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Retention money 

Retention money held by head contractors for projects valued over $20 million must be held in a trust account with an authorised deposit taking institution (ADI). This is required under the amended Building and Construction Industry Security of Payment Regulation 2008.

The changes to the Regulation apply to all contracts entered into on or after 1 May 2015. The arrangements aim to protect subcontractors’ retention money in trust for major construction projects, including if a construction company becomes insolvent.

Project value 

The requirement to hold retention money in trust applies only where the value of the construction contract between the head contractor and the principal is $20 million or greater. The value is determined by the contract price or, where the contract does not provide an amount, the market value of the work carried out and the goods and services supplied. If the value of a construction project reaches the $20 million threshold after the head contractor first entered into the construction contract with the principal, the requirement to hold retention money in trust applies only to contracts entered into by the head contractor after the $20 million threshold has been reached.

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Trust account requirements 

A head contractor must keep retention money separate in an account with an ADI. The name and description of the account must include the head contractor’s name and the words “Trust Account”. The head contractor must notify the ADI in writing that the account is a retention money trust account for the purposes of the Regulation. Within 14 days of opening the account the head contractor must also notify the Secretary of the following:

  • the name of the approved ADI
  • the branch or BSB number of the approved ADI
  • the name and number of the account
  • the opening balance of the account.

Head contractors can only withdraw money from the trust account as set out in the terms of the contract between the head contractor and a subcontractor, or as otherwise agreed upon in writing between the head contractor and a subcontractor. Withdrawals can only be made by cheque or electronic funds transfer (EFT).

If a trust account becomes overdrawn, within 5 days the head contractor must notify the Secretary of:

  • the name and number of the account
  • the amount by which the account is overdrawn, and
  • the reason for the account becoming overdrawn.

To notify the Secretary in writing, email SecurityofPayment@finance.nsw.gov.au or write to: 

NSW Fair Trading
Security of Payment Branch
PO Box 972
Parramatta NSW 2124

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Reporting requirements 

Within 3 months after the end of the financial year, the head contractor who operates a retention money trust account must provide the Secretary with the following:

  • an account review report for the account in respect of the financial year
  • a retention account statement for the account in respect of the financial year in the form set out in Schedule 2 of the Regulation.

An account review report must be obtained from a registered company auditor and certify that the account operator has complied with all of the requirements of the Regulation.

The retention account statement sets out a schedule of retention money held in the trust account, detailing the following in relation to each part of the trust monies:

  • subcontractor’s name
  • subcontractor’s Australian Business Number (ABN)
  • full retention amount retained from subcontractor
  • retention amount paid to subcontractor during audit period
  • retention amount held at end of audit period.

To submit an account review report and retention account statement (and associated fee if applicable), email SecurityofPayment@finance.nsw.gov.au or post these documents to:

NSW Fair Trading
Security of Payment Branch
“The Barrington”
PO Box 972
Parramatta NSW 2124

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Annual reporting exemption 

A head contractor operating a retention money trust account is exempt from meeting annual reporting requirements in specific circumstances. You do not have to report for the previous financial year if:

  • there is no money in the trust account, and
  • no money was deposited or withdrawn from the trust account during that period.

However, you must still notify the NSW Fair Trading Commissioner of these facts within 3 months from the end of the financial year.

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Other information 

These questions and answers provide further information on the new retention trust scheme.

What is cash retention?
A form of security provided by subcontractors to a head contractor. This money is withheld by the head contractor from progress payments to the subcontractor. The money is held as a performance security for defective work or late completion.

How much is held in retention?
Usually up to 5 per cent of the total contract value is held by the head contractor until the subcontractor has completed the job and fixed any defective work.

Who needs to carry out the requirements?
Currently the scheme applies to head contractors and their direct subcontractors for projects worth $20 million or more.

How will the retention trust scheme work?
Administered by NSW Fair Trading, the scheme requires head contractors to set up trust accounts to hold retention funds. Through audit reports, Fair Trading will check that head contractors are keeping trust accounts as required. Head contractors who fail to comply will face fines of up to $22,000.

What are the costs associated with setting up the trust account?
A $1500 administrative fee covering operating costs will be payable by companies when they submit their annual account audit reports to Fair Trading. This only applies to projects with a total contract value of $20 million or more.

Will the scheme apply to other contracts (ie. less than $20M) in the future?
NSW Fair Trading will start a full review of the Security of Payment Act in 2015 to examine all security of payment laws. This will include assessing the new retention scheme, and considering if it should extend to other levels of the contracting chain and contracts with a lesser than $20M value.

What consultation took place regarding the retention scheme? 
NSW Fair Trading released for public comment the draft Building and Construction Industry Security of Payment Amendment (Retention Trust Money Account) Regulation 2014. The final Regulation can be found on the NSW legislation website from 1 May 2015.

How can I find out more about the changes? 
For other questions on security of payment laws, consult our Frequently asked questions page. You can also make an enquiry through our Contact us web page or call us on 13 32 20.

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