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Requirements for retention trust accounts

A project trust account (‘PTA’) is a trust account where money is paid and held in trust for subcontractors and head contractors until payments are due during a building project.

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 (‘RTA’) (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). 

If applicable, a head contractor will be required to set up a PTA for every construction project they are contracted to carry out. 

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.

Terminology

  • Contracted party: The party to the contract who is required to perform work under the contract. For example, a subcontractor who is contracted by a builder to perform work would be the ‘contracted party’  
  • Contracting party: The party to the contract for whom the contracted work is to be carried out. For example, a builder who contracts for a subcontractor to perform work would be the ‘contracting party.’ Similarly, a developer who contracts for a builder to perform building work would be the ‘contracting party’
  • Trustee: The party who is operating the trust. Generally, this will be the head contractor, but it could also be the principal for retention trust accounts
  • Project trust work: The erection or construction of a building or the renovation, alteration, extension, improvement, or repair of a building amongst other matters. A ‘building’ means a fixed structure that is whole or partly enclosed by walls or is roofed. (Civil construction or engineering work such as roads, bridges, or tunnels is generally not defined as project trust work). 

What are retentions?

Retention money is an amount held for the benefit of the builder to ensure that a contractor performs all of their obligations under the contract. Retention money is then released either on practical completion or at the end of a defects liability period.

Retentions may be in the form of cash (usually amounts held back from a progress claim) or an approved form of bond or other form of security.

When is a retention trust account required?

A retention trust account will be required where either the principal or head contractor holds cash retentions against the contractor they have engaged to do the work. This requirement could apply to the principal if they hold cash retentions against the head contractor, or the head contractor if they hold cash retentions against their trade contractors. It is the party holding the cash retention that is required to open the RTA.

When is a retention trust account not required?

A RTA will generally not be required where:

  • There is no project trust account (see What is a Project Trust Account?)
  • The builder does not hold retention monies against their subcontractor(s). Holding retention is not a common practice in the residential building industry and/or
  • The retention is in a form other than cash. Retention (or security) could be in a non-cash form such as a bank guarantee. This is more common in the commercial space than the residential space. 

Establishing a retention trust account

The contracting party (generally the head contractor) must open an account with a financial institution before withholding the retention amount from payment. The contracting party need only establish one RTA for all retention amounts under any number of contracts for which it is the contracting party. 

If required to set up a RTA, the trust account must be established by the first day the contracting party withholds the retention amount from payment. 

Retention trust account requirements

If you are required to open a RTA:

  • The account trust name must include the name of the party who is opening the account and the word ‘trust’
  • All transactions must create an electronic record of the transfer
  • You must undertake training for withholding retention and operating retention trust accounts and
  • The financial institution at which a RTA is to be opened must be one approved by the QBCC

If you need to close the RTA you must ensure that:

  • All retention amounts held in the account have been paid to the parties entitled to it under the relevant contracts; or
  • The money is transferred to an alternative financial institution. 

Other requirements include:

  • Any changes to the trust account opening, closing, or changes of name must be notified to the QBCC
  • You must inform all contracting parties of any change to the financial institution at which the trust account is held
  • Money deposited into a retention trust account can only be for withholding a retention amount from payment under a contract or repaying an amount withdrawn in error
  • In addition to any requirements stipulated under a contract, money can only be withdrawn from the RTA to:
  • Pay a contractor from who a retention amount was withheld from payment
  • Pay the trustee, as contracting party, for the purpose of correcting defects or omissions in contracted work, or otherwise to secure, wholly or partly, the performance of a contract
  • Pay another person for the purpose of correcting defects or omissions in contracted work or
  • When a contracted party becomes entitled to retention, the retention can only be deposited into the contracted party’s account at a financial institution
  • The ability to make a payment out of the RTA is also governed by the contract under which the retention amount is withheld. 

Information sharing

Opening of RTA:

  • If retention trust is required to be opened then the contracting party (generally the builder) will give the contracted party (generally the subcontractor) notification in writing regarding the opening of the trust account. This notice must include the following:
  • Statement that a retention trust will be used for withholding retention amounts under the contract
  • The name and number of the RTA
  • The name of the financial institution where the RTA is kept
  • The identifying number of the financial institution (BSB) where the RTA is kept and
  • Information identifying the contract to which the retention trust relates
  • Notice is required to be provided before any retention is withheld under the contract. 

