Overview of project bank accounts – transcript
In this Overview of project bank accounts video, we're introduced to PBAs, and given information on what they are, how they're structured, when they're needed, who's involved and how the payment process works.
This is an overview of project bank accounts which are to be used on certain state government building and construction projects between one million and ten million dollars.
A project bank account is simply a different way of paying parties working on a building and construction project.
For each contract, a new, unique project bank account is set up. Not all projects will require a project bank account; only those that meet a range of thresholds.
The project bank account allows payments to be distributed from the principal (in this case, the state government) to the head contractor and its subcontractors.
The project bank account also holds any cash retention monies withheld under subcontracts with the head contractor.
Security of payment is an ongoing challenge in the building and construction industry. Project bank accounts is just one thing the Queensland government is doing to address this issue.
Project bank accounts allow subcontractors to be paid faster and provide a better way to manage retention funds. They also increase transparency by allowing the state government principals to see how money flows.
Because progress payments for a project are held in trust and not in the head contractors' own bank accounts, project bank accounts also provide certain additional protections if a head contractor becomes insolvent.
A project bank account consists of three separate bank accounts. A general account which receives and distributes funds. A retention account which holds subcontractor's retention money until it is ready to be paid out. And, a disputed funds account, which holds certain disputed amounts whilst a dispute resolution process is underway.
Project bank accounts do not alter the contractual arrangement between a head contractor and its subcontractors. A head contractor can still manage subcontractor performance and withhold payment in accordance with the subcontract and legal requirements when obligations have not been met. Both head contractors and subcontractors can still seek adjudication or start legal action in a dispute.
Generally, the process for claiming and making progress payments follows the same time frames and processes that currently apply under the contract and in accordance with the existing building industry laws.
There are four key parties involved in the PBA process – the principal, the head contractor, the subcontractors and the bank.
During this initial first phase, the principal will be the Queensland Government and possibly some state authorities if they decide to opt in.
All subcontractors doing work under a subcontract to a PBA building contract must be paid from the project bank account. Subcontractors cannot opt out of the project bank account, and only the first-tier subcontractors are included.
In most cases, suppliers are not paid using the project bank account. But you should review the definitions in the Act to confirm you don't have any suppliers who might need to be paid through the PBA.
The payment process starts when a head contractor submits a payment claim to the principal's superintendent for work that has been completed during the period. The superintendent assesses the payment claim and issues a payment schedule to the head contractor outlining what it intends to pay. On the due date, the principal makes a head contractor's payment into the project bank account. These funds are now available to pay subcontractors.
The subcontractor follows a similar process. The subcontractor will give a payment claim to the head contractor, who assesses the claim and issues a payment schedule advising the subcontractor how much it is going to pay. Remember, under coming Building Industry Fairness Act reforms, if the head contractor does not provide a payment schedule they will be liable to pay the subcontractor the full amount claimed by the due date.
The head contractor must then follow several important steps to pay their subcontractors and to pay themselves.
First, the head contractor must make a payment instruction which specifies how and when the amounts in the project bank account will be distributed, and how much will be paid in retention and disputed funds (if relevant). The payment instruction or payment file is given to the bank and, on the date specified, the bank will disperse the funds as directed in the payment instruction.
After the payment instruction file is given to the bank, each subcontractor is notified of how much they will be paid, when and into which account the amount will be paid. A copy of this payment information is also provided to the principal.
This payment information allows subcontractors and the principal to check all the details of payments and to confirm the amounts match what was scheduled to be paid. The principal will also be checking that the head contractor has paid retentions and that there has not been any fraudulent payment or amounts unlawfully taken by the head contractor.
This concludes the introduction to project bank accounts.
Further information is available on the department's website, including videos, guidance material and factsheets.
Watch the Overview of project bank accounts video.
- Last reviewed: 26 Feb 2019
- Last updated: 14 Mar 2019