Since its introduction in 2020, the Queensland construction industry has been adapting to the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Act 2020 (Qld) (‘BIFOLA’).
One of the most significant amendments made by BIFOLA is the introduction of the new trust account framework to replace the previous project bank accounts. The introduction is rolled out in five (5) phases with the first on 1 March 2021 and the last (anticipated to be) on 1 October 2023.
A summary of the new trust account framework is set out below.
Project Trust Accounts – Key Features
The project trust account is established by statute, the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (‘BIF Act’), making them statutory trusts.
Similar to other trust accounts, the trustee will hold property (in this case progress payments and retention amounts) on behalf of the beneficiaries that will later be entitled to these amounts. The project trust account will facilitate:
- the payment from a developer or head project owner to the head contractor for work completed in accordance with the head contract into the account;
- the payment from the account to the head contractor themselves; and
- the payment from the head contractor to the subcontractors from that account.
The system is a simplification of the previous project bank accounts, reducing the number of necessary trust accounts from three to two: a project trust account for each contract that meets the criteria and a retention trust account for the contracting party.
When is a Project Trust Account Necessary?
Whether a contracted party requires a project trust account depends on the nature and financial scale of the work undertaken.
The Queensland Building and Construction Commission has published a website summarising the criteria and exemptions on when a project trust account is required. In general terms (subject to the exemptions) a project trust account is currently required for:
- eligible state government contracts between $1M-$10M, where more than 50% of the contract price is for project trust work, and there is at least one subcontractor engaged for all or part of the contracted work; or
- hospital and health service contracts valued at or in excess of $1M where more than 50% of the contract price is for project trust work, and there is at least one subcontractor engaged for all or part of the contracted work; or
- private residence contracts valued at over $10M where more than 50% of the contract price is for project trust work, and there is at least one subcontractor engaged for all or part of the contracted work.
Changes Coming in 2023 – The Final Two Phases
Anticipated to be rolled out on 1 April 2023 and 1 October 2023, the remaining two phases of the framework will adjust some of the current criteria for when project trust accounts are required.
As of 1 April 2023, a project trust account will be required for Queensland State Government and Hospital Service contracts equal to or exceeding $1M and state authorities, local governments and private contracts equal to or exceeding $3M. Head contractors and private sector principals will further need a retention trust account where a project trust account is required for the head contract.
As of 1 October 2023, a project trust account will be required where the contract price meets or exceeds $1M for Queensland State Government, Hospital and Health Services, state authorities, local governments and private individuals and entities. Retention trust accounts will be required for any contracting party where a project trust account is required for the head contract.
Penalties for Non-Compliance
The BIF Act also sets out penalties for failing to comply with the project trust accounts requirements. These include penalties relating to breach of provisions for opening and closing project trust accounts (s 18-18C BIF Act), payments to and from project trust accounts (s 19-20C BIF Act), retention trust accounts (s 34-34C BIF Act) and generating trust records (s 52 BIF Act).
The penalties are not insignificant. For example, s 18(1) specifies a 500 unit penalty (equivalent to $68,925) for failure to open a project trust account at a financial institution in accordance with s 18 of the BIF Act.
It is therefore important to read, understand and comply with relevant sections.
For information on how you and your business can adapt to these new changes, or for any other related enquiries, contact Brett Vincent on (02) 9261 5900 or 0439 463 693.
This publication is for general information purposes only and does not constitute legal advice. You should seek legal advice regarding your particular circumstances.