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Subcontractors’ Update: Implementation of Project Bank Accounts – Phase 2
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Phase 1 of the introduction of project bank accounts (PBAs) by the Queensland Government commenced on 1 March 2018. PBAs were introduced through the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act) with the aim of:
- Shifting the risk of non-payment from subcontractors to head contractors; and
- Protecting funds payable to subcontractors from head contractors who may be inclined to use the funds for other purposes.
These aims were designed to be achieved through the creation of trust accounts for the funds owing to subcontractors. As such PBAs would ensure security for payment “in events such as insolvency, where money within the account is effectively quarantined for subcontractors who are beneficiaries to the trust” (Explanatory Memorandum, BIF Act).
In practice, a principal pays progress payments, retention amounts and disputed funds into PBAs established for construction contracts for ‘building work’ meeting the criteria in the BIF Act. The funds are held in trust in the PBA for first tier subcontractors as the beneficiaries of the trust. The funds are paid to subcontractors when they become contractually entitled to the funds.
Head contractors are responsible for establishing and administering the PBAs. In the event a head contractor does become insolvent or their contract is terminated, the contract principal can become trustee of the PBA and may apply to the Supreme Court for directions about the administration of the PBA.
Phase 1 has applied only to building contracts between $1 million and $10 million inclusive of GST, in which the contract principal is the Queensland Government.
Originally, the implementation of Phase 2 was expected to commence in March 2019 and to expand the ambit for the use of PBAs to private construction contracts over $1 million inclusive of GST.
Phase 2 implementation
On 28 November 2019 the Minister for Housing and Public Works tabled in Queensland Parliament the Building Industry Fairness Reforms Implementation and Evaluation Panel Report completed by a government appointed panel in March 2019. The review conducted by the panel included identifying opportunities for improvement of security of payment outcomes in the construction industry. The beginning of the report summarised the intent of the Act and its reforms:
The overarching policy intent of the BIF Act is to make systemic changes designed to effect cultural change in the building and construction industry. The Act is intended to provide for effective, efficient and fair processes for securing payment. This includes the establishment of a framework for project bank accounts (PBA) where money is held on trust for subcontractors. The reforms are intended to lead to better financial practices, reduced family breakdown, greater business confidence and more fairness in the industry.
Following on from the report, the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Bill 2020 (Bill) was tabled in Parliament on 5 February 2020. The Bill contained a proposed commencement date for the legislation of 1 July 2020.
The proposed changes to PBAs contained in the Bill extend the PBA regime to all projects for building work valued at over $1 million through three phases:
- Phase 2 – for all Government and private projects for $10 million or more exclusive of GST;
- Phase 3 – for Government and private projects between $3 million and $10 million exclusive of GST; AND
- Phase 4 – for Government and private projects between $1 million and $3 million exclusive of GST.
Other important changes to PBAs included in the Bill are:
- Amendment of the definition of ‘building work’ to make it consistent with the Queensland Building and Construction Commission Act 1991 (Qld) definition;
- Removing the requirement for ‘retention’ and ‘disputed funds’ trust accounts; and
- Providing for the QBCC to administer PBAs, not principals, when a head contractor becomes insolvent or their contract is terminated.
Upon being tabled, the Bill was referred to the Transport and Public Works Committee (committee) for further review. The committee’s report was tabled in Parliament on 20 March 2020, and while recommending that the Bill be passed, it also contained 11 further recommended changes to the Bill which are still being considered by the Government. On 19 June 2020, the Minister wrote to the Clerk of Parliament indicating that the Government’s final response to the committee’s report will be tabled by 20 September 2020.
The Bill was given Royal assent on 23 July 2020 with changes to PBAs to commence on a date to be fixed by proclamation. The Building Industry Fairness (Security of Payment) and Other Legislation Amendment Regulation 2020 has proclaimed that from 1 March 2021, ‘Chapter 2 (Project bank accounts)’ will be replaced by ‘Chapter 2 (Statutory trusts)’. The effect of this amendment is that PBAs are now no longer a defined term under the BIF Act, having been replaced by the project trust account and a new trust account framework. Various time limits and conditions apply for PBA trust accounts to transition to the new trust account framework if a contractor chooses to do so. However, transitioning from an existing PBA to a project trust account is not mandatory, and the PBA model can be used for the life of the existing contract.
When the remaining Phase 2 reforms to what were previously PBAs do finally become law, all Government and private construction projects for building work valued at $10 million and above will require the revised project trust accounts. That will be in addition to the existing Phase 1 requirements for Government projects between $1 million and $10 million. The Queensland government had postulated Phase 3 changes taking effect six months after Phase 2, with Phase 4 a further six months after Phase 3. However, given the delays that have already occurred with the Phase 2 changes, an extended timeframe appears likely.
Contact Gibbs Wright Litigation Lawyers
If you have any questions about project bank accounts, or any other building and construction related questions or concerns, one of our expert team of solicitors will be happy to help you. Contact us for a free and confidential initial consultation to explore your options and legal rights.
The content of this publication is intended as general commentary only and may not be suitable or applicable to your personal circumstances. It is not intended to replace independent legal advice. You can contact us at our Brisbane Office for a free consultation on a range of litigation matters on (07) 3088 6364.
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