Retention scheme proposed

SUB-CONTRACTORS in New South Wales look set to benefit from a new scheme that will require construction companies to hold money in trust funds to pay their sub-contractors.

Staff Reporter

The proposal, a national first, would allow contractors to be fined up $22,000 if they don't comply with the retention scheme, which overturns decades of practice of allowing the contractor to bank a portion of the subcontractor's payments until the work is completed.

That’s all well and good, unless the contractor goes bust, and the subby is left out of pocket.

The new scheme will attempt to stop contractors from using the banked money for other purposes or withholding it from subcontractors if they become insolvent.

The new law requires head contractors to pay sub-contractors within 30 days, and that principals pay head contractors within 15 business days of receiving a payment claim.

It is part of the Baird government’s response to the Collins Inquiry into Construction Industry Insolvency, NSW Fair Trading Minister Matthew Mason-Cox explained.

“Through our reforms, NSW will become the first state to protect payments for subcontractors by requiring construction companies to hold retention money in a trust fund,” Mason-Cox said.

“Head contractors will be responsible for holding retention money in their own accounts, and NSW Fair Trading will be checking audit reports that require head contractors to show they are keeping trust accounts as required.

“This will end the widespread industry practice of using subcontractors’ trust money for the head contractor’s working capital purposes.

“At the end of the day, this money belongs to subcontractors and it’s about time it was protected as such.

“This principle underpins the proposed retention trust scheme and is widely supported by industry.’’

NSW Fair Trading has released a draft regulation and regulatory impact statement, which is now open for public consultation.

The NSW government will also examine the feasibility of imposing a personal liability on company directors.

The reforms aim to deliver greater transparency and better outcomes for subcontractors while minimising red tape for the industry.

“These are major changes to security of payment laws that are coming to fruition following a lengthy public consultation process,’’ Mason-Cox said.

Initially, the scheme will apply to head contractors and their direct subcontractors for projects valued at more than $20 million.

Mason-Cox said the NSW government would commence a full review of the Security of Payment Act in 2015, which would be an opportunity for a comprehensive revision of security of payment laws.

Construction in NSW is a $40 billion industry, but there are fears that increasing economic slowdown will lead to an increase in business insolvency.

The new laws are expected to start in early 2015.