7 answers to your FAQs about PBAs
From 1 March 2018, the head contractor on a construction project has the responsibility of managing the funds held in a Project Bank Account.
That means the head contractor must comply with the strict requirements of the Building Industry Fairness (Security of Payment) Act 2017 (‘the Act’) when operating a PBA.
Project Bank Accounts are trust accounts which are held by you as the head contractor, for the benefit of the subcontractors on a project.
Each subcontractor becomes a beneficiary to the trust account when they enter into a subcontract on the project. The subcontractors remain as beneficiaries until they are paid all amounts (including retention monies) they are entitled to be paid.
If you’re not sure whether the project you are working on needs a Project Bank Account, see our previous article here.
1) What funds must a Project Bank Account hold?
The principal on a project must deposit all payments to the general trust account, including:
- Payments paid to the head contractor under the building contract; and
- Payments that otherwise reduce the unpaid amount of the contract price of the building contract.
Even if the principal incorrectly pays any funds directly to the head contractor (and not into the trust account), the head contractor must deposit those funds received from the principal to the general trust account as soon as is practical after receiving it.
2) What are the funds deposited in a PBA used for?
All funds held in a Project Bank Account must be for the following limited purposes:
- Paying the head contractor an amount the head contractor is entitled to be paid; or
- Paying a subcontractor an amount they are entitled to be paid; or
- Paying an amount held as retention; or
- Paying an amount which is the subject of a dispute.
All retention monies must be held in the retention trust account and must be clearly identified as being held in trust for a specific subcontractor.
3) When should a payment be made from a Project Bank Account?
All payments to subcontractors must be paid from the Project Bank Account, with no exceptions.
Even if a head contractor pays a subcontractor in full and on time, if the payment is not made from the project bank account, it will be a breach of the requirements under the Act and penalties can apply.
Additionally, the head contractor is unable to withdraw any funds from the trust account unless it is to:
- Pay a subcontractor an amount to be paid under a subcontract;
- Pay the head contractor an amount due under the head contract, which is over and above the amount due to the subcontractor for the same work;
- Return an amount paid in error by the principal; or
- Transfer money to another trust account as permitted under the Act.
4) What if there is a shortfall in a PBA?
If there are insufficient funds in a PBA trust account to pay a subcontractor, the head contractor must deposit funds to the trust account to ensure there are sufficient funds to make the required payment.
The top up of the trust account must be done as soon as the head contractor becomes aware of the shortfall.
In circumstances where there is a shortfall (and the trust account has not yet been topped up) and there are two or more subcontractors to be paid, the amount to be paid to the subcontractors is to be reduced in proportion to the amounts due to be paid.
5) When can the head contractor pay themselves?
The head contractor is only able to pay themselves from a trust account in circumstances where:
- There will still be sufficient funds available after the withdrawal to pay all amounts due to the subcontractors; and
- The withdrawal will not reduce a retention amount.
The funds held in the trust account cannot be used to pay the head contractor’s debts, and the head contractor is not entitled to be paid for administrative costs or bank fees associated with the running of the Project Bank Accounts.
6) What happens to interest earned on Project Bank Accounts?
The head contractor is entitled to retain any interest earned on funds held in Project Bank Accounts.
However, the head contractor is not entitled to invest these funds, with the only interest permitted being the interest paid by the bank at which the account is held.
7) What records do you need to keep for Project Bank Accounts?
Detailed written records must be kept of all transactions for a project bank account. These records must:
- Explain the transactions in sufficient detail;
- Provide a true position as to the outcome of the transactions;
- Enable accurate accounts to be prepared;
- Enable proper audit of transactions; and
- Be in the English language.
Note also that the records must be retained for at least 7 years.
For advice on operating Project Bank Accounts, talk to MDL
If you’re not sure how to deal with a Project Bank Account, McCarthy Durie Lawyers can help. Contact our experienced Building and Construction Law team on 3370 5100 or fill out the contact form here.