The revised regulation on the management of project finances in the building and construction field is now in effect in Queensland. The Security of Payments Act of 2017, developed to protect payments and retention, was modified to include a more streamlined approach regarding account requirements.
The Project Trust Account framework seeks to strengthen the security of payments to subcontractors in the building and construction industry. This framework applies to eligible contracts of entities under the state, hospital, health services, and private sector that require head contractors to hold the money paid by the project principal in a separate trust account for subcontractors.
A trust account is an arrangement wherein a third party, such as a bank, holds funds for another party. It has two types: retention and project trust accounts. A retention trust account is where eligible cash retention amounts are withheld until they become payable. It is set in a different fund to protect the employer from a contractor’s defective or inefficient work.
On the other hand, a project trust account is a type of financial account where money is paid and held in trust for contractors and subcontractors until payments for a project become due. Under the framework, the head contractor must have a project trust account to ensure that all parties get paid for their work.
Generally, the project trust account framework is applicable for projects where more than half of it involves project trust work, and at least one subcontractor is engaged for part or all related tasks. The regulation defines project trust work as the construction, extension, renovation, improvement, or repair of a building.
The framework coverage expands as head contractors must comply with various administrative requirements. Those who violate the framework will be subject to penalties, which is why construction companies must be sufficiently equipped to manage the additional load. They must adjust to keep track of the requirements and files relevant to the project with the help of document management software.
It is also crucial for construction companies to have construction estimating software that allows users to create accurate quotes or estimations. This estimation helps determine the profitability and feasibility of a potential construction project.
For more details about the project trust account framework, here is an infographic from Bizprac.