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Disputed funds in project bank accounts

Payment disputes

A project bank account (PBA) payment dispute occurs when a subcontractor makes a payment claim and the head contractor either:

  • provides a payment schedule and then pays less than the amount scheduled
  • doesn't provide a payment schedule and pays less than the amount claimed.

The disputed amount may be the difference between:

  • the amount proposed under the payment schedule and the amount stated in the payment instruction
  • the amount the head contractor is liable to pay the subcontractor and the payment instruction
  • if no payment instruction is prepared, the full amount proposed in the payment schedule or for which the head contractor is liable.

For the full definition, read the Head contractors guidelines (PDF, 981KB).

Dealing with disputed funds

When there is a payment dispute with a subcontractor, the head contractor needs to transfer the disputed amount into the disputed funds trust account. Ensure the disputed amount can be identified easily against the subcontractor's name, such as by using subcontractor name or initials.

Then they must advise the subcontractor immediately and in writing they they've transferred the amount into the disputed funds trust account.

The subcontractor can either:

  • agree with the head contractor's claim to the amount that hasn't been paid or retained, e.g. as a set-off (and they may be able to claim the outstanding amount in their next payment claim)
  • disagree and commence a dispute resolution process to claim the amount they believe is owed to them under the subcontract.

Dispute resolution within 60 days

From the date they receive the notification, the subcontractor has 60 days to start a dispute resolution process regarding this amount. During this time, the disputed amount remains in the disputed funds account.

If their claim is successful, the head contractor uses the amount in the disputed funds trust account to pay the subcontractor.

Dispute resolution after 60 days

If the subcontractor doesn't start a dispute resolution process within 60 days, the head subcontractor should return the amount to the trust account it came from as soon as possible.

The subcontractor may still be able to start a dispute resolution process after 60 days, but the disputed amount won't be held in trust until the dispute is resolved.

In this situation, if the process is successful, the head contractor must pay the claimed amount through the PBA by topping up the PBA from their funds.

If the amount successfully claimed is more than the amount in the disputed funds account, the head contractor will pay the remainder from their own funds. If the amount is less than what's in the disputed funds account, the head contractor may pay the remainder to themselves.

Withdrawing disputed funds

The head contractor may withdraw disputed money from the PBA (using a payment instruction) only to pay the subcontractor or themselves in line with the outcome of a dispute resolution process.

Disputed amounts can't be transferred during an ongoing dispute if the dispute process was lodged within the first 60 days.


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