Building and Construction Industry Security of Payment Regulation 2020
In ForceNSW
Jurisdiction
New South Wales
Act Number
504 of 2020
Collection
regulation
Plain English Summary
6/10 complexity
This Regulation requires head contractors on projects whose main contract reaches $20 million to hold subcontractors’ retention money in ring‑fenced trust accounts at approved ADIs, with rules on account setup, withdrawals, ledgers, notices, record‑keeping, interest treatment, and penalties. It protects retention funds from the head contractor’s creditors and limits bank liability.
It affects head contractors (compliance and administrative costs), subcontractors (beneficiaries of protected funds), ADIs (account operators), and adjudicators/administrators through CPD, reporting and enforcement requirements.
The Building and Construction Industry Security of Payment Regulation 2020 (the Regulation) is subordinate legislation made under the Building and Construction Industry Security of Payment Act 1999 (the Act). Its primary function is to prescribe operational machinery that gives effect to the Act’s policy of ensuring prompt payment and security for participants in the construction supply chain.
Part 2 establishes a mandatory trust account regime for retention money. Clause 6 confines the application of this Part to a head contractor whose main contract with the principal has a value of at least $20 million. Value is determined under cl 6(2) as the contractual consideration or, absent that, market value, and includes variations (cl 6(3)). Once the threshold is crossed, the head contractor must hold retention money in trust for the subcontractor (cl 8(1)(a)) and deposit it into a retention money trust account maintained with an approved ADI (cl 8(1)(b)). Deposits must occur no later than five business days after the obligation to retain arises (cl 8(2)).
Clause 9 prescribes the formalities for establishing such an account: the account name must include the head contractor’s name and the words “Trust Account”, the ADI must be notified in writing of the account’s statutory character, and the Secretary must be notified within 10 business days of opening with prescribed particulars including BSB, account number and opening balance.
Withdrawals are tightly controlled by cl 10(1). Money may be released only to pay the subcontractor in accordance with the construction contract, by written agreement, to satisfy an adjudicated amount under s 23 of the Act, or pursuant to a court or tribunal order. Withdrawals must be by cheque or electronic funds transfer (cl 10(2)). Interest is to be dealt with on the same trust basis unless the contract or a separate written agreement provides otherwise (cl 11). Clause 12 expressly insulates the retention money from the head contractor’s creditors.
Current sections
Direct links to the current provisions in Building and Construction Industry Security of Payment Regulation 2020.
(1) This Regulation commences on 1 September 2020, except as provided by subclause (2), and is required to be published on the NSW legislation website.
retention money has the same meaning as in section 12A(5) of the Act.
Note.
Money is retention money only while it is held as security for the performance of the subcontractor’s obligations. If the head contractor becomes entitled to money held as retention money, the money ceases to be retention money and the requirement under this Part that the money be held in trust for the subcontractor in a retention money trust account ceases.
The Act and the Interpretation Act 1987 contain definitions and other provisions that affect the interpretation and application of this Regulation.
(1A) For the purposes of paragraph (b) of the definition of exempt residential construction contact in section 4(1) of the Act, an owner occupier construction contract is prescribed.
(2) Notes included in this Regulation do not form part of this Regulation.
cl 3: Am 2020 (504), Sch 2[1].
4
4
4 (Repealed)
Part 2
Trust accounts for retention money
Part 2 Trust accounts for retention money
Part 2 Trust accounts for retention money
Division 1
Preliminary
Division 1 Preliminary
Division 1 Preliminary
5
Definitions
5 Definitions
5 Definitions
In this Part—
approved ADI means an authorised deposit-taking institution approved under section 87 of the Property and Stock Agents Act 2002 or approved by the Secretary by order in writing.
retention money trust account—see clause 8(1)(b).
6
Application of Part—contracts with value of at least $20 million
6 Application of Part—contracts with value of at least $20 million
6 Application of Part—contracts with value of at least $20 million
(1) This Part applies to a head contractor if the head contractor’s construction contract with the principal (the main contract) has a value of at least $20 million (the $20 million threshold).
