How to Protect Your Organisation From Changes to Project Bank Account Laws

How to Protect Your Organisation From Changes to Project Bank Account Laws

Building contract solicitor Brisbane

As a builder or construction manager working in Queensland, it’s important for you to understand how Project Bank Accounts (PBA) work and when they are needed, especially as the laws are being amended. Failure to follow the rules regarding PBAs can result in criminal penalties, so let’s get some clarity on the issues from a building contract solicitor in Brisbane.

Why are PBAs needed?

PBAs were created to protect progress payments and ensure that sub-contractors were paid on time.

How do they work?

The parties involved in a PBA include the Principal (the entity that commissions the building work), the head contractor (the entity with responsibility for completing the work) and the sub-contractor (commissioned by the head contractor to assist in completing the work). Rather than project monies being paid directly to the head contractor’s bank account, a PBA creates a more arms-length financial structure that includes the following elements:

1. A general trust account which the Principal pays into.
2. A retention trust account which holds the subcontractor’s retention money.
3. A disputed payments trust account which holds funds that are subject to dispute until the dispute is resolved.

The 3 bank accounts are managed as a trust in which the head contractor is the trustee and beneficiary and the sub-contractors are beneficiaries.

PBAs are currently required when all of the following requirements are met:

• The Principal is the State of QLD (or a State Authority which has elected to require a PBA); [Building Industry Fairness (security of Payment) Act 2017 (Qld) s14(1)(a).]
• When more than 50% of the contract price is for “Building Work”;[ Building Industry Fairness (security of Payment) Act 2017 (Qld) s14(1)(b).]
• When the accepted total “Contract Price” is between $1,000,000 Inc GST – $10,000,000 Inc GST.[ Building Industry Fairness (security of Payment) Act 2017 (Qld) s14(1)(c).] The Contract Price is the amount the Head Contractor is entitled to be paid under the contract, or, if the amount cannot be accurately calculated, a “…reasonable estimate of the amount…” (inclusive of GST);[ Building Industry Fairness (Security of Payment) Act 2017 (Qld) s10.] and
• The building contract is not a sub-contract for another building contract. In other words, one of the parties to the contract is the Principal.[ Building Industry Fairness (security of Payment) Act 2017 (Qld) s14(1)(d).]

PBAs are not currently required for any of the following contracts:

• Where the only building work that the contract is for is residential construction work (unless it is for the Department of Housing and Public Works then some exceptions may apply);[ Building Industry Fairness (security of Payment) Act 2017 (Qld) s16(1).]
• Where the Principal is a State Authority and elects not to require a PBA;[ Building Industry Fairness (security of Payment) Act 2017 (Qld) s14(1)(ii).]
• When the building contract is for maintenance work;[ Building Industry Fairness (security of Payment) Act 2017 (Qld) s17.] and
• When the building contract is a government contract tendered before the commencement of the BIF Act amendments.[Building Industry Fairness (security of Payment) Act 2017 (Qld) s18.]

How will this affect you?

 The QBCC has release the following information about PBAs:

“Subject to a review of Phase One, PBAs will be required on all building projects with a contract value of more than $1 million (including GST), in 2019.

PBAs will not apply to engineering and infrastructure projects including bridges, roads and ports, unless ‘building work’ makes up 50% or more of the contract value.”

So while this gives builders some guidance as to what the amendments will be, it does not provide a definitive outline of when PBAs will be required after the proposed amendments.

One potential impact of the proposed amendments is that they will impose obligations on builders to create PBAs in non-government commercial projects, as well as residential projects relating to 3 or more living units.

However, until the proposed amendments come into effect and are interpreted by the Courts, the exact ramifications of these amendments will remain unknown.

 For advice on PBAs and the approach you should take to protect yourself, contact your building contract solicitor in Brisbane, Len Watt.

P 07 3269 4888
F 07 3269 4111
E info@beckerwatt.com.au