Disputed funds in project bank accounts

New laws

The Building Industry Fairness (Security of Payment) and Other Legislation Act 2020 received assent on 23 July 2020.

This Act will replace project bank accounts with a new trust account framework, delivering a more streamlined framework. Read about the new trust account framework.

The following information only applies to project bank accounts for certain government contracts tendered after 1 March 2018 up to 28 February 2021.

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.

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.

Depending on the nature of the dispute, 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 amount stated in the payment instruction
  • if no payment instruction was prepared, the full amount proposed in the payment schedule for which the head contractor is liable.

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

The head contractor must ensure the disputed amount can be identified as being held for the relevant subcontractor, such as by using the subcontractor’s name or initials when making the transfer.

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

The subcontractor may decide to start a dispute resolution process in relation to the amount. A dispute resolution process includes a proceeding in a court or tribunal, an adjudication of a payment claim, or arbitration if provided for under the subcontract.

Holding amounts in disputed funds account

If the amount is the subject of a dispute resolution process, it must be held in the disputed funds account until the end of the process, including any appeal period.

If the subcontractor has not started a dispute resolution process within 60 days after the amount was transferred into the disputed funds account, the head subcontractor should return the amount to the trust account it came from as soon as possible.

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.

If a subcontractor is successful in a dispute resolution process and the amount owed to them 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.

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