The Queensland Government is drafting amending legislation that will expand the mandatory use of Project Bank Accounts (PBAs) to all Government and private sector building contracts over $1M (excluding GST).
The expansion follows the recommendations of the Panel established by the Queensland Government to review the operation of PBAs that were introduced on a "trial basis" in 2018 under the Building Industry Fairness (Security of Payment) Act (BIF Act) for Queensland Government projects between $1M and $10M.
The expansion is planned to occur in phases as follows:
- From 1 July 2020 – PBAs will be required for all Government projects above $10M (in addition to the existing $1M-$10M range).
- From 1 July 2021 – all private projects with a value above $10M.
- From 1 January 2022 – all private projects with a value above $3M.
- From 1 July 2022 – all private projects with a value above $1M.
The phasing of the PBA reforms is intended to allow businesses time to manage the financial transition to PBAs and implement changes to business practices. Cash flow is seen as the lifeblood of the construction industry and the PBA reforms will require contractors to change the way in which they fund working capital for their businesses. If retention moneys and funds owed to subcontractors are to be quarantined in project bank accounts, businesses will need time to adjust their financial management practices. The phased implementation will give contractors time to source alternative working capital from savings, increasing debt or liquidating assets. Contractors involved in the PBA trial phase estimated that it would take 2-3 years to rebuild the required capital as a result of not having access to retention as part of cash flow.
There are also significant internal measures that need to be put in place to ensure compliance with the PBA scheme requirements. Head contractors will face serious consequences if they fail to comply with the PBA requirements including fines and loss of QBCC licences. All contractors intending to hold cash retention will need to undertake compulsory trust account training prior to opening a retention trust account.
Principals also need to be across the arrangements. The legislation restricts the pathways through which contractors are paid and requires principals to hold retention moneys on trust. The reforms generally shift the oversight role from principals to the QBCC and simplify reporting obligations. However, the Queensland Government's response to the Panel recommendations anticipates that principals will still have an obligation to report suspected breaches.
What's next?
The devil is in the detail. Until now, PBAs have been operating in trial mode on a limited range of Government projects. The Panel recommendations streamline the PBA trial model in a bid to reduce administration and compliance costs as PBAs are rolled more broadly out to the private sector.
The staggered implementation will allow the private sector time to prepare for the financial management changes. The Panel recommendations, coupled with the Queensland Government's response, provides a fairly clear vision of what the expanded PBA framework will look like. The Queensland Government has just released draft legislation implementing many of the Panel recommendations. Stay tuned for further updates on how the upcoming PBA reforms will affect the Queensland building and construction industry.