The Project Trust Account framework is designed to strengthen the security of payments to subcontractors in Queensland’s building and construction industry. This is accomplished by requiring head contractors to hold money, that is paid by a project principal, in a separate bank account on trust for the benefit of the subcontractors of the project.
The new Project Trust Account framework commenced on 1 March 2021 and originally applied to a small range of state government contracts before beginning a four-phase expansion across government and private sector contracts within Queensland’s building and construction industry.
From 1 January 2022, Project Trust Accounts apply to eligible contracts with:
- State government, hospital and health services valued at AUD $1 million or more
- Private sector, local government, statutory authorities and government owned corporations valued at AUD $10 million or more.
The government recently announced more time for smaller industry contractors to prepare for the final expansion phases of the Project Trust Account framework.
These final two phases will capture all eligible private, local government, statutory authorities and government-owned corporation contracts valued at AUD $3 million or more from 1 April 2023 (originally 1 July 2022), and then all eligible contracts valued at AUD $1 million or more from 1 October 2023 (originally 1 January 2023).
An increasing number of building and construction industry principals, head contractors, and subcontractors working in Queensland are already operating within this new framework, with many more to follow over the next 18 months.
It is vital that building and construction businesses are adequately prepared to handle the additional burden of these new requirements on their businesses.
Background of the new framework
The original Project Bank Account framework was designed to protect payments and retentions in Queensland’s building and construction industry. A head contractor was required to set up three Project Bank Accounts for each eligible project, to receive money paid by the project principal and hold it in trust for the project head contractor and subcontractors. The number of bank accounts potentially required by a single head contractor could easily run into the thousands.
Changes to the legislation from 1 March 2021 replaced Project Bank Accounts with Project Trust Accounts. These changes to the framework included a more streamlined approach to eligible contract account requirements.
The required trust accounts are:
1. Project trust accounts - One for each eligible project
This trust account is where project funds are received and paid. For instance, the project owner or developer (principal) makes payments to the contracted party (head contractor) for work completed in accordance to the contract. The head contractor then pays all subcontractors for the project and then finally themselves from this account.
2. Retention trust accounts – One for each contracting party
This trust account is where ‘eligible’ cash retention amounts are withheld from contractors until they are due to be paid. Although each trustee only requires one retention trust account to hold cash retention amounts across multiple projects, they may have multiple retention trust accounts if they prefer.
Currently only principals and head contractors are required to have a retention trust account, with the requirement extending to subcontractors from 1 January 2023.
Other essential considerations for businesses operating in Queensland’s building and construction industry include:
- Each contract needs reviewed to determine if a Project Trust Account and Retention Trust account is required. The QBCC as developed a Project Trust Account tool to assist businesses, but legal advice should also be obtained if businesses are in doubt
- Principals have an obligation to ensure that a trust account is established, if they know that one is required, and to ensure payments are only made into that account
- Trust accounts can only be opened with an approved financial institution
- The QBCC must be notified that a Project Trust Account has been opened and the account is then recorded on a publicly available register of trust accounts
- A trustee must follow strict rules when using a Project Trust Account or Retention Trust Account to ensure it protects payments and retention amounts for all beneficiaries
- A trustee of a Retention Trust Account or a person nominated to administer the account must complete compulsory Retention Trust training
- A trustee must keep comprehensive records for both Project Trust Accounts and Retention Trust Accounts for at least 7 years. See a full list of documents here
- Retention Trust Accounts must be reviewed annually by a registered company auditor and also on closure of the account. The auditor must prepare an account review report to be provided to the QBCC and report any serious breaches in relation to the administration of the trust account.
Key impacts on the industry
While the Project Trust Account framework is expected to improve the reliability and security of payments to subcontractors in the short term, we understand that the initial impacts of the Project Bank accounts on principals and head contractors, particularly those with extensive state government projects, have been challenging.
As the rollout of the framework extends towards covering all eligible contracts valued at AUD $1 million or more from 1 October 2023, the requirements will have an increasing impact on how head contractors operate.
We have compiled key considerations for principals, head contractors, and certain subcontractors who will be impacted by Project Trust Accounts in Queensland:
- There will be an increased administrative burden to ensure those contractors who hold Project Trusts are complying with the relevant legislation. This includes the requirement to maintain sufficient records in accordance to the legislative requirements. It also involves the holding of retention trust accounts in accordance to the Building Industry Fairness (Security of payment) Act 2017 (QLD) (BIF Act)
- There will be a requirement to have sufficient systems to appropriately manage numerous project trust accounts, as well as one retention trust account to hold funds on behalf of numerous subcontractors
- There will be an impact on contractor’s working capital, liquidity and cash flow
- There will be an additional compliance requirement, due to the aforementioned audit review requirements. This must be completed within 40 business days of the Trust account’s year end - defined as the anniversary of the account opening. This review must be performed by a registered company auditor.
We will further explore the impacts of these four key areas over the coming months, ensure you don't miss further insights by subscribing.
Get in touch with our property and construction specialists to discuss how we can help reduce the impacts of the project trust account framework on your business.