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How do payments work with Project Trust Accounts?
Disclaimer: Project trust accounts are complex. This information is general in nature and should not be substituted for legal advice.
A trust account is a legal arrangement through which money is held by a third party, for example a bank, for the benefit of another party such as a subcontractor or head contractor. Payments from trust accounts can only be made to certain parties under specified circumstances.
There are two types of trust accounts that may apply; a project trust account (for each project) and a retention trust account (for all cash retention held by the principal or head contractor on any projects). These must be opened with a financial institution approved by the Queensland Building and Construction Commission (QBCC).
The majority of HIA members carrying out residential construction work, including renovations/alterations for homeowners, will not be caught by these requirements. However, if you build residential townhouses or multi-unit developments you will need to be aware of the PTA requirements.
Payments under PTAs
All parties must make payments into and be paid from PTAs. There may be an exemption if a subcontract is under a certain value. For example, a subcontractor that has a contract of $20,000 may not be required to be paid through a PTA – this minimum contract value is yet to be prescribed by regulation.
It is an offence to pay a subcontractor from the head contractors normal bank account for completed work.
Business considerations for PTAs
Queensland’s PTA framework is complex. The administration requirements are significant and without precedence. Businesses, particularly those that operate in the residential sphere, will need to consider whether they have the capability to handle PTAs. Here are some considerations:
- Administration capacity: These information sheets provide a brief overview of the requirements which are significant. Further, QBCC will be providing significant oversite of the PTA framework.
- Risk: The PTA framework has extreme penalties, including criminal sanctions, for simple paperwork breaches.
- Software: Trust record keeping as required by the PTA may require significant investments in specific trust accounting software and engagement of external professionals.
- A new contracting model for the residential industry: The PTA framework is modelled on the commercial construction industry which has different progress payment customs than the residential industry. Serious consideration as to how residential builders draft their progress payment stages with clients, and subcontractors, should be considered.
Further information
This article is part of a series on the operation of the PTA’s aimed at assisting HIA members understand the requirements. Further information in the series is listed in "What to read next".
If in any doubt about whether a PTA applies, please contact HIA's Contracts and Compliance team or seek independent legal advice.
To find out more, contact HIA's Contracts and Compliance team
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