(2) The value of a construction contract is—
(a) the amount of the consideration that the contract provides is payable for construction work carried out under the contract or for related goods and services supplied under the contract, or
(b) if the contract does not provide for that amount—the market value of the work to be carried out or the value of the goods and services to be supplied.
(3) The value of a construction contract is its value including any variation to the contract after the contract is entered into, with the result that the value of the main contract can increase and reach the $20 million threshold after the main contract is first entered into.
(4) If the value of the main contract reaches the $20 million threshold after the main contract was first entered into, the head contractor becomes subject to this Part but only for construction contracts between the head contractor and subcontractors entered into after the value of the main contract reached the $20 million threshold.
7
Executive liability offences
7 Executive liability offences
7 Executive liability offences
Section 34D of the Act applies to an offence against clause 8(1) or (2), 10, 13, 14 or 16.
Note.
Section 34D of the Act provides for the personal liability of directors for certain offences committed by a corporation.
Division 2
Trust account requirements
Division 2 Trust account requirements
Division 2 Trust account requirements
8
Retention money to be held in trust account
8 Retention money to be held in trust account
8 Retention money to be held in trust account
(1) A head contractor to whom this Part applies must—
(a) hold the retention money in trust for the subcontractor entitled to the money, and
(b) ensure that the money is paid into and retained in a trust account established with an approved ADI (a retention money trust account).
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
(2) A head contractor must ensure that the money is paid into the retention money trust account as soon as possible, but no later than 5 business days after the head contractor is required to retain the retention money.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
(3) A retention money trust account may be established as—
(a) a separate trust account for the retention money held in respect of a particular subcontractor, or
(b) a separate trust account for all retention money held in connection with a particular construction contract of the head contractor, or
(c) a separate trust account for all retention money held in connection with 2 or more (or all) construction contracts of the head contractor.
9
Requirements for establishment of trust account
9 Requirements for establishment of trust account
9 Requirements for establishment of trust account
(1) A head contractor who establishes a retention money trust account must ensure that the name of the account and the description of the account in the records of the head contractor include the name of the head contractor and the words “Trust Account”.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
(2) When establishing a retention money trust account with an approved ADI, a head contractor must ensure that the approved ADI is notified in writing that the account is a trust account required to be established for the purposes of this Part.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
(3) A head contractor must, within 10 business days after establishing a retention money trust account, notify the Secretary in writing of the following—
(a) the name of the approved ADI and the branch or BSB number of the branch of the approved ADI at which the account has been established,
(b) the name of the account,
(c) the number of the account,
(d) the opening balance of the account,
(e) the date the account was opened.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
10
Withdrawals from trust account
10 Withdrawals from trust account
10 Withdrawals from trust account
(1) A head contractor must not withdraw retention money from a retention money trust account except—
(a) for the purpose of the payment of the money in accordance with the terms of the construction contract under which the money was retained by the head contractor, or
(b) as may be agreed in writing by the head contractor and the subcontractor concerned, or
(c) for the purpose of the payment of the adjudicated amount that the head contractor is required to pay under section 23 of the Act, or
(d) in accordance with an order of a court or tribunal.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
(2) A head contractor must not withdraw retention money from a retention money trust account otherwise than by cheque or electronic funds transfer.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
11
Interest earned on trust account
11 Interest earned on trust account
11 Interest earned on trust account
Interest earned on retention money held in a retention money trust account is to be held on the same trust as the retention money and dealt with accordingly unless—
(a) the contract between the head contractor and the subcontractor under which the money is held as retention money otherwise provides, or
(b) the head contractor and subcontractor otherwise agree in writing.
12
Retention money not available to pay head contractor’s debts
12 Retention money not available to pay head contractor’s debts
12 Retention money not available to pay head contractor’s debts
(1) Retention money held by a head contractor is not available for the payment of the debts of the head contractor, or liable to be attached or taken in execution for satisfying a judgment against the head contractor.
(2) This clause does not take away or affect any just claim that a head contractor may have against or upon retention money.
