Introduction
Project bank accounts are means of isolating monies owed by builders from builder’s own bank accounts.
It stops builders redirecting money payable to subcontractors to their own endeavours and retentions falling into the hands of liquidators.
In November 2016 the Queensland Government committed to introduce project bank accounts.
They were only introduced to a very limited extent on 1 March 2018 with the introduction of the BIF Act in 2017.
The final role out is not due for completion in 2022 and there are a significant number of projects that will be exempt.
That will be a total of 6 years and there will still be a large gap in the protection that should be provided but will still be lacking.
Compared with far greater tasks
The poor performance in rolling out the project bank accounts is demonstrated by comparing progress with the introduction of GST which was a far larger and detailed operation than project bank accounts.
The progress of the introduction of GST was:
- The state and federal governments reached agreement on the introduction of the GST in 1999;
- Legislation was passed on 28 June 1999;
- Royal assent occurred on 8 July 1999;
- GST came into effect on 1 July 2000.
That can only be considered a Commonwealth Government sprint at a maximum of 15 months compared to the 6 year rolling out of project bank accounts by the Queensland Government.
How to do they work
There is nothing exotic about project bank accounts.
It is a simple process where a builder has its own banks accounts as normal and also opens a project bank account for each project.
The developer then pays progress payments into the project bank account instead of the builder’s own bank account.
Monies in project bank accounts can only be used to pay monies due to subcontractors and themselves once subcontractors have been paid.
Monies in the project bank account cannot be absorbed into the builder’s finances upon liquidation.
Who pays for project bank accounts?
Interest earned by the project bank accounts is paid to the builder in order to fund the administration of the project bank accounts.
One of the many reasons for the problem subcontractors had in getting paid was builders investing the money, it would seem that interest generated by the large amounts involved is significant.
How hard is it
Project bank accounts are not like solicitors’ trust accounts where there is an enormous amount of detail required and each amount of money held on behalf of a particular person has to be accounted for separately at all times.
Because project bank accounts do not have that complexity, they are no different to any account a household may have for specific purpose such as mortgage repayments, a Christmas account or annual holidays account.
The only additional work is that they have to advise the:
developer of the relevant subcontractors; and subcontractors of the project bank account details.Those processes can be easily mechanised and are not expensive.
Exclusions from scheme
The proposed exclusions from the scheme are essentially projects less than a million dollars and residential construction.
The argument for those exclusions is the assertion that it costs too much to administer the accounts in those circumstances.
Those arguments are fallacious for the following reasons:
- The builder is deriving income from the interest to offset the costs;
- There is no additional cost in actually administering the account itself because the builder still has to administer payments in and out of its general account anyway;
- The argument demonstrates the extent to which builders are feathering their own nest by the use of monies due to subcontractors.
Any loss of income to a small subcontractor working on a small project is just as devastating as a larger loss of income to a large subcontractor on a larger project.
The exclusions should be abolished.
Assertions for the delay.
The reasons given for the delay in introducing project bank accounts are:
- Education; and
- Weaning builders off a reliance on retention monies.
The education issue is irrelevant. As stated above, project bank accounts are not exotic in their nature or operation.
Operation of a project bank account is well within the ability of any ordinary householder. It is not going to be any sort of challenge for a bookkeeper.
As to weening builders off reliance on retention monies, the Minimum Financial Requirements 2018 which commenced operation on 1 January 2019 precluded financial reliance on retentions held by builders for the purposes of demonstrating that they are solvent.
We have now had more than a full licencing cycle so there should not be any builder that is reliant on retentions.
If they are, they were never going to survive and cause damage to subcontractors in the process. They longer they were allowed to continue the greater the damage.
Now that we are enmeshed in the fallout from COVID 19, those builders are a looming concern of major proportions. The sooner project bank accounts are introduced and those builders that are a liability are weeded out the better it will be for the industry.
Reason for urgency
Builders have started demonstrate that are intending to take advantage of the situation by demanding that subcontractors provide discounts of 15% to 30% on existing or they will not get paid their next progress payment.
This is despite the fact that the builder will still be getting paid the full amount by the developer under their contract.
If the monies were in project bank accounts the builders would not have this leverage as there would be a criminal penalty.
Conclusion
There is no valid reason for the delay or the proposed exclusions.
The delays are exposing the most vulnerable to risk.
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Why are project bank accounts being delayed?