Making payments from 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.

A head contractor is legally and contractually obliged to pay its subcontractors on time and in full for work completed. All payments to subcontractors must come from the project bank account (PBA).

This information outlines the process for paying subcontractors and head contractors.

If you're a subcontractor and having difficulty getting paid, read these dispute resolution options.

You can also notify the Queensland Building and Construction Commission (QBCC) using the PBA complaint form (PDF, 802KB).

Note: Suppliers are not paid from the PBA. Head contractors should pay suppliers according to existing contractual arrangements. If you're unsure if you have suppliers or subcontractors, read the criteria for a PBA.

Paying subcontractors

Head contractor claim

A head contractor must prepare a payment claim, including a subcontractor payment summary and statutory declaration, and submit it to the principal according to the building contract.

The principal:

  1. assesses and certifies the work completed
  2. issues a payment schedule
  3. directs payment into the PBA when it's due.

The principal must make all payments by depositing into PBA's general trust account via electronic transfer (rather than the head contractor's private account).

If you're a principal for a PBA contract, read more details about your obligations in the Principals guidelines (PDF, 1.1MB)

Subcontractor claim

A subcontractor must make a valid payment claim to the head contractor according to their subcontract.

When the head contractor gets a subcontractor's payment claim, they:

  1. certify the completed work
  2. give the subcontractor a payment schedule (unless they intend to pay in full)
  3. issue a PBA payment instruction to the financial institution stating how much to transfer, to which account (e.g. the subcontractor's bank account, or the retention or disputed funds trust accounts) and when to do so
  4. give the subcontractor and principal a copy of the payment instruction information.

Insufficient funds

The date that subcontractors need to be paid may not align with the date that the principal provides the payment, for example, if the head contractor and subcontractors have different payment terms.

However, the head contractor must ensure there are enough funds to make the payments when they are due.

An insufficient balance is not an acceptable excuse for failing to pay subcontractors.

When the relevant trust account doesn't have enough funds when an amount becomes due, the head contractor must cover this shortfall by depositing the necessary amount (i.e. the difference between the available balance and the amount due to be paid) into the trust account.

For example, if the head contractor needs to pay $6,000 to subcontractors on a specific date, and the balance of the general trust account is $4,000, the head contractor must deposit $2,000 into the general trust account before the due date.

Note: A head contractor may reimburse itself for any top-up amount after being paid by the principal’s progress payment if this withdrawal payment is made in accordance with other provisions in the Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) (see sections 31 and 32).

Failing to top up the PBA is an offence under section 30 of the BIF Act with a penalty of up to 100 penalty units or 1 year of imprisonment.

When a head contractor can't top up

If a head contractor is unable to top up the PBA to cover the shortfall, they should pay the subcontractor part of what's owing using the available funds in the PBA, even if they can't pay the full liable amount.

If 2 or more subcontractors are liable to be paid from the trust account at the same time and there aren't enough funds, the head contractor should reduce the amount for each subcontractor by an equal proportion.

For example, if 1 subcontractor is due to be paid $50,000 and another $30,000, but only $40,000 is available, the head contractor would pay the subcontractors $25,000 and $15,000 respectively.

Head contractors should be aware that:

  • an inability to top up the PBA may raise concerns about their financial sustainability
  • after they make a pro-rata payment, they remain liable to pay each subcontractor the outstanding balance of the full amount due
  • failing to pay a subcontractor the full amount due may be a breach of their legal and contractual obligations. The subcontractor may be able to lodge a complaint with the QBCC and/or take action to recover unpaid amounts.

Paying head contractors

A head contractor may pay themselves an amount due and owing, in line with the contract, from the balance held in the PBA's general trust account.

They must prepare a payment instruction and submit it to the bank, and give the principal a copy of the payment instruction information.

However, they can't pay themselves from the PBA until they've paid all amounts due and owing to subcontractor beneficiaries at the time of withdrawal.

There are significant penalties, including possible imprisonment, for withdrawing amounts from a PBA trust account before paying subcontractor beneficiaries.

A head contractor cannot pay themselves an amount that is also liable to be paid to a subcontractor for the same work.

A head contractor is liable to pay a subcontractor if:

  • the amount is due to be paid to the subcontractor in connection with the subcontract
  • the amount is certified, or otherwise assessed, as payable to the subcontractor under the subcontract
  • the head contractor gives the subcontractor a payment schedule for the amount
  • the head contractor is liable to pay the amount because they failed to provide the subcontractor a payment schedule
  • the amount must be paid because of an adjudication decision
  • the amount must be paid because of a final and binding dispute resolution process
  • a court or tribunal orders the head contractor to pay the amount to the subcontractor.

For more about head contractor obligations, read the Head contractors guidelines (PDF, 981KB).

Contact

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