13
Overdrawn trust account
13 Overdrawn trust account
13 Overdrawn trust account
A head contractor must, within 5 business days after becoming aware that a retention money trust account of the head contractor has become overdrawn, notify the Secretary in writing of—
(a) the name and number of the account, and
(b) the amount by which the account is overdrawn, and
(c) the reason for the account becoming overdrawn.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
14
Closure of trust account
14 Closure of trust account
14 Closure of trust account
A head contractor must, within 10 business days after closing a retention money trust account, notify the Secretary of the closure in writing.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
15
Financial institutions not subject to certain obligations and liabilities
15 Financial institutions not subject to certain obligations and liabilities
15 Financial institutions not subject to certain obligations and liabilities
(1) An approved ADI with which a retention money trust account is established by a head contractor under this Part—
(a) is not under any obligation to control or supervise transactions in relation to the account or to see to the application of money disbursed from the account, and
(b) does not have, in relation to any liability of the head contractor to the approved ADI, any recourse or right (whether by way of set-off, counterclaim, charge or otherwise) against money in the account.
(2) Subclause (1) does not relieve an approved ADI from any liability to which it is subject apart from this Part.
16
Trust account records
16 Trust account records
16 Trust account records
(1) A head contractor must keep records in relation to a retention money trust account established by the head contractor showing the amounts deposited into or withdrawn from the account.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
(2) A head contractor must keep a separate ledger for retention money held in respect of each subcontractor in connection with each construction contract.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
(3) The ledger must contain the following information—
(a) the amounts deposited into or withdrawn from the retention money trust account in respect of the subcontractor,
(b) the date of each transaction,
(c) the balance after each transaction.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
(4) A head contractor must provide the subcontractor concerned with a copy of the ledger—
(a) at least once every 3 months, or
(b) as often as may be agreed in writing by the head contractor and the subcontractor (but at least once every 6 months).
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
(5) A head contractor must retain a record made in relation to a retention money trust account for the purposes of this clause for not less than 3 years after the account is closed.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
Part 3
Miscellaneous
Part 3 Miscellaneous
Part 3 Miscellaneous
17
Recognised financial institutions
17 Recognised financial institutions
17 Recognised financial institutions
Each person or body that is a body regulated by APRA, within the meaning of the Australian Prudential Regulation Authority Act 1998 of the Commonwealth, is prescribed for the purposes of the definition of recognised financial institution in section 4(1) of the Act.
18
Supporting statements
18 Supporting statements
18 Supporting statements
The requirement for a head contractor to provide a supporting statement under section 13(7) of the Act relates only to those subcontractors or suppliers directly engaged by the head contractor.
19
Adjudicator eligibility
19 Adjudicator eligibility
19 Adjudicator eligibility
(1) For the purposes of section 18(1)(b) of the Act, a person is eligible to be an adjudicator in relation to a construction contract if the person has—
(a) a degree or diploma in architecture, building surveying, quantity surveying, building and construction, construction management, project management, engineering or law conferred by an Australian or foreign university or tertiary institution and at least 5 years of relevant experience, or
(b) at least 10 years of relevant experience.
(2) For the purposes of section 18(2)(b) of the Act, a person is not eligible to be an adjudicator in relation to a particular construction contract if—
(a) the person has not completed the required continuing professional development, or
(b) a reasonable person would conclude the person has an actual or perceived conflict or would not adjudicate impartially.
(3) Subclause (2)(a) does not apply until 1 September 2021.
(4) In this clause—
relevant experience means experience in—
(a) the management and administration of construction contracts, or
(b) the resolution of disputes in connection with construction contracts.
required continuing professional development means the continuing professional development required to be completed each year as specified by the Secretary in the CPD Guidelines for Adjudicators published on the Department of Customer Service’s website on 13 August 2020.
20
Authorisation of nominating authorities
20 Authorisation of nominating authorities
20 Authorisation of nominating authorities
(1) An authority given by the Minister to an applicant under section 28 of the Act remains in force for a period of 5 years, unless sooner withdrawn by the Minister under the Act.
(2) An existing authority that was, immediately before 1 September 2020, in force remains in force for a period of 5 years from 1 September 2020, unless sooner withdrawn by the Minister under the Act.
