Why Project Bank Accounts won't work

Builders will still have control of the PBA, leaving subcontractors exposed to unscrupulous builders

Currently builders pay subcontractors from their own bank account. Their subcontract arrangements are not reported to the owner and often the owner is not even aware that there are subcontractors on the project – they may know of some but not all. Each month, the builder submits a payment claim to the owner for approval. They are often also required to provide a statutory declaration declaring that all subcontractors, suppliers and employees have been paid what they are entitled to be paid at that time, which serves to ensure that all payments to others have been made. Unscrupulous builders can and do flaunt the law and sign false statutory declarations. However, they run the risk of going to jail for falsifying a statutory declaration.

The Bill does not suggest any material change to this process. It is proposed that the builder administers the trust account. There is nothing to stop them, other than the threat of jail, from taking all the money out and not paying their subcontractors. In essence, there is no change – there is no ‘security’ that the subcontractors will be paid what they are entitled to be paid by the builder.

What’s confusing is the Bill is attempting to keep money away from the builder, who is the very person in control of the account.

Subcontractors will still need to prove in court they are owed money before getting paid

The Bill is trying to provide security over the subcontractors’ retention moneys in the event the builder becomes insolvent. However, as it is currently written, all subcontractors will need to prove (in court), what they are entitled to before they can access any money in the retention trust account.

The Bill should be amended so that the beneficial interest of the subcontractors is the amount noted against their name on the PBA payment instructions. That is the amount that the builder has set aside for the subcontractors – at least let the subcontractors access that money when they are entitled to it.

Head contractors can withdraw all retention moneys from the retention account entirely and at any time

The Bill permits the builder to withdraw the whole of the retention moneys from the Retention trust account – not just the amount needed to fix defects, but all of it and at any time. The Bill should be amended to restrict the builder so that it can only access those funds if the subcontract allows for it; otherwise the Retention trust account will have a zero balance, which won’t help the subcontractors.

PBAs will not deal with disputed funds

The Bill requires disputed funds (as defined in the Bill) to be held in a Disputed Funds trust account, but does not provide any mechanism for those moneys to be paid out to anyone. The Bill should be amended so that there is a way to access those funds. For example, the subcontractor must take action to resolve the dispute within 10 business days, otherwise the money is transferred back to the general trust account for payment to others. If there is no mechanism for that money to redistributed, it will lock that money up rather than be paid to the subcontractors.

PBAs won’t mean subbies get paid in the event of insolvency

The Bill allows the owner/principal to step into the builder’s shoes as trustee in the event the builder becomes insolvent or the head contract is terminated. However, no payments can be made from the trust accounts until the principal determines entitlements for all subcontractors. The fact is that the principal will not have the information necessary to be able to determine entitlements, so no payments can be made to any of the subcontractors until the principal reviews all of the history of the project.

However, if the amendment proposed at item 2 above is made, the principal will have the power to order payments of the amounts noted on the payment instructions to the subcontractors. If not, the money will sit in the trust accounts until court action is completed for everyone, which will take a long time.

There are other elements of the Building Fairness bill that won't work

Changes to the Building & Construction Industry Payments Act will create an unreasonable cost and administrative burden for no benefit.

A payment schedule must be issued even if the builder intends to make the payment in full by the due date for payment. If they don’t, there is a penalty. This means that all respondents (not just builders, because this part of the Bill applies to every person responsible for payment) will need to issue a payment schedule for every payment that they make.  The administrative burden of doing this of no benefit to anyone, is significant and completely unnecessary.  If payment is to be made in full and on time, why should the respondent issue a notice saying that?

An amendment to the Bill is required so that the requirement to issue a payment schedule only applies where there is a dispute over the payment claim.  This will still achieve the aim of the Bill without creating thousands of unnecessary documents each week.

With respect to QBCC Act changes, builders will receive demerit points when they are issued a direction to rectify defective work by the QBCC – even if the direction relates to a subcontractor’s defective work and the direction is complied with.  

In light of the QBCC’s recent policy change relating to such directions, the imposition of demerit points (even if the builder complies with the direction and rectifies the defective work) will result in the loss of licence for many builders. The Bill should be amended so that demerit points are only imposed if the direction is not complied with.

The Bill should also include an amendment so that where the defective work was done by the subcontractor, the direction is only given to the subcontractor. This would ensure that all licensees maintain a high level of workmanship and when they do not rectify their own defective work, then they are penalised. This is an issue that creates a lot of the angst in the industry regarding payment disputes particularly with regard to retention moneys.  If these amendments were made, the Bill would go closer to achieving its overall aim.

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