Project Bank Accounts are on their way with sweeping changes to the building and construction industry expected over the next few years. The changes are due to the enactment of the Building Industry Fairness (Security of Payment) Act 2017, also known as the BIF Act.
The first of these changes took place on 1 March 2018 with the introduction of Project Bank Accounts (PBA's) for any Government Work between $1 million and $10 million. Subcontractors who are performing Government work under PBA contracts for a Principal Contractor will be impacted, so they need to understand how Project Bank Accounts work.
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.
A PBA is a set of 3 bank accounts which operate as a Trust. The Head Contractor is the PBA Trustee, and also a Beneficiary and each Subcontractor becomes a Beneficiary. The PBA must be set up in a financial institution in Queensland, and contains these three main accounts:
- A general trust account—the Principal makes payments into this account.
- A retention trust account—it holds Subcontractor’s retention money.
- A disputed funds trust account—holds amounts subject to certain payment disputes until resolution.
Project Bank Accounts allow progress payments to be safely held in trust. The aim is to ensure payment for work completed by subcontractors is available irrespective of insolvency or issues with the head contractor. In theory a PBA can also increase the speed of payment to subcontractors. The Principal will have no control or viewing rights over the PBA, however is entitled to any interest on the account once the contract is complete.
Here's an overview of how the PBA Process will work:
At this stage the PBA is in early implementation phase and will only include one tier of contractor - i.e. Head Contractor and first level subcontractors. Subsequent contractors to first level subcontractors will not be included. The initial implementation also only includes Government contracts, and once proven successful the model will open up to the private sector projects over $1 million (anticipated to be March 2019).
If you're operating in the Building and Construction Industry, it pays to be familiar with the process - much more information can be found at this link from the Department of Housing and Public Works.
More changes will arrive in mid 2018 when the BIF Act will effectively replace two current pieces of legislation within the Building and Construction Industry - namely the Building and Construction Industry Payments Act 2004, and the Subcontractors Charges Act and further changes are anticipated at that time.
More detail on the changes will be shared on our News Page, once they have been announced in more detail.
If you have concerns about the upcoming changes, please reach out to your trusted PJT Advisor, we also have independent legal advisors who specialise in this field should you require additional assistance.