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).
The retention requirements are set out in the Building and Construction Industry Security of Payment Regulation 2020. The laws seek to protect subcontractors’ retention money in trust for major construction projects, including if a construction company becomes insolvent.
Project value
The project 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 enters 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.
Trust account requirements (Part 2)
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 let the Secretary know:
- 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 by the terms of the contract between them and a subcontractor, or as otherwise agreed upon in writing. Withdrawals can only be made by cheque or electronic funds transfer (EFT). If a trust account becomes overdrawn, within five days the head contractor must let the Secretary know:
- 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@customerservice.nsw.gov.au or write to:
NSW Fair Trading
Security of Payment Branch
PO Box 972
Parramatta NSW 2124
Reporting requirements
Record keeping
A head contractor must keep records in the form of a ledger to keep track of things such as the amounts deposited into or withdrawn from the account. The ledger is to be provided to the subcontractor at least once every 3 months, or as often as may be agreed in writing by the head contractor and the subcontractor (but at least once every 6 months).
What is cash retention?
A form of security provided by subcontractors to a head contractor. This money is held by the head contractor from progress payments to the subcontractor. The money is held as a security for defective work or late completion.
How much is held in retention?
Usually up to five percent 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?
The scheme requires head contractors to set up trust accounts to hold retention funds.
A head contractor must keep records in the form of a ledger to keep track of things such as the amounts deposited into or withdrawn from the account. The ledger is to be provided to the subcontractor at least once every 3 months, or as often as may be agreed in writing by the head contractor and the subcontractor (but at least once every 6 months).
Head contractors who fail to comply will face fines of up to $22,000.
Need more information?
For other questions on security of payment laws, go to our frequently asked questions page. Or make an enquiry on our contact us page or call 13 32 20.