify the regime. The next phase of that new regime starts on 1 January 2022. This will be the first time that project trust accounts are required in Queensland for non-government contracts.
What are project trust accounts?
Project bank accounts, or project trust accounts, are aimed at ensuring that money paid by a principal is held by the head contractor on trust for the benefit of the contractor and its subcontractors. Importantly, they provide extra protections for subcontractors if a builder becomes insolvent.
How does the regime work and what does it apply to?
The new regime creates a statutory trust, and obliges head contractors to establish and manage a bank account for that trust, known as the 'project trust account'. This is a bank account with an approved financial institution, which meets certain minimum requirements.
The regime applies to contracts where over 50% of the contract price is for 'project trust work'. This includes the erection or construction, renovation, alteration, extension, improvement or repair of 'buildings', and related site work. Buildings are defined broadly to include any fixed structure that is wholly or partly enclosed by walls or a roof. There are a range of exclusions for particular sectors and types of work or contract, such as pure maintenance contracts.
For more details regarding the project trust account regime, see our previous articles
Further rollout of the project trust account regime
Project trust accounts are currently required for state government and hospital and health services contracts valued at $1 million or more. From 1 January 2022, the regime is being extended to the private sector, and the broader government sector, for contracts valued at $10 million or more (excluding GST).
That monetary threshold will then drop to $3 million from 1 July 2022, and to $1 million from 1 January 2023.
Will it apply to my contract?
The Queensland Building and Construction Commission (QBCC) has developed a project trust account tool to help parties determine if a project trust account is required. This is a helpful tool, but legal advice should also be sought if parties are in doubt. The QBCC also keeps a publicly available register of trust accounts.
What do I need to do?
There are extensive requirements for head contractors, who have to act as trustees and establish and manage the trust account. They also have to hold any retention monies in a retention trust account.
Principals who are awarding contracts over $10 million also have obligations under the Act, including to ensure that a trust account is established if they know that one ought to be, and to make payments only into that account. Contract terms will generally require some updating to deal with the regime. We have assisted a number of principal and contractor clients with this process.
Looking forward
There are significant penalties for non-compliance with the project trust account regime by principals, builders and subcontractors. Given the administrative and financial burden of complying with the regime, in addition to the penalties for non-compliance, parties should ensure they are prepared well before the relevant date for commencement.
If you would like to discuss how these new arrangements will affect your business and how to plan for and mitigate associated risks, please contact us.
