As lawyers who act for subcontractors, one of our biggest fears is that the money owed to our subbie no longer exists.
All too often, the money paid by the developer or owner to the builder gets used (whether it be to subsidise the cash flow of the current project or another, or moved to personal accounts) before the subcontractor (who carried out the work, paid for the materials and the labour) gets paid.
Even a subcontractor’s charge on money held by the owner or developer can become unstuck when there is a dispute (whether between the builder and subbie or builder and owner/developer).
So Project Bank Accounts (PBA) will give certainty that the money exists, but its benefits are more far reaching than that. In fact the new Building Industry Fairness (Security of Payment) Bill 2017 (the ‘BIF Bill’) has so many golden nuggets of good news for subbies, we couldn’t contain them all in just one article so here are three of many great things about Project Bank Accounts:
1. Three bank accounts to be established.
The BIF Bill requires that the head contractor set up three trust accounts:[1]
the general account;
the retention account; and
the disputed funds account.[2]
This means that amounts in dispute and retentions funds are kept out of the general slush funds and will not be used (whether accidentally or intentionally) to pay the general claims of other subcontractors, suppliers or the head-contractor.
2. Head contractor to make up shortfalls in trust
If there will be insufficient funds to pay a subcontractor in any of the above three trust accounts the head contractor must immediately deposit an amount equal to the shortfall into the trust account.[3] If the head contractor does not make the top–up payment the head contractor risks a maximum of 100 penalty points or one year’s imprisonment.
3. Payments out of Project Bank Account only for limited purposes
All payments from the principal (owner or developer) are to be paid directly into the trust account.[4] All payments out of the trust account must only be for the purposes of:
“(a) paying a subcontractor beneficiary an amount that the head contractor is liable to pay the subcontractor under a subcontract for the building contract; or
(b) paying to the head contractor an amount that the principal is liable to pay the head contractor for contracted building work but only to the extent the head contractor is not also liable to pay a subcontractor beneficiary for the same work; or
(c) returning an amount paid in error by the principal; or
(d) making another payment prescribed by regulation.”[5]
If the head contractor does not comply with the above requirements for withdrawals out of a project bank account, the head contractor risks a maximum of 300 penalty points or two year’s imprisonment.
Important Notes:
Project Bank Accounts will first be trialled on a limited basis on Government projects between $1-10 million for the first year starting 1 January 2018. Chapter 9 of the Bill envisages that this will later be extended to all projects[6] (Government and private) that are over $1 million after 1 January 2019.
The BIF Bill is still passing through the Parliamentary process and is subject to change.Therefore the Act may be different from what we have discussed in this article.
If you have any questions or concerns about the BIF Bill and how it applies to your business, please contact us on 07 3128 0120 or subcontractors@arbuildinglaw.com.au.
End Notes
[1] Clause 23, Building Industry Fairness (Security of Payment) Bill 2017.
[2] Unfortunately, the Bill was unclear as to the exact definition of the disputed amount to be paid into the disputed funds account and the Committee has referred this clause back to the Department. We will update you on the exact definition, once clarified. We hope the Committee will determine that it will be the difference between the claimed amount in the payment claim and the amount proposed in the payment schedule.
[3] Clause 30, Building Industry Fairness (Security of Payment) Bill 2017.
[4] Clause 27, Building Industry Fairness (Security of Payment) Bill 2017.
[5] Clause 31, Building Industry Fairness (Security of Payment) Bill 2017.
[6] Excluding residential construction work relating to less than 3 living units.
