From 1 March 2018, projects tendered by the Queensland Government will use PBAs on building and construction projects valued between $1 million and $10 million (including GST), where more than 50% of the contract price is for building work. The new PBA regime under the Building Industry Fairness (Security of Payment) Act 2017 is complex and there are significant penalties for failure to comply with the new obligations from monetary penalties in excess of $10,000 to 2 years imprisonment.
The aim of PBAs is to ensure that subcontractors are paid amounts owed to them under a subcontract in a timely manner.
What does this mean for consultants working in Queensland?
Project Bank accounts are not required for a building contract if the only building work that the contract is for is residential construction work or for maintenance contracts. Refer to Chapter 2 of the Building Industry Fairness (Security of Payment) Act 2017 for further detail on exclusions.
PBAs are set up to ensure that Subcontractors get paid regularly in a timely manner, that their retention and disputed monies are protected, and that the PBA monies due to them are protected in the event of contract termination or bankruptcy.
What is a Project Bank Account?
The Head Contractor must set up a separate PBA for each building contract. Subcontractors do not need to set up a PBA, unless you are a ‘related entity’ to the Head Contractor.
A project bank account is a trust over the following amounts—
- an amount paid by the principal to the head contractor under a building contract;
- an amount a subcontractor is entitled to be paid by the head contractor under a first-tier subcontract;
- a retention amount withheld from a subcontractor under a first-tier subcontract;
- an amount that is the subject of a payment dispute.
There are 3 parties involved in a PBA including the:
- Principal—who the building work is being carried out for under the contract
- Head Contractor—who is carrying out the building work under the contract
- Subcontractor—first-tier subcontractors who have been subcontracted by the Head Contractor to carry out work under the contract
How to set up a Project Bank Account?
The PBA must be set up at a financial institution in Queensland, and must include:
General Trust Account where the Principal makes payments into this account and the Head Contractor will pay the subcontractor from this account; Retention Account for amounts held as a retention amount for a subcontract with a subcontractor beneficiary; Disputed Funds Account for amounts the subject of a payment dispute. We suggest that you refer to the Act for further requirements on setting up a PBA.
Ending a Project Bank Account
The head contractor may dissolve a project bank account only if there are no longer any subcontractor beneficiaries for the project bank account or the only remaining building work to be carried out under the building contract is maintenance work.
The head contractor dissolves a project bank account by closing the trust accounts and giving written notice to the principal that the project bank account has been dissolved.
What does this mean for Consultants?
There are a few possible scenarios for consultants which would trigger the requirement for PBAs –
- Where the principal engages a builder who in turn engages a consultant. In this scenario, the builder will be required to set up a PBA and the consultant will become a beneficiary of the funds from the PBA. This contract between the builder and the consultant will require a PBA if:
- The principal for the contract is the State or a State Authority;
- More than 50% of the contract price is for building work (includes contract administration and completed building inspection);
- The contract price for the building contract is $1 million but not more than $10 million; and
- The building contract is not a subcontract for another building contract.
- Where the consultant is engaged directly by the principal and the consultant engages a subconsultant. In the unlikely event that you are engaged as lead consultant, and more than 50% of your contract price is for contract administration and/or completed building inspection, then you might have to set up a PBA (subject to the other criteria in item 1 above).
- In addition, consultants who work in a contract administration role will need to have a general understanding of the PBA rules and procedures so that they can properly administer the payment provisions of the building contract in compliance with any PBA requirements.