Project bank accounts replaced with ‘statutory trusts’ and other major legislative changes in the pipeline for Queensland’s construction industry

Yesterday, the Queensland Government introduced into Parliament the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Bill 2020 (the Bill). If passed, the Bill will amend the Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) by:

1. replacing project bank accounts with project trusts and retention trusts;
2. introducing new provisions and protections for security of payment procedures and monies in dispute at adjudication, including a requirement for head contractors to provide a supporting statement with each payment claim, declaring that all subcontractors have been paid; and
3. strengthening the Queensland Building and Construction Commission’s regulatory oversight of trust accounts.

Ultimately, the Bill covers the changes to the BIF Act outlined in our previous update, ‘Queensland Government foreshadows significant changes to Project Bank Accounts and Security of Payment’.

Project trusts and retention trusts

Under the Bill, project bank accounts have been replaced with ‘statutory trusts’, which comprise project trusts and retention trusts.

Project trusts

For contracts which require project trusts (outlined below):

1. a single project trust account must be established by head contractors within 20 business days of entering the first subcontract for the project (a failure to do so will attract a penalty of up to 500 penalty units);
2. all payments from the principal to the head contractor must be paid into the project trust account; and
3. the subcontractors are the primary beneficiaries of the monies held in the project trust account and the head contractor is the trustee and secondary beneficiary, meaning that the monies liable to be paid to subcontractors must be paid before the head contractor pays itself.

Project trusts will be required for:

1. government and Hospital and Health Services’ building contracts valued at $1 million or more (ex GST) from 1 July 2020;
2. private sector and local government building contracts valued at $10 million or more (ex GST) from 1 July 2021;
3. private sector and local government building and construction contracts valued at $3 million or more (ex GST) from 1 January 2022; and
4. all building and construction contracts valued at $1 million or more (ex GST) from 1 July 2022.

Project trusts will not apply to contracts:

1. for small scale residential construction work (i.e. residential work for less than three living units);
2. for maintenance work (i.e. testing, sampling or restoration works);
3. for building work services (i.e. administration, advisory, management or supervisory services); and
4. where the date for practical completion is less than 90 days after the date a project trust would have otherwise been required to be established (i.e. within 20 business days of entering the first subcontract for the project).

Retention trusts

Principals and head contractors are required to use retention trust accounts for all head contracts and first-tier subcontracts where cash retentions are held under the contract and a project trust is required for the head contract.

The changes in the Bill mean that Principals and head contractors will not be required to establish a retention account for each separate project and will only need to establish one retention trust account for retention amounts withheld across all projects. This change will significantly reduce the administrative burden of establishing and administering retention trusts.

Penalties of up to:

1. 200 penalty units or 2 years imprisonment apply for a failure to deposit and hold all cash retentions in a retention trust account; and
2. 300 penalty units or 2 years imprisonment apply for withdrawing from a retention account for a purpose other than paying the contracted party, securing performance of the contract or correcting defects.

Adjudication and security of payment

If passed, the Bill will introduce the following key changes to Queensland’s security of payment regime:

1. A requirement for head contractors to provide a supporting statement with each payment claim which declares that all subcontractors have been paid and identifies any subcontractors which have not been paid and the reasons they have not paid in full. A failure to include a supporting statement is an offence which attracts a maximum penalty of 100 penalty units, however this will not affect the validity of the payment claim.
2. It will be an offence for a respondent to a payment claim to pay an amount that is less than the scheduled amount (attracting a maximum penalty of 100 penalty units).
3. A requirement for a respondent to provide evidence to the registrar that it has paid an adjudicated amount to the claimant within 5 business days after an adjudication decision.
4. Where an adjudicated amount remains unpaid after the due date for payment:
   • claimants may serve a payment withholding request on a party higher up the contracting chain which attaches to any amount that is or will become payable by that party to the respondent (including an ability for head contractors to serve a payment withholding request on the principal’s financier);
   • head contactor claimants may have a charge registered over the principal’s property on which the construction work the subject of the adjudicated amount was carried out (if the principal or a related entity is the registered owner of the property under the Land Title Act 1991).
5. Increasing the timeframe for claimants to give the respondent a warning notice (which is required before commencing court proceedings to recover the unpaid portion of a payment claim after the due date for payment) from 20 business days after the due date for payment to 30 business days.

Other important changes

If passed, the Bill will also:

1. amend the Queensland Building and Construction Commission Act 1991 to implement the government response to the Special Joint Taskforce report and improve licensing provisions;
2. introduce new entry and inspection powers on the boards governing registered architects and engineers; and
3. amend the Building Act 1975 to support owners in the building development approval process and introduce mechanisms to improve building certifier standards, including the introduction of a demerit points system.

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