Project Bank Accounts are now mandatory for Queensland government projects, under the Building and Construction Security of Payment Act (Qld). You could be jailed for up to two years for failing to abide by the new laws.
Construction industry leaders are divided over new reforms that change the way subcontractors get paid in Queensland.
The state government enforced the heart of its contested building industry fairness laws earlier this month.
Mandatory project bank accounts came into play on March 1 2018, following approval of the Security of Payment Act (Qld) last year.
Many say this legislation is long overdue, but doesn’t go far enough. For others, it’s a step in the wrong direction.
Australia’s building industry has a poor track record, when it comes to paying construction workers. This reform aims to change that, by ensuring that first-tier subcontractors are paid in full and on time.
“Project Bank Accounts ensure progress payments are paid through a trust for head contractors and first-tier subcontractors, meaning that money intended to pay subcontractors is used only for that purpose.” Queensland Housing Minister Mick de Brenni
“The commencement of these arrangements will benefit the mums and dads, families, small business people out there having a go”, Minister de Brenni said.
Construction projects covered by this legislation must use PBAs to pay subcontractors.
The state government recently announced the first three projects impacted by the reform:
- Social housing project in Nundah
- A replacement fire and Rescue Station in Richmond
- The Inala Community Centre
If you’re part of the Queensland building and construction sector, it’s important to understand the Security of Payment Act (Qld). Failure to abide by these laws can lead to strict penalties, including up to two years in prison.
What is a Project Bank Account?
A project bank account ensures that relevant parties are paid according to the dates outlined in their building contract.
The idea is to stop companies from holding onto subcontractor payments to finance other projects, instead of paying the full amount. The head contractor is the trustee of the project bank account, but the funds are held independently to the head contractor and principal, to ensure transparency.
A project bank account oversees the following, according to the building contract:
- Money paid to the head contractor by the principal
- How much the head contractor must pay a subcontractor under a first tier subcontract
- The retention amount withheld from a subcontractor according to the first tier subcontract
- Funds that fall under a payment dispute
Project bank accounts ensure that subcontractors get paid the amount promised and head contractors receive the remainder.
Under the arrangement, funds are held in a set of three trust accounts for head contractors and subcontractors. Here they remain, until payment is due for the building project.
These three accounts separately manage:
- General trust account: progress payments from the head contractor to first-tier subcontractors
- Payment disputes account: for any amount that’s disputed
- Retention monies account: funds that are held as retention for a subcontract
The head contractor of any building project that falls under the Security of Payment Act (Qld) is responsible for setting up a PBA. They must notify the subcontractor using the approved form, which details the financial institution holding the trust accounts. This needs to happen before signing the building contract.
Timeline for Project Bank Accounts under the Security of Payment Act (Qld):
Project bank accounts came into law for Queensland government construction projects on 1 March 2018.
This is the first phase of the PBA roll out under the Security of Payment Act (Qld). For now it applies only to projects funded by the state government, valued between $1 million and $10 million (including GST).
This doesn’t include local government authorities or private developments, at this stage.
The second phase will cover new procedures for payment claims, responses and the settlement of disputed claims. This will take place from July 1 2018.
Public and private sector construction projects over $1 million should be covered by PBAs in 2019. This is subject to a review of phase one, which is set for September this year.
Who’s excluded from Project Bank Accounts under the Security of Payment Act (Qld)?
Although the PBA scheme will apply to public, government and private sectors by 2019, not all subcontractors will be covered.
Only head contractors and first-tier subcontractors are covered by Project Bank Accounts, under the current legislation.
It’s important to note that PBAs don’t extend to civil, engineering and infrastructure projects. This includes bridges, tunnels, roads and public transport.
Having said this, it appears the government hasn’t ruled out extending Project Bank Accounts to all subcontractor categories. Queensland Housing Minister Mick de Brenni signalled that PBAs could be extended to protect lower tiers of subcontractors, if required.
“We listened to industry, and our new laws mean that we will have the ability to expand the use of PBAs down to sub-subcontractor level if needed.”
Queensland Housing Minister Mick de Brenni
Other exclusions under the Security of Payment Act (Qld) include:
- Building contracts for residential construction work (one exception is when government agencies are the Principal).
- Contracts for the ongoing restoration, repair or replacement of a building.
- Government contracts advertised or tendered before 1 January 2018.
You can read more about exclusions in this government document (refer to page 11).
Why do subcontractor payment rights need to be strengthened?
Subcontractor payment rights have been a sore point for Australian construction workers for many years.
Did you know that four in 10 construction invoices are paid late across the nation?
A survey by Dun and Bradstreet shows that only 60 per cent of construction workers were paid on time, during the second quarter of 2017.
Significant issues include:
- Payment delays
- Underpayment for work performed
- The non-release of retention bank guarantees
It seems this problem is widespread across the construction industry. The Master Plumbers Association (Queensland) has stated that payment security impacts every business, worker and family in the sector.
“This is the single biggest issue faced by every plumber, gasfitter, painter, electrician, bricklayer, carpenter, plasterer, fire protection worker, air-conditioning installer, shopfitter, tiler and roofer as well as every other trade across this state.”
Submission to Queensland Parliament’s Public Works and Utilities Committee
“There is not a single plumber in Queensland who has not been impacted by non-payment or extremely late payment.”
The best way forward – support for project bank accounts:
The Master Plumbers Association of Queensland supports the introduction of PBAs. They’re joined by Master Electronics Australia, Subcontractors Alliance and the National fire Industry Association Australia. These organisations believe that building industry fairness laws will significantly boost payment security.
But there’s concern about secondary subcontracted parties being excluded.
The Subcontractors Alliance is one organisation pushing for legislation to cover engineering infrastructure projects. They say subcontractors and suppliers in this sector face extended payment times of 90 to 120 days.
“Project bank accounts don’t work on any level”:
Other stakeholders, such as Master Builders, oppose the roll out of project bank accounts completely. They argue that PBAs will create more red tape, increase litigation, delay payment and lead to higher construction costs. The Housing Industry Association and Property Council of Australia agree.
They’re concerned that PBAs will cost the industry and taxpayers money, rather than helping subcontractors get paid.
“The administrative burden will be significant and the entire industry will be required to change their payment mechanisms for no protection of subcontractors or anybody else.”Master Builders Queensland
Despite their opposition, Master Builders recently held a forum to prepare members for changes in the Security of Payment Act.
For better or worse, this legislation is guaranteed to shake up the way subcontractor payment is managed in Queensland. No doubt the rest of Australia is watching too!