Further amendment – trust accounts for retention
The change empowers the making of regulations requiring head
contractors to pay retention money into a trust account and to hold
it on trust for the subcontractors entitled to the money.
"Retention money" is defined as "money retained
by a head contractor out of money payable by the head contractor to
a subcontractor under a construction contract, as security for the
performance of obligations of the subcontractor under the
contract". This broad definition should capture the types of
retention arrangements common in many construction contracts.
As yet no regulations have been made. Until a draft of the
proposed regulations is released, it is difficult to know exactly
how the proposed trust accounts might operate and to what extent
they will place an additional administrative burden on head
The Amendment specifically provides for the regulations to
the procedures to be followed in connection with the
authorisation of payments out of a retention money trust
the keeping of records in connection with the operation of a
retention money trust account and the inspection of those records
by the Small Business Commissioner; and
the resolution of disputes in connection with the operation of
a retention money trust account.
Finally, it is foreshadowed that, when made, the regulations may
create an offence punishable by a maximum fine of $22,000 for any
failure to comply with the requirements relating to trust
When will this come into effect?
The Act says it will come into effect on a day to be appointed
by proclamation, but the Department of Finance and Services has
indicated that the Amendment is currently projected to commence in
April 2014. However, it should be noted that the Amendment will
only apply to contracts executed after it has commenced. The
proposed requirement for trust accounts for retention money will
not commence until regulations are made in respect of this
Further review of the SOP Act
The introduction of trust accounts for retention money was
another recommendation of the Collins Inquiry into Insolvency in
the NSW Construction Industry and represents a further step by the
NSW Government in implementing recommendations of that inquiry.
The Government has also indicated that a comprehensive review of
the SOP Act will be undertaken in 2015. That review will consider a
number of other recommendations made by the Collins Inquiry and
should provide industry participants and other stakeholders with an
opportunity to make submissions both on their experiences with the
Amendment and other proposed changes to the legislation. We will
continue to keep you up to date with developments in this rapidly
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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