On 23 November 2016, the Queensland Government announced a plan to introduce an array of new measures to ensure security of payment for subcontractors. The plan anticipates that by 1 January 2019, every construction project in Queensland over $1 million will be required to operate a Project Bank Account (PBA). To get the ball rolling, the Queensland Government plans to introduce PBA’s on all government projects between $1 million and $10 million from the beginning of 2018.
For participants in the industry, two key questions arise:
- what is a PBA?; and
- how will PBA’s impact my business?
PBA’s – What are they?
The Deloitte report, which informed the proposed changes, describes a PBA as a trust account into which the principal pays progress payments, with head contractors and subcontractors as named beneficiaries. Essentially, the machinery of PBA’s will operate as follows:
- subcontractors submit their payment claims in the usual way to the head contractor;
- head contractors submit payment claims in the usual way to the principal;
- principals then verify the claims and make the payment into the PBA;
- once the bank has received authority from both principals and head contractors, it will disperse the funds in the PBA such that subcontractors and head contractors are paid simultaneously.
The crux of the plan is to, ensure subcontractor payments are secured (i.e. held on trust) in the event of a head contractor insolvency, and otherwise to remove the need for subcontractor payments to first pass through the hands of the head contractor.
PBA’s – the likely impact?
For Principal’s, PBA’s will likely increase the administration required for managing construction projects, particularly by navigating bank requirements for setting up and administering PBA’s.
2. Head Contractors
Head contractors can expect to see decreased cash flow and a higher financial risk being placed on them, which may mean increased demand to provide greater contractual security.
Because subcontractors are likely to benefit most from PBA’s (i.e. improved cash flow and reduced debt recovery costs), they may see the potential to reduce quote prices.
The Queensland Government also looks set to incorporate other reforms to BCIPA. The other reforms considered are:
- removing a requirement to state that a payment claim is made under BCIPA; and
- extending time frames for adjudication
Significant industry discussion will no doubt take place before either of these BCIPA reforms progress. Consultation on the Queensland Government’s plans for reform will be open until April 2017, with more information available through this link.
This information is intended to provide a general summary only and should not be relied on as a substitute for legal advice.