Who should read this

All principals, head contractors and subcontractors performing building and construction work in Queensland, in particular those involved in State Government projects.

Things you need to know

Last year, we flagged the introduction of the new project trust regime under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act) to replace the existing project bank accounts regime, with Phase 1 of the new regime due to commence on 1 March 2021 (see the full article here).

With 1 March 2021 fast approaching and Phase 2A due to commence on 1 July 2021, now is a critical time to be aware of the commencement of this new project trust regime and consider how it will impact your current financial and project administration procedures.

Quick refresher on ‘project trust accounts’ (PTAs)

The new project trust regime under the BIF Act will require a head contractor to establish one PTA (rather than the three trust accounts required under the project bank account regime) for each ‘eligible contract’ for ‘project trust work’, along with a separate single trust account for any retention monies held across all of the head contractor’s eligible contracts.  This new regime dispenses with the need for a disputed funds account.

Where a PTA is required:

  • the principal pays any monies payable to the head contractor directly into the PTA, and first tier subcontractors are then paid directly from the PTA; and
  • the head contractor must open the PTA at an approved financial institution within 20 business days after it enters into the first subcontract (noting that the word ‘trust’ must appear in the title of the account).
Phase 1 PTAs

Phase 1 applies to ‘eligible’ State Government building contracts where:

  • the contract is entered into on or after 1 March 2021;
  • the contract price is between $1 million and $10 million (noting that even if the original contract price is less than $1 million, the contract can become one that requires a PTA, if the contract price exceeds $1 million as a result of an overall price increase of 30% or more during the course of the contract);
  • the head contractor enters into a subcontract for all or part of the work it contracted to carry out for the State Government;
  • more than 50% of the contract price is for ‘project trust work’; and
  • the contract is not an ‘exempt contract’ (for example, contracts solely for maintenance work, small scale residential work, and contracts with less than 90 days until practical completion – for the full list see our previous article here).

‘Project trust work’ is broadly defined to include a wide variety of activities related to the erection, construction, renovation or repair of a building, and is not limited to ‘building work’ as defined under the Queensland Building and Construction Commission Act 1991 (Qld).  Project trust work includes earthmoving and excavating works, electrical works, and the erection of scaffolding – further examples are contained in our prior article.

What you need to do

In preparation for commencement of Phase 1 of the new project trust regime on 1 March 2021 (and Phase 2A on 1 July 2021), you should carefully consider how you will adapt your current financial and project administration procedures to ensure compliance with the inbound changes.  You may also wish to consider whether any corresponding amendments are required to your contracts.

By now, it is particularly critical for head contractors to have considered:

  • how their head contracts will address both the current project bank account regime and the transition to the new project trust regime;
  • how their personnel will manage the administration of PTAs and retention trust accounts, including whether the head contractor (in its role as trustee) will nominate a person to be responsible for the administration of the retention trust account on its behalf; and
  • if a person is nominated by the head contractor to administer its retention trust account, it will need to ensure that person completes the retention trust training, and if no person is nominated, the head contractor will need to complete the retention trust training) itself.

As set out in our previous article, the new project trust regime will be rolled out in phases across 2021, 2022 and 2023.  It is important to be aware of the commencement dates for each of the phases, which we have set out below.  Following the commencement of Phase 1 from 1 March 2021, next phases include:

  • Phase 2A: from 1 July 2021, project trusts will expand to include both State Government and health and hospital service eligible contracts of $1 million or more;
  • Phase 2B: from 1 January 2022, the requirement for project trusts will be extended to private sector, local government, statutory authorities and Government owned corporations eligible contracts worth $10 million or more;
  • Phase 3: from 1 July 2022, projects trusts will further apply to any eligible contracts valued at $3 million or more; and
  • Phase 4: from 1 January 2023, the requirement for project trusts will be further extended to all eligible contracts valued at $1 million or more.

For further information on any of the issues raised in this alert, or if you require any assistance in preparing for the rollout of the above phase, please contact members of our construction team below.