News Alert: Retention Money Trust Scheme to commence from 1 May 2015
The Building and Construction Industry Security of Payment Amendment (Retention Money Trust Account) Regulation 2015 (NSW)
The Building and Construction Industry Security of Payment Amendment (Retention Money Trust Account) Regulation 2015 (NSW) (the retention money trust account regulations) is set to commence in New South Wales from 1 May 2015 (the retention money trust scheme).
The retention money trust scheme will apply to all head contracts for non-residential building works worth over $20million that are entered into after 1 May 2015.
What is the retention money trust scheme?
Essentially, the retention money trust scheme requires that a head contractor who holds retention money from a subcontractor, is to hold that retention money in a trust account opened with an approved authorised deposit taking institution on trust for that subcontractor.
The $20million threshold
The retention money trust account regulations provides that the $20million threshold includes any increases to the contract sum by variations. This means that where a head contract did not initially meet the threshold of $20million by its contract sum, but later reached or exceeded the threshold, then the head contractor becomes subject to the retention money trust scheme, although only for the subcontracts entered into after the $20million threshold was met.
There only has to be one trust account
Whilst the head contractor has the option to open separate trust accounts for each subcontractor or each project, the retention money trust account regulations also provide the head contractor with the option to operate one trust account for all retention money held on trust under the retention money trust scheme, so long as each individual subcontractor’s retention monies can be identified and that all retention monies are kept separate by book keeping entries.
When can the retention money held in trust be withdrawn?
A head contractor can withdraw money from the retention money trust account:
- for the purpose of payment pursuant to the terms of the construction contract under which the retention money was held;
- as agreed in writing between the head contractor and the subcontractor concerned;
- in accordance with the order of a court or tribunal.
All circumstances of a withdrawal of retention money from a trust account must be carefully considered by the head contractor to avoid being in breach of the regulations.
Interest earned on trust monies
Any interest earned by monies held on trust for a subcontractor is to be dealt with in the same terms as the trust money, unless there is an agreement in writing (either in the head contract or separately) between the head contractor and subcontractor, for the interest to be paid otherwise.
Specific requirements for opening a retention money trust account, book keeping and monetary penalties
As a head contractor, should a particular head contract meet the $20million threshold, you should be aware that there are also specific requirements for the opening of the retention money trust accounts, notice requirements and specific book keeping requirements that you will also need to consider.
Monetary penalties, up to $22,000, apply for breaches of the retention money trust account regulations.
Please contact us to discuss your requirements further or should you have any questions.