Project Trust Regime Expands To Cover Private Sector Projects Exceeding $10M

The project trust (and associated retention trust regime)¹ has now expanded to cover private sector projects where the contract price exceeds $10 million². If you are a principal, a head contractor, or a subcontractor, (if you have not already done so) you need to immediately obtain advice as to your obligations and/or potential exposure.

Head contractors

For head contractors, particularly those who have not yet conducted a project subject to the project trust regime, you need to give consideration to how your business will navigate:

• The regulatory and administrative tasks which the Act assigns to you (and what the cost of compliance might be to you, as you will need to include those costs in your tendering price as you cannot charge for administering the project trust); and
• The cash flow issues that might arise from:
  • Your being the last entity to be paid from a project trust account; and
  • Your not having access to retention funds as ‘cash flow’.

Principals

For principals, in addition to obtaining immediate advice about your obligations regarding any cash retention which you may seek to retain³ you may wish to:

• Give serious consideration to the cash position of any potential contractor, noting that the head contractor will:
  • Be the last entity to be paid from a project trust account; and
  • Not have access to retentions as ‘cash flow’;
• Consider adding ‘experience with the project trust regime’ as a criterion for assessing tenders.⁴ Given the lower contract prices now covered by the scheme, there will likely be no ‘fat’ to allow the head contractor to ‘get up to speed’; and
• Add terms to your construction contracts which:
  • Require the head contractor to warrant compliance with the project trust regime; and which
  • Allow you to audit the head contractor’s compliance with the project trust regime.

Subcontractors

Subcontractors, leaving aside your obligations under the project trust regime⁵, this new scheme may affect your dealing with (for example) your financiers, for example, where a financier has offered credit to a subcontractor, the financier will sometimes require the subcontractor to arrange for incoming payments to be made into an account controlled by the financier. This arrangement cannot be put into place in the event that moneys are to be paid from a project trust account (as the head contractor must pay the money into an account nominated and controlled by the subcontractor).⁶

Conclusion

Put simply, anyone who might be affected, whether directly or indirectly, by the extension of the project trust regime (from principals, to head contractors, subcontractors, suppliers, and financiers), should obtain urgent advice to ensure that they comply with the regime and to ensure that their rights and interests are not compromised. Remember, there are very significant penalties which can apply to a person who fails to comply with the project trust regime. Don't be the one who gets caught out.

1. Chapter 2, Building Industry Fairness (Security of Payment) Act 2017 (QLD) (the ‘Act’).
2. Note, that a contract may originally have a contract price of less than $10 million, but if, due to, for example, variations, the contract price increases to $10 million or more (assuming that the contract price has increased by 30% or more since the start of the project) the contract will be caught and will require a project trust.
3. Indeed, whether you wish to hold cash retention, as opposed to some other form of security.
4. Indeed, you may wish to know that the contractor has taken appropriate account of these costs in formulating its tender price.
5. As certain subcontractors are obliged to open and administer a project trust account, with the attendant costs.
6. Section 20(2) and (4) of the Act.

For further information regarding the above, please contact any member of Cornwalls' Building & Construction team. Written by Brent Turnbull, Partner at Cornwalls Brisbane.

Disclaimer: This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.