20A
Trust account annual report—financial year commencing 1 July 2019
20A Trust account annual report—financial year commencing 1 July 2019
20A Trust account annual report—financial year commencing 1 July 2019
(1) A head contractor who operated a retention money trust account during the financial year commencing on 1 July 2019 must, within 6 months of the day on which this clause commences, provide the Secretary with the following in relation to the financial year—
(a) an account review report for the account,
(b) a retention money trust account statement for the account, in the form approved by the Secretary.
Maximum penalty—200 penalty units.
(2) Subclause (1) does not apply to a head contractor if—
(a) there have been no amounts deposited into or withdrawn from the retention money trust account during the financial year, and
(b) no amount is retained in the account at the end of the financial year, and
(c) the contractor has, within 6 months of the day on which this clause commences, given the Secretary written notice of the facts mentioned in paragraphs (a) and (b).
(3) A fee of $1,500 must accompany an account review report and retention money trust account statement provided to the Secretary for the purposes of this clause.
(4) This clause does not apply to a head contractor who has—
(a) complied with clause 16 of the repealed Regulation in relation to the financial year, or
(b) otherwise complied, before the commencement of this clause, with subclauses (1) and (3) in relation to the financial year.
(5) A head contractor must not provide a retention money trust account statement to the Secretary for the purposes of this clause knowing the statement is false or misleading in a material particular.
Maximum penalty—200 penalty units.
(6) In this clause—
account review report, for a retention money trust account, means a report given by a registered company auditor certifying that, based on a review of the operation of the account, in the auditor’s opinion the account operator has complied with all of the requirements of Part 2 of the repealed Regulation in relation to the account during the financial year.
financial year means a period of 12 months commencing on 1 July.
registered company auditor has the same meaning as in the Corporations Act 2001 of the Commonwealth.
(2) Any act, matter or thing that, immediately before the repeal of the repealed Regulation, had effect under the repealed Regulation continues to have effect under this Regulation.
(3) Despite subclause (2), clause 16 of the repealed Regulation, as in force immediately before 1 September 2020, does not apply with respect to the financial year commencing on 1 July 2019.
(a) each offence created by a provision specified in this Schedule is an offence for which a penalty notice may be issued, and
(b) the amount payable for the penalty notice is the amount specified opposite the provision.
(2) If the provision is qualified by words that restrict its operation to limited kinds of offences or to offences committed in limited circumstances, the penalty notice may be issued only for—
(a) that limited kind of offence, or
(b) an offence committed in those limited circumstances.
Schedule 2
Amendment of Building and Construction Industry Security of Payment Regulation 2020 commencing on 1 March 2021
Schedule 2 Amendment of Building and Construction Industry Security of Payment Regulation 2020 commencing on 1 March 2021
This Regulation is the Building and Construction Industry Security of Payment Regulation 2020.
2 Commencement
2 Commencement
2 Commencement
(1) This Regulation commences on 1 September 2020, except as provided by subclause (2), and is required to be published on the NSW legislation website.
(2) Schedule 2 commences on 1 March 2021.
Note.
This Regulation repeals and replaces the Building and Construction Industry Security of Payment Regulation 2008, which would otherwise be repealed on 1 September 2021 by section 10(2) of the Subordinate Legislation Act 1989.
3 Definitions
3 Definitions
3 Definitions
(1) In this Regulation—
retention money has the same meaning as in section 12A(5) of the Act.
Note.
Money is retention money only while it is held as security for the performance of the subcontractor’s obligations. If the head contractor becomes entitled to money held as retention money, the money ceases to be retention money and the requirement under this Part that the money be held in trust for the subcontractor in a retention money trust account ceases.
the Act means the Building and Construction Industry Security of Payment Act 1999.
Note.
The Act and the Interpretation Act 1987 contain definitions and other provisions that affect the interpretation and application of this Regulation.
(1A) For the purposes of paragraph (b) of the definition of exempt residential construction contact in section 4(1) of the Act, an owner occupier construction contract is prescribed.
(2) Notes included in this Regulation do not form part of this Regulation.
cl 3: Am 2020 (504), Sch 2[1].
4
4 (Repealed)
4
cl 4: Rep 2020 (504), Sch 2[2].
Building and Construction Industry Security of Payment Regulation 2020 (New South Wales) | Zoe
Ongoing compliance obligations include notification to the Secretary within five business days if the account becomes overdrawn (cl 13), notification of closure within 10 business days (cl 14), and maintenance of detailed records. Clause 16 requires a separate ledger for each subcontractor showing deposits, withdrawals, dates and running balances. The ledger must be provided to the subcontractor at least quarterly or at agreed intervals not exceeding six months. Records must be kept for three years after closure.
Part 3 contains miscellaneous prescriptions. Clause 17 prescribes APRA-regulated bodies as recognised financial institutions for the purposes of the definition in s 4(1) of the Act. Clause 18 limits the supporting statement obligation under s 13(7) of the Act to subcontractors or suppliers directly engaged by the head contractor. Clause 19 sets eligibility criteria for adjudicators: either a relevant tertiary qualification plus five years’ relevant experience or ten years’ relevant experience (cl 19(1)). Relevant experience is confined to management and administration of construction contracts or dispute resolution connected with them (cl 19(4)). Ineligibility arises if required continuing professional development has not been completed or if a reasonable person would perceive bias (cl 19(2)). Clause 20 fixes the duration of nominating authority authorisations at five years.
Schedule 1 lists penalty notice offences with specified amounts. Clause 20A imposes transitional reporting obligations for the 2019 financial year, requiring an account review report by a registered company auditor and a Secretary-approved statement, accompanied by a $1,500 fee. The Regulation repeals the 2008 Regulation and contains savings and transitional provisions (cl 21).
Taken together, the Regulation operationalises the Act’s security of payment objectives by creating an auditable, ring-fenced trust regime for retention money on high-value contracts while refining adjudicator standards and administrative processes.
Who it affects
The Regulation’s primary burden falls on head contractors as defined in the Act. Clause 6(1) applies Part 2 whenever the head contractor’s main contract with the principal reaches or exceeds $20 million in value. Because value includes post-execution variations (cl 6(3)), a contractor may become subject to the regime during the life of a project. Once captured, the head contractor’s obligations extend to all subsequent subcontracts, even if those individual subcontracts are smaller.
Subcontractors entitled to retention money are the beneficiaries of the trust. They receive quarterly ledger statements (cl 16(4)) and gain statutory protection against the head contractor’s insolvency or attachment by its creditors (cl 12). The note to cl 3 emphasises that money ceases to be retention money once the head contractor becomes entitled to it, thereby terminating the trust obligation.
Approved ADIs (authorised deposit-taking institutions approved under s 87 of the Property and Stock Agents Act 2002 or by the Secretary) are affected by the notification requirements in cl 9(2) and enjoy statutory immunity under cl 15. They are not required to supervise transactions or to allow set-off against the head contractor’s other liabilities to the ADI.
The Secretary receives multiple notifications: account opening details (cl 9(3)), overdrawn account reports (cl 13), closure notices (cl 14) and the transitional 2019 financial year reports (cl 20A). Nominating authorities and adjudicators are regulated by cll 19 and 20. Adjudicators must satisfy ongoing CPD requirements published by the Secretary on 13 August 2020; failure renders them ineligible (cl 19(2)(a)), although this requirement was deferred until 1 September 2021.
Principals under main contracts valued at $20 million or more are indirectly affected because the head contractor’s compliance costs may be priced into tenders. Owners under owner-occupier construction contracts are carved out of the Act’s operation by cl 3(1A), which prescribes them for the purposes of the exempt residential construction contract definition in s 4(1) of the Act.
Key duties and rights
Head contractors bear the heaviest duties. Under cl 8(1) they must hold retention money in trust and deposit it into a compliant retention money trust account. The duty is ongoing; cl 8(2) requires deposit within five business days of the retention obligation arising. Account nomenclature, ADI notification and Secretary notification duties appear in cl 9. Strict controls on withdrawals are imposed by cl 10, while cl 16 mandates granular ledger keeping and periodic provision to subcontractors.
Rights of head contractors are limited. Clause 12(2) preserves any just claim the head contractor may have against the retention money, but the money itself is not available for its general debts (cl 12(1)). Interest follows the trust unless contractually varied (cl 11).
Subcontractors possess rights to have their retention money held in trust, to receive ledger copies at least every three months (cl 16(4)), and to the statutory protections in cl 12. They may agree in writing to alternative withdrawal arrangements or interest treatment.
Approved ADIs have the right to statutory immunity (cl 15(1)) but remain liable for their independent obligations (cl 15(2)).
Adjudicators gain a right to perform functions under the Act only if they meet the cl 19 criteria. Nominating authorities receive five-year authorisation terms (cl 20).
The Secretary holds rights to receive notifications and reports and to approve forms, CPD guidelines and additional ADIs.
Penalties and enforcement
Penalties are predominantly expressed as maximum penalties rather than strict liability offences. Clause 8(1) and (2), cl 9(1), (2) and (3), cl 10(1) and (2), cl 13, cl 14 and cl 16(1)–(5) each carry a maximum of 1,000 penalty units for a corporation and 200 penalty units for an individual. Clause 20A(1) and (5) carry 200 penalty units.
Clause 7 applies the executive liability regime in s 34D of the Act to offences against cll 8(1), 8(2), 10, 13, 14 and 16, exposing directors and officers to personal liability where the corporation contravenes and they knew or ought reasonably to have known of the commission.
Schedule 1 creates a penalty notice regime under s 34B of the Act. For individuals, the penalty notice amount for most Regulation offences is $2,200; for corporations it is $11,000. Clause 20A(1) carries a $4,400 penalty notice amount for both. The schedule also lists several Act offences with corresponding penalty notice amounts.
Enforcement is therefore both criminal (prosecution with maximum penalties) and administrative (penalty notices). The transitional cl 20A(5) creates a specific false-statement offence. The note to cl 3 clarifies that once money ceases to be retention money the trust obligation ends, which may affect the scope of prosecutable conduct.
How it interacts with other laws
The Regulation is expressly made under the Act and must be read with it. Definitions in the Act and the Interpretation Act 1987 apply (cl 3(1) note). The term “retention money” adopts the meaning in s 12A(5) of the Act, with the explanatory note clarifying its temporal limits.
Approved ADI status derives from s 87 of the Property and Stock Agents Act 2002 or Secretary approval. Recognised financial institutions are prescribed by reference to the Australian Prudential Regulation Authority Act 1998 (Cth) (cl 17). The registered company auditor requirement in cl 20A imports the Corporations Act 2001 (Cth) definition.
The Regulation repeals the 2008 Regulation (cl 21(1)) but preserves acts, matters or things having effect under it (cl 21(2)), subject to the specific carve-out for cl 16 of the repealed Regulation concerning the 2019 financial year (cl 21(3) and cl 20A).
Clause 3(1A) interacts with the exempt residential construction contract definition in s 4(1) of the Act by prescribing owner-occupier construction contracts. Clause 18 narrows the s 13(7) supporting statement obligation. Adjudicator eligibility supplements s 18 of the Act. Executive liability picks up s 34D. Penalty notices operate under s 34B.
The trust account regime sits alongside general trust law and insolvency legislation; cl 12(1) provides statutory protection from attachment that would otherwise be available to creditors under corporations or bankruptcy law.
Recent changes and why
The Regulation commenced on 1 September 2020, replacing the 2008 Regulation which would have sunset on 1 September 2021 (cl 2 note). Schedule 2, commencing 1 March 2021, inserted cl 3(1A) and repealed the former cl 4 that had dealt with owner-occupier contracts. The amendment reflects a policy decision to exempt such contracts from the Act’s operation via the exempt residential construction contract route.
Clause 20A was inserted by 2020 (714) to impose one-off transitional reporting for the 2019 financial year under the repealed Regulation’s trust account rules. This ensured continuity of oversight during the transition. The CPD requirement in cl 19 was deferred until 1 September 2021 to allow time for adjudicators to complete the Secretary’s guidelines.
These changes respond to identified weaknesses in retention money management, particularly the risk of head contractor insolvency. By mandating ring-fenced trust accounts only for contracts above $20 million, the Regulation targets systemic risk without imposing disproportionate burdens on smaller projects. The adjudicator eligibility tightening and five-year nominating authority authorisations aim to professionalise dispute resolution.
Court challenges and controversies
The source text contains no reported court challenges. However, the structure of the Regulation raises several points of potential contention that practitioners should monitor.
The $20 million threshold’s ability to be reached by variation (cl 6(3)) may generate disputes about the precise moment the Part 2 obligations crystallise. Clause 6(4) attempts to limit retrospective application to subcontracts entered after the threshold is met, but questions of characterisation of “value” and “variation” could still arise.
The breadth of the cl 10(1) withdrawal exceptions, particularly the reference to “the terms of the construction contract under which the money was retained”, may invite arguments about whether set-off rights or defects claims fall within permitted purposes. The prohibition on withdrawal otherwise than by cheque or electronic funds transfer (cl 10(2)) is absolute and could create practical difficulties in urgent situations.
Clause 19(2)(b)’s “reasonable person would conclude … actual or perceived conflict” test introduces a subjective element that may be litigated in applications to disqualify adjudicators. The deferral of the CPD requirement until 1 September 2021 created a transitional window during which eligibility was broader.
The interaction between cl 12 and insolvency law remains untested in the text; whether liquidators can successfully argue that cl 12(2) “just claims” allow recourse to the fund will depend on the underlying contract and general law.
The false or misleading statement offence in cl 20A(5) mirrors language used in other regulatory regimes and may generate parallel civil and criminal proceedings.
Gotchas
Most practitioners assume that once a trust account is opened the head contractor can freely net amounts across subcontractors. Clause 16(2) requires a separate ledger for each subcontractor for each construction contract; commingling in a single account is permitted under cl 8(3)(c) but the ledger discipline is strict. Failure to maintain the ledger triggers separate offences for each subclause of cl 16.
The five-business-day deposit rule in cl 8(2) runs from when the head contractor is “required to retain” the money, not from when it is actually withheld. Identifying that precise contractual or statutory moment is critical; many head contractors inadvertently breach by treating the date of deduction as the trigger.
Clause 13’s overdrawn account notification obligation is triggered by the head contractor “becoming aware”. In practice, awareness may occur earlier than the bank notifies the client, especially where internal reconciliations reveal a negative ledger balance before the bank statement issues. The Secretary must be told the reason for the overdraft; a bland “bank error” response is unlikely to suffice if internal records show a withdrawal in breach of cl 10.
The transitional cl 20A applies to any head contractor who operated a retention money trust account in the 2019 financial year under the repealed Regulation. Even if the contractor has since closed the account, the obligation to lodge an auditor’s report plus $1,500 fee can arise unexpectedly. The carve-out in cl 20A(4)(a) for those who already complied with cl 16 of the repealed Regulation is narrowly drafted; partial compliance will not suffice.
Many overlook that interest follows the trust unless the construction contract itself provides otherwise (cl 11(a)). A general set-off clause in the head contract may not displace the trust obligation on interest. A separate written agreement with the subcontractor is required if the contract is silent.
Nominating authorities authorised before 1 September 2020 receive an automatic five-year extension from that date (cl 20(2)). However, any withdrawal by the Minister under the Act overrides the term. There is no public register requirement in the Regulation, so tracking expiry dates requires direct inquiry.
How to comply
Head contractors should implement a three-stage compliance framework.
Stage 1 – Threshold monitoring. Maintain a live register of main contract values including all variations. Once the $20 million threshold is reached or projected, designate a compliance officer responsible for Part 2 obligations on all future subcontracts. Update tender and contract templates to flag the trust account regime.
Stage 2 – Account infrastructure. Open retention money trust accounts only with approved ADIs. Use the exact nomenclature required by cl 9(1). Provide the written notification to the ADI at opening. Within 10 business days, notify the Secretary with all cl 9(3) particulars. Establish standardised ledger templates that capture the mandatory cl 16(3) fields. Decide whether to use per-subcontractor, per-contract or omnibus accounts; document the choice and ensure ledger separation in all cases.
Stage 3 – Operational controls. Deposit retention