NSW Retention Money Trust Account
Trust account requirements
A head contractor in a construction contract with a principal that has a value of at least $20 million, has certain obligations.
- hold retention money in trust for the subcontractors entitled to the money;
- ensure that the money is paid into and retained in a trust account established with an authorised deposit-taking institution (ADI), including banks, building societies and credit unions approved under section 87 of the Property and Stock Agents Act 2002;
- ensure the retention money is paid into the trust account as soon as possible, but no later than 5 business days after the head contractor is required to retain the retention money.
- The $20 million threshold is calculated by reference to the amount of consideration payable under the head contract. If the value of the contract reaches the $20 million threshold by variations, then subsequent subcontracts entered into by the head contractor will be subject to the trust account requirements.
- If the $20 million threshold is reached after entry into the head contract, then the trust account requirements under the Regulation do not apply to subcontracts entered into before the $20 million threshold was reached.
What is retention money?
Retention money means money retained by a head contractor out of money that the head contractor is required to pay a subcontractor under a construction contract as security for the performance of obligations of the subcontractor under the contract.
For example, 5% of the contract’s value may be held as the retention money, or there could be an arrangement where there will be a 10% deduction from each of the subcontractor’s progress payment which is kept as the retention money component. Each construction contract may contain different terms and can be negotiated.
Establishing a trust account
When establishing a trust account for retention money, there are certain requirements, such as notifying the Secretary of the account’s details and notifying the ADI that it is an account opened the for the purposes of the Security of Payment laws.
For more information on the requirements when opening a trust account Click Here for the 2020 Regulation and refer to section 9.
Withdrawals from a trust account
A head contractor must not withdraw retention money from a retention money trust account except for the following four reasons:
- payment of money in accordance with the terms of the construction contract under which the money was retained by the head contractor, or
- if the head contractor and subcontractor make an agreement in writing, or
- to pay an amount that an adjudicator has determined the respondent must pay to the claimant, or
- in accordance with an order of a court of tribunal
- Money in a retention money trust account cannot be used by the head contractor to pay their own debts
A head contractor must keep records in the form of a ledger to keep track of things such as the amounts deposited into or withdrawn from the account.
The ledger is to be provided to the subcontractor at least once every 3 months, or as often as may be agreed in writing by the head contractor and the subcontractor (but at least once every 6 months).