Project Trusts for Principals
What money must be deposited into the Project Trust Account?
There are very strict rules around what money can be deposited into a Project Trust Account with heavy penalties for a breach of those rules.
This includes any and all payments made by the principal to the head contractor that relate to the Project Trust Contract including:
- payments made under the head contract;
- payments relating to a dispute resolution process or an adjudication in relation to the head contract;
- payments made by court order in relation to the head contract; and
- payments made for any other reason under the head contract.
The only exceptions to this requirement are for amounts that:
- were due to be paid before the Project Trust was established;
- have been paid into court;
- are to be withheld from payment to the head contractor because of a payment withholding request given to the principal under section 97B of the BIFA;
- are to be paid directly to a person under chapter 4 of the BIFA in connection with a subcontractor’s charge; or
- the principal has a reasonable excuse for failing to deposit into the Project Trust Account.
How is a Project Trust 'ended'?
The Project Trust is dissolved by closing the Project Trust Account and giving written notice to the Queensland Building and Construction Commissioner within 5 business days after closing the Project Trust Account. The information to be included in the notice can be found here.
On dissolving the Project Trust, the head contractor is permitted to pay itself any amount for interest that it is entitled to and any remaining amount in the Project Trust Account as long as there is no money still owing to a subcontractor.
Principal's obligations regarding subcontractor related entities
If the principal knows, or ought reasonably to know, that a subcontractor is a related entity of the head contractor, it must inform the Queensland Building and Construction Commissioner using an approved form or the myQBCC Portal within 5 business days after first becoming aware, or ought reasonably to have become aware, of the matter (max penalty: 50 PU ($6,892.50)).
Principal's obligations regarding Project Trust Accounts
If the principal knows, or ought reasonably to know, that a Project Trust is required for the head contract, and a Project Trust Account has not been opened for the Project Trust, it must inform the Queensland Building and Construction Commissioner using an approved form or the myQBCC Portal (max penalty: 100 PU ($13,785)). No timeframe is prescribed in the BIFA, however, we recommend that the principal notifies the QBCC as soon as practicable after first becoming aware, or ought reasonably to have become aware, of the matter.
Given that the head contractor is required to notify the principal after the Project Trust Account is opened, if the principal does not receive such a notice within the applicable timeframe, it ought to make enquiries with the head contractor to determine if there is an issue to avoid a penalty being issued by the QBCC.
What else do I need to know about Project Trusts as a principal?
An amount that is paid or required to be paid into the Project Trust Account cannot be used to recover a debt owed to a creditor of the head contractor, or be attached or taken in execution under a court order or process for the benefit of a creditor of the head contractor. Basically, amounts in the Project Trust Account cannot be used for the head contractor’s debts (unless, of course, the debt is owed to a subcontractor beneficiary).
The head contractor is not entitled to withdraw any amounts from the Project Trust Account, or recover any amounts from a subcontractor beneficiary, to cover the costs to administer the Project Trust or to pay fees in relation to the Project Trust. This does not mean, however, that the head contractor is not permitted to charge the principal additional costs associated with administering the Project Trust as part of the contract price. It just means that it cannot directly withdraw any money from the Project Trust Account for that purpose unless those costs are part of the contract price and are paid to the head contractor as part of a progress payment.
The head contractor can employ or engage an agent or appoint a delegate to act as its agent to do any act relating to the trust on its behalf. However, principals need to ensure that they understand what authority has been given by the head contractor to the agent or delegate.
The head contractor must deposit the amount into the Project Trust Account as soon as practicable after receiving the amount into the business account (max penalty: 200 PU ($27,570) or 2 years imprisonment).
It is important that head contractors keep a close watch on their business accounts to ensure that they quickly identify if an amount has been paid into the business account that should have been paid into the Project Trust Account. This is especially important for head contractors that have previously carried out work for the principal and that previous project did not have a Project Trust Account. It is quite common for businesses to set up 'accounts' in their financial management systems to streamline payments to their contractors but the bank accounts noted on the 'account records' for the previous project will not be applicable for new projects that have Project Trust Accounts. Little errors or oversights like this will create extra work for the head contractor to correct and also expose the principal to a serious penalty for this breach of the BIFA (max penalty: 200 PU ($27,570)).
No. Nothing in chapter 2 of BIFA creates a right of action by a subcontractor beneficiary against the principal. Any dispute that arises between the subcontractor and the head contractor in relation to a Project Trust is between those two parties. The principal does not approve or review any payments made from the Project Trust Account and has no visibility of what payments are or are not made.
Last updated: 1 January 2022