Trusts will jolt the construction industry to its foundation. Are you ready?
By Michael Chesterman
If we are honest, when significant changes come that will disrupt the status quo of how we do things, most of us just put our heads in the sand and hope it all goes away.
I know for a fact that many Head Contractors, in particular, have wished the new QLD State Government Project Trusts regime away because of the very considerable responsibilities, added costs and risks it imposes on them.
The fact of the matter is Trusts are not going away, something I made clear in an article entitled Trusts are a reality. Affected parties need to take note!.
In this article I stated:
“Anybody reading my previous trust articles will be aware I have highlighted many issues in the spirit of contributing in a positive manner to the development of the BIF Act.
However, I am also a realist and have accepted that this trust regime, in its current form, is a reality. Fighting or agitating for changes is over. Consequently, I feel it is incumbent on me and the Helix team to alert parties to the fact that there is trust train hurtling towards them at breathtaking speed.
The QBCC has produced helpful guidance information on the new trust framework. In the first instance, all affected parties should have a read of this information.”
Given that it’s here to stay, let’s take a quick look at the road ahead…
Over these five major phases, the framework progressively expands to capture more projects and contractors.
An ‘eligible contract’ is a contract where:
- the party is the type of party (Head Contractor, Principal, Subcontractor) included in that transition phase;
- the contract price is as specified for that transition price; and
- more than 50% of the contract price is for Project Trust work.
Types of Trusts
Two types of trust accounts may be required if certain contract and other conditions are met:
- one project trust account per eligible contract; and
- one Retention Trust account (if applicable) to hold cash retentions across multiple projects and subcontracts.
So, if a Head Contractor is working on 5 live projects, then it will have 5 x Project Trust accounts and 1 x Retention Trust account.
Who is required to establish Trusts?
- For Project Trust accounts, the contracted party for the contract that requires the Project Trust (i.e. the ‘Project Trust contract’) is responsible for establishing and maintaining the trust (generally the Head Contractor). They are the Trustee.
- For Retention Trust accounts, the contracting party who is withholding retentions from the contracted party’s/parties’ payments is responsible for establishing and maintaining the trust. They are the Trustee.
Initially, the trustee will, in most cases, be the Head Contractor. However, as Retention Trusts are progressively expanded to cover more projects, the trustees may also be the Principal or a Subcontractor that holds cash retentions from its Sub-subcontractors.
Significant records have to be maintained by the trustee.
These records include:
- an individual trust ledger;
- a copy of each contract for which the trust is required;
- all payment claims and supporting statements made by or given to the trustee relating to the contract;
- all payment schedules provided by or made to the trustee concerning the contract;
- all variation documents;
- all bank statements;
- monthly bank reconciliations; and
- a raft of other documents — a full list can be found in the regulations here.
Many of these documents are already part of the day to day record keeping of construction businesses but there are onerous requirements to formalise record keeping under the Trusts regime.
The QBCC has published a Project and Retention Trusts Regulatory Guide that all affected parties should review.
In this guide, the QBCC outline the range of possible compliance responses they may take in specific circumstances.
Potential Penalties have been described as ‘Draconian’
There are many penalties specified throughout the legislation for non-compliance with various aspects of the Trusts regime ranging from small fines to large fines or imprisonment.
New Regulations Imposed on Banks
Under the new Trust regulations, Banks that hold Trust monies on behalf of Trustees must now register with the QBCC to become an “Authorised Financial Institution”.
Each Bank must enter into a specific Deed with the QBCC that will underline their responsibilities under the various regulations.
At the date of publishing this article CBA, NAB, Westpac and Macquarie banks have been authorised by the QBCC.
Like all substantial and far-reaching legislation, until it is fully implemented and ‘tested’ by parties, there are numerous issues that will only be revealed over time.
There may be parties who deliberately look to avoid their obligations. This is an unfortunate fact.
Other parties may seek to minimise the impact on their operations by exploring questionable contractual and financial options.
There will be other parties who will genuinely struggle to come to terms with their new responsibilities. It is this category of parties that Helix are very interested in assisting.
But one thing is for sure, the building industry collectively is a very resilient, hardworking and tenacious bunch who turn up every day to work safely and fairly to provide generationally valuable buildings and structures that we all live, work and play in each day.
Are you a QBCC licensee that will have to establish Trusts?
We’ve developed a quick and easy to use tool to let you know if and when your business will be affected by the new Trusts regime, give it a try at the bottom of this article on our website here.
Not intended as legal advice. Read full disclaimer.