Beneficiary to be informed of transactions affecting transaction amount:

  • Within five business days after making a deposit or withdrawal, the trustee must give to the contracted party from whom the retention amount was withheld a notice of the deposit or withdrawal. This notice must include the following: 

For a deposit:

  • The amount to be deposited in the RTA
  • Identification of the payment claim for the deposit, if any:
  • The name and number of the RTA
  • The name of the financial institution where the RTA is kept
  • The identifying number of the financial institution (BSB) where the RTA is kept
  • The total retention amounts held in the RTA, when the notice is given, for the contracted party under the contract to which the deposit relates and
  • The date the amount is deposited in the RTA. 

For a withdrawal to pay the contracted party:

  • The amount to be paid in the RTA
  • Identification of the payment claim to which the withdrawal relates, if any:
  • The name and number of the RTA
  • The identifying number of the financial institution (BSB) where the RTA is kept
  • The total retention amounts held in the RTA after the withdrawal for the contracted party under the contract to which the withdrawal relates and
  • The date the amount is to be paid. 

For a withdrawal to pay someone other than the contracted party:

  • The amount to be paid in the RTA
  • The reason for the payment
  • The total retention amounts held in the RTA after the withdrawal for the contracted party under the contract to which the withdrawal relates and
  • The date the amount is to be paid. 

Beneficiary may request particular information:

  • A person who is, or was, a beneficiary of a retention trust may, in writing, request the trustee give the person the following information to the extent it relates to the person:
    • A statement of balance for the RTA
    • A copy of the transactions affecting the RTA and/or
    • A copy of the RTA records. 
  • The trustee must give the person the requested information within 10 business days after being given the request, unless:
    • The trustee ha a reasonable excuse
    • The information is already available to the person or
    • The information has not changed since it was previously given to the person.
  • The requested information must be given to the person in writing and any words used in the information to explain a transaction must be in the English language
  • It is not a reasonable excuse for the trustee to fail to comply with the request on the grounds that complying with the request might tend to incriminate the trustee or expose the trustee to a penalty. 

Reminder on existing contractual provisions under the QBCC Act (retention amounts)

The retention provisions of the Queensland Building and Construction Commission Act 1991 (QBCC Act) are extensive and contractors need to be aware of their rights and responsibilities. 

  • Limits on amounts retained: A trade contract is subject to a condition that any time before the works reach practical completion, the total value of all amounts retained are not to be more than 5% of the contract price. The builder is only entitled to retain up to 10% of any one progress payment This does not affect the 5% limit on the total amount retained. The total amount retained after practical completion must not be more than 2.5% of the contract price.   
  • Right to substitute: Trade contractors have a right to substitute approved forms of security in place of cash retention. This will give trade contractors access to cash if they are able to replace cash retention with an acceptable non-cash alternative. To exercise this right, the trade contractor must lodge with the builder an equivalent value security (in the form of a government bond or a valuable instrument from an approved security provider) to take the place of the cash retention. This right may be exercised at the time the retention is made or at any later time. 
  • Notification of defects liability period ending: Under any trade contract where there are retentions or securities, the builder must notify the trade contractor if they are withholding the amounts from within 10 business days of the defects liability period ending (or within five business days after receiving notice if the defects liability period is linked to another building contract).
  • Penalty for not releasing retention amount: It is a requirement that the party holding retention monies to release them in accordance with the building contract unless they have a reasonable excuse. Whilst most building contracts should provide a date for a release of retention monies, where the contract is silent, the final payment claim will need to be made within 28 days after the end of the last defects liability period. A significant fine or one year’s imprisonment may apply for failing to release a retention amount to the contracted party in accordance with the contract without a reasonable excuse. 

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 is set out in "What to read next".

If in any doubt about whether a PTA applies, please call HIA Workplace Services on 1300 650 620 or seek independent legal advice. 

To find out more, contact HIA's Workplace Services team

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