Department of Finance

Building Management and Works

Trial of Project Bank Accounts

2014

Building Management and Works

Outline

Project Bank Accounts (PBA)o Trial project bank accountso About PBAso Key processeso Development of the PBA modelo The Trial

Building Management and Works

The trial of Project Bank Accounts

On 26 June 2013, the Government announced the trial of Project Bank Accounts (PBAs) on BMW administered projects

PBAs provide greater transparency for the principal (and greater security of payment for subcontractors); and

The results of the trial will be used to inform future decisions on a more widespread adoption

Building Management and Works

About Project Bank Accounts

A project bank account is

o A project-specific bank account (set up by a head contractor) that is operated consistent with a trust agreement

o An alternative payment mechanism, not an alteration of the rights and responsibilities of the parties to a contract

Project Bank Accounts have been the default position in United Kingdom government construction projects since 2011

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About Project Bank Accounts

Parties paid through the project bank account

o The head contractor

o Subcontractors directly appointed by the head contractor to undertake works valued in total greater than $20 000

o Subcontractors directly appointed by the head contractor to undertake works valued in total less than $20 000 who choose to opt in to the project bank account

o Suppliers who choose to opt in to the project bank account

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About Project Bank Accounts

Process Overview

o Once the monthly payment amount is determined, the head contractor determines how the amount should be distributed.

o The principal deposits funds into the account, which are distributed to the head contractor/subcontractors simultaneously

o Retention funds are deposited into a dedicated account, which are retained then later released in accordance with subcontract agreements

o The principal has “view rights” into the bank account

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About Project Bank Accounts

Benefits of Project Bank Accounts

o Enable subcontractors to better protect themselves in the event of head contractor insolvency (subject to the PPSA)

o Speed up the payment process for parties lower down in the supply chain and redistribute payment risk

o Increase transparency and accountability in the payment process

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About Project Bank Accounts

PBAs do not prevent head contractors from:

o managing the performance of subcontractors,

o withholding payments, if obligations are not met, or

o seeking adjudication or commencing legal action in the event of a dispute

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About Project Bank Accounts

Establishes the Trust and outlines how the PBAs will operate for all participants.

Instructs the bank how to administer the PBAs

The construction contract between the Principal and Head Contractor (modified)

Key documents:

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How a Project Bank Accounts is set up

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Payment Process – Step by Step

Subcontractor #1

Subcontractor #2

Subcontractor #3

Subcontractor #4

Supplier #1

Head Contractor

Super’s RepSuper’s Rep

BANK (PBA provider)

General Account

Retention Account

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1. Subcontractors Claim Payment from Head Contractor

Subcontractor #1

Subcontractor #2

Subcontractor #3

Subcontractor #4

Supplier #1

Head Contractor

Super’s RepSuper’s Rep

BANK (PBA provider)

General Account

Retention Account

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2. Head Contractor Submits Payment Claim to Superintendent’s Representative

Subcontractor #1

Subcontractor #2

Subcontractor #3

Subcontractor #4

Supplier #1

Head Contractor

Super’s RepSuper’s Rep

BANK (PBA provider)

General Account

Retention Account

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3. Superintendent’s Representative Assesses Claim and Issues Payment Certificate to Head Contractor and BMW

Subcontractor #1

Subcontractor #2

Subcontractor #3

Subcontractor #4

Supplier #1

Head Contractor

Within 14 days of Contractor lodging payment claim

Super’s RepSuper’s Rep

BANK (PBA provider)

General Account

Retention Account

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4. Head Contractor Submits Progress Payment Instruction to Bank (Copy to SR) and issues a modified Statutory Declaration and Monthly Report to SR

Subcontractor #1

Subcontractor #2

Subcontractor #3

Subcontractor #4

Supplier #1

Head Contractor

Within 5 Days of Payment Certificate being issued

Super’s RepSuper’s Rep

BANK (PBA provider)

General Account

Retention Account

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BANK (PBA provider)

5. BMW Deposits Payment into General Project Bank Account – Unless there are Anomalies with the Statutory Declaration

Subcontractor #1

Subcontractor #2

Subcontractor #3

Subcontractor #4

Supplier #1

Head Contractor

Super’s RepSuper’s Rep

General Account

Retention Account

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BANK (PBA provider)

General Account

Retention Account

6. Bank (Simultaneously) Pays Head Contractor, Subcontractors, and Retention Account as Specified in Payment Allocation

Subcontractor #1

Subcontractor #2

Subcontractor #3

Subcontractor #4

Supplier #1

Head Contractor

Within 28 days of Head Contractor lodging payment claim

Super’s RepSuper’s Rep

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Development of the Project Bank Accounts Model

Contributors:o The Master Builders Association [and individual members]o Key subcontractor associationso Deloitte Touche Tohmatsuo The Commonwealth Banko The State Solicitor’s Office, Minter Ellison and the New South

Wales Government

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The Trial

Demonstration Projects:o The trial includes seven capital works projects with a range of values

and metropolitan and regional locationso Projects are undertaken through the AS2124 construction contract by

BMW prequalified head contractors

Bank Arrangements:o The PBAs for the trial are established with the Commonwealth Bank