Two commercial building companies have paid more than $3 million in subcontractors’ retention money into trust accounts after compliance inspections found they were not meeting their legal requirements.
Two commercial building companies have paid more than $3 million in subcontractors’ retention money into trust accounts after compliance inspections found they were not meeting their legal requirements.
The Building Commissioner is reminding builders that they must follow laws designed to protect subcontractors’ funds in the event of an insolvency, including providing subcontractors with written notice that a trust account has been set up for retention funds.
A deemed retention trust scheme was established in 2023 as part of the Building and Construction Industry (Security of Payment) Act 2021.
If a construction contract above $20,000 (including GST) involves retention or holdback of cash security from progress payment claims, these funds are trust property that must be held in a dedicated trust account and only withdrawn as permitted by the Act.
“Retention money is a form of security provided between construction contract parties to ensure the work is completed and free from defects,” Building Commissioner Phil Payne said.
“Typically, these funds are paid back once the work is completed to the negotiated standard. In the past, retention money has been especially vulnerable to misappropriation or loss. Holding this money in trust safeguards it in the event the builder or head contractor becomes insolvent.”
Three recent compliance inspections by the Department of Local Government, Industry Regulation and Safety found the two builders had not been depositing retention money held from subcontractors into dedicated trust accounts.
“The builders took prompt action to rectify this and have transferred more than $3 million of subcontractors’ retention money into compliant trust accounts,” Mr Payne said.
“Builders and head contractors that fail to comply with the retention trust scheme could be in breach of their fiduciary duties, exposing them to substantial liability and offences under the Act with penalties of up to $50,000.
“Construction contractors should review the Retention Money Trust Accounting Guidelines and ensure their practices comply with the law. A simple transaction account with a recognised financial institution is usually sufficient for the scheme’s purposes.”
More information is available in the Retention Trust Scheme fact sheet and the Retention Money Trust Accounting Guidelines .
