The introduction of Building Industry Fairness (Security of Payment) Act 2017 means Project Bank Accounts (PBAs) will need to be established for all new construction projects between $1 million and $10 million. The main purpose is to provide better security of subcontractor payments and will be regulated by the Queensland Building and Construction Commission (QBCC). Needless to say, failure to comply is subject to very harsh penalties.
What this means for Head Contractors, is a significant change to the way progress payments, subcontractor claims and retentions are managed. Such changes can cause a flow in effect to project costing, reporting, and cash flow management, making it even more critical to have real-time information available.
PBAs are expected to begin trials in January with the intention of them becoming mandatory by the end of 2018.
The Act states that the head contractor must establish a PBA by opening all of the following trust accounts, for each individual project:
The main changes are how receipt and payment of claims are handled with increased accountability on the Head Contractor.
Through the course of a project, all funding is deposited into the General Trust Account, normally via the scheduled progress claims. As Subcontractor's claims are processed the Head Contractor will issue instructions to the bank for the amounts payable to each Subcontractor. The Head Contractor also draws their own payments from this account after Subcontractor claims are covered.
A key component is when there are insufficient funds in the PBA to cover Subcontractor payments, the obligation is on the Head Contractor to deposit the necessary amount into the General Trust Account to cover any shortfall. The Head Contractor is also prohibited from withdrawing amounts to pay itself until all Subcontractors are paid in full.
Where there aren’t enough funds in the General Trust Account to pay Subcontractors in full they are all paid in proportion to the amounts due to be paid to each Subcontractor. The shortfall must then be paid by the Head Contractor into the Disputed Funds Trust Account.
All retention amounts held in the Retention Trust Account and must specifically identify the relevant Subcontractor for each amount. Funds can only be drawn from this account when returned to the particular Subcontractor or for the cost to rectify defects in their work.
While this is only a high-level summary, it’s quite clear the level of responsibility and risk for the Head Contractor has increased dramatically. Without the right systems in place to manage the information and processes required to comply with the new Act. Realistically there isn’t much time left to ensure you are ready for the impending changes. The time to start assessing your position is now.
Thrive Technologies have a long history of providing construction accounting solutions and have been closely monitoring these changes being introduced into Queensland. If you have any queries about your own readiness, please contact us for an obligation free discussion.