Australia: Trust account scheme proposed for subcontractors retention money held by head contractors as part of security of payment reforms in NSW

In brief - Draft Regulation would require head contractors to deposit subcontractors' retention money into trust accounts

A draft of the Building and Construction Industry Security of Payment Amendment (Retention Money Trust Account) Regulation 2014 ("the draft amending Regulation") was recently released by the NSW government for public comment. The draft amending Regulation outlines proposed trust account requirements for retention money of subcontractors held by head contractors under contracts entered into from 1 February 2015.

Draft Regulation open for public comment until 8 January 2015

On 19 November 2013 we reported in our article Retention money to be held in trust for subcontractors under security of payment laws in NSWon an amendment to be made to the Building and Construction Industry Security of Payment Act 1999 ("the Act") which would allow a trust account scheme for subcontractors' retention money to be created by regulation.

New section 12A of the Act commenced on 21 April 2014, but it was not until early December 2014 that the draft amending Regulation outlining details of the proposed trust account scheme was released, along with an accompanying Regulatory Impact Statement.

The proposed trust account requirements outlined in the draft amending Regulation are open for public comment until 8 January 2015, after which the draft amending Regulation may be amended to take into account the comments received. It is expected that the final version of the draft amending Regulation will be released prior to the anticipated commencement date of 1 February 2015.

New trust account requirements for subcontractor retention money

Subject to any amendments which may be made after the public consultation process concludes in January 2015, the draft amending Regulation will amend the Building and Construction Industry Security of Payment Regulation 2008 ("Regulation") by inserting requirements relating to the trust account(s) to be established by head contractors (defined in section 4 of the Act).

Head contractors to hold money in trust for subcontractors

There is a requirement under new clause 6 that head contractors holding retention money must hold that money in trust for the subcontractor(s) from whom the money has been retained in a trust account ("retention money trust account") established with an authorised deposit-taking institution (ADI). Such an account is to be established as:

  • a separate trust account for retention money held in respect of a particular subcontractor;
  • a separate trust account for all retention money held in connection with a particular project of the head contractor; or
  • a separate trust account for all retention money held in connection with two or more projects of the head contractor.

ADI and Chief Executive of the Office of Finance & Services to be notified

There are requirements under new clause 7 that the head contractor ensure that:

  • the name and description of the retention money trust account includes the name of the head contractor and the words "Trust Account";
  • the approved ADI is notified in writing that the account is a trust account required to be established under the Regulation; and
  • the Chief Executive of the Office of Finance & Services (CEOFS) is notified within seven days of account establishment of relevant details of the account (including the opening balance).

Circumstances in which retention money can be withdrawn

There is a requirement under new clause 8 that retention money not be withdrawn by a head contractor from a retention money trust account except:

  • to pay money in accordance with the terms of the contract under which the money was retained;
  • as may be agreed in writing between the head contractor and subcontractor; or
  • in accordance with an order of a court or tribunal;

with any such withdrawals being by way of cheque or EFT only.

Overdrawn retention money trust accounts

There is a requirement under new clause 11 that a head contractor must notify the CEOFS in writing if the retention money trust account becomes overdrawn. Such notice is to be given within five days of the head contractor becoming aware of the account becoming overdrawn.

Closure of retention money trust accounts

There is a requirement under new clause 12 that a head contractor must notify the CEOFS when a retention money trust account is closed. Such notice is to be given within 14 days after closure of the trust account.

Penalties for non-compliance

Each of these new clauses provides for a maximum penalty of $22,000 for non-compliance.

The new requirements also make clear that retention money held by a head contractor is not available for payment of the head contractor's debts (or liable to be attached or taken in execution for satisfying a judgment against the head contractor).

New record keeping and annual reporting requirements

The Regulation will also be amended (subject to any changes following public consultation) by inserting requirements relating to trust account records and annual reports, including the requirement under new clause 13 that a head contractor must keep records showing the amounts deposited or withdrawn from a retention money trust account. That requirement is to continue for a period of at least three years after the closure of the account.

In addition, there is a requirement under new clause 15 that a head contractor operating a retention money trust account in a financial year must provide the following to the CEOFS within one month after the end of the financial year:

  • An account review report given by a registered company auditor in which the auditor certifies that in his/her opinion, the retention money trust account operator has complied with all of the requirements of part 2 of the Regulation during the financial year for which the report is given.
  • A retention account statement for the account in the prescribed form in Schedule 2 to the Regulation.
  • A fee to accompany the account review report and retention account statement, the amount of which is yet to be determined.

Each of these new clauses provides for a maximum penalty of $22,000 for non-compliance.

New power of Chief Executive to require information

The Regulation will also be amended (subject to any changes following public consultation) by empowering the CEOFS to issue directions to head contractors, subcontractors and any ADI requiring the provision to the CEOFS, within seven days or such longer period as may be specified or allowed, of any information relating to the value of any contract between a principal and head contractor, retention money retained by a head contractor under a subcontract and the retention money trust account established by the head contractor.

A statutory offence has been created (maximum penalty of $22,000) where a person provides information to the Chief Executive knowing the information to be false or misleading in a material particular.

Application of changes relating to retention money trust accounts

Subject to any changes following public consultation, the amendments to the Regulation will apply to retention money held by a head contractor where:

  • the head contractor's contract with the principal has a value of at least $20 million; and
  • that construction contract with the principal was entered into after the commencement of Part 2 of the Regulation (which is anticipated to commence on 1 February 2015).

The amendments provide that for the purpose of determining the value of the head contractor's contract with the principal, the value is to include any variations to the contract after the contract is entered into.

This has the consequence that if the value of variations results in a contract value of at least $20 million, retention money already retained will become subject to the retention money trust account requirements, even though the requirements were not initially applicable when the contract was entered into.

Head contractors need to implement processes to comply with new retention money trust account requirements

It is anticipated that, subject to any amendments following public consultation, the new retention money trust account requirements will commence on 1 February 2015.

Head contractors should implement the appropriate processes to comply with the new trust account requirements for subcontractor retention money as soon as possible if they have not already done so.

Charles Brannen
Construction and engineering
CBP Lawyers

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.