Australia:

The new project trust regime in Queensland begins March 1, 2021

February 18, 2021

McCullough Robertson

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Who should read this

All principals, prime contractors and subcontractors performing construction and construction work in Queensland, especially those involved in state government projects.

Things you need to know

Last year we introduced the new project trust regime under the Law on the Fairness of the Construction Industry (Payment Security) 2017 (Qld) (BIF law) to replace the existing project bank account regime, with phase 1 of the new regime starting at the beginning March 1, 2021 (The full article can be found here).

March 1, 2021 is approaching and Phase 2A begins on July 1, 2021Now is a critical time to be clear about the start of this new project trust regime and to examine how it will affect your current financial and project management procedures.

Quick refresher on ‘Project Trust Accounts’ (PTAs)

According to the new project trust regime under the BIF Act, a main contractor must set up a PTA (instead of the three required trust accounts required by the project bank account system) together with a separate PTA for each “eligible contract” for the “project trust work” be held for all eligible contracts of the main contractor. This new regime makes a controversial cash account superfluous.

Where a PTA is required:

  • The principal pays all monies payable to the prime contractor directly to the PTA, and first tier subcontractors are then paid directly by the PTA. and
  • The main contractor must open the PTA with an approved financial institution within 20 working days after the first subcontract is in place (noting that the word “trust” must appear in the title of the account).

Phase 1 PTAs

Phase 1 applies to “eligible” construction contracts from the state government in which:

  • The contract will be concluded on or after March 1, 2021.
  • The contract price is between $ 1 million and $ 10 million (even if the original contract price is less than $ 1 million, the contract may become a contract requiring a PTA if the contract price is $ 1 million due to a general price increase US dollars exceeds 30% or more during the course of the contract);
  • The main contractor subcontracts all or part of the work it has carried out for the state government.
  • more than 50% of the contract price is attributable to “project trust work”; and
  • The contract is not an “exempted contract” (e.g. contracts for maintenance only, small residential work, and contracts with less than 90 days to complete – see our previous article here for the full list).

“Project trust work” broadly encompasses a variety of activities related to the construction, construction, renovation or repair of a building and does not include “construction work” as used in the Queensland Building and Construction Commission Act 1991 (Qld). The project’s trust work includes earthmoving and excavation work, electrical work, and scaffolding – see our previous article for more examples.

What do you have to do

In preparation for the start of Phase 1 of the new project trust regime on March 1, 2021 (and Phase 2A on July 1, 2021), you should carefully consider how to adjust your current financial and project management procedures to ensure compliance with the incoming changes. You may also want to check if there are any necessary changes to your contracts.

It is now particularly important for prime contractors to consider:

  • How will your main contracts accommodate both the current system bank account system and the transition to the new project trust system?
  • how their staff will manage the management of PTAs and escrow accounts, including whether the prime contractor (in his role as trustee) will designate a person to be responsible for managing the escrow account on their behalf; and
  • When a person is designated by the prime contractor to manage their Retention Trust account, they must ensure that the person completes the Retention Trust training. If no person is nominated, the main contractor must complete the Retention Trust training himself.

As outlined in our previous article, the new project trust regime will be introduced in phases 2021, 2022 and 2023. It is important to know the starting dates for each of the phases listed below. After the start of phase 1 on March 1, 2021, the next phases include:

  • Phase 2A: from July 1, 2021The project trusts will expand to include both state government contracts and contracts for health and hospital services of $ 1 million or more.
  • Phase 2B: from January 1, 2022Extends the requirement for project trusts to include the private sector, local government, legal agencies and state-owned companies that are eligible for contracts of US $ 10 million or more;
  • Phase 3: from July 1, 2022Project trusts will continue to apply to eligible contracts worth $ 3 million or more. and
  • Phase 4: from January 1, 2023The requirement for project trusts is extended to all eligible contracts worth USD 1 million or more.

The content of this article is intended to provide general guidance on the subject. A professional should be obtained about your particular circumstances.

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