NSW Retention Money Trust Account
The NSW Building and Construction Industry Security of Payment Amendment (Retention Money Trust Account) Regulation 2015 came into effect on 1 May 2015. It applies only to subcontracts entered into by a head contractor after 1 May 2015 and to construction projects with a value of at least $20 million. The regulation requires head contractors to hold retention money under subcontracts in a separate trust account. The effect of the Regulation is to create a new record keeping and reporting obligation for head contractors.
Summary of key provisions:
- The Regulation applies to retention money held by a head contractor in relation to projects valued at over $20 million under a construction contract with a principal entered into after 1 May 2015.
- 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.
- The retention money held by a head contractor must be held in trust for the subcontractor in a trust account with an “approved ADI”, (an authorised deposit-taking institution), including banks, building societies and credit unions.
- The head contractor may choose to establish the trust account for a particular subcontractor or a particular project by the head contractor. The account name must include the name of the head contractor and the words “trust account”. The head contractor must tell the deposit-taking institution that the purpose of the account is as a trust account pursuant to the Regulation.
- The head contractor is required to advise the Chief Executive of the Office of Finance and Services of certain details relating to the trust account.
- A head contractor may only withdraw money from the trust account if one of the events are triggered:
- for the purpose of the payment of the money in accordance with the terms of the subcontract;
- as agreed to in writing between the head contractor and the subcontractor; or
- in accordance with an order issued by a Court or a Tribunal.
- A head contractor may not use retention money held in a trust account to pay the head contractor’s debts.
- As part of the changes, unless it is agreed, interest on retention money is also held on trust for the subcontractor.
- It is now an offence to withdraw retention money from a trust account otherwise than by cheque or electronic funds transfer.
- A head contractor is now required to keep records for at least three years once the account is closed in relation to the retention money trust account including money paid in and out of the trust account.
- The Chief Executive may request information from the head contractor, subcontractor or approved ADI and this extends to information concerning the value of the construction project.
- A head contractor must now annually provide to the Chief Executive:
- an annual review report; and
- a retention account statement.
- The annual review report must be certified by a registered company auditor.
- The retention account statement is required to be submitted in the form required by the Regulation and set out in the Regulation. Upon submitting this statement, a fee of $1,500.00 is to be paid to the Chief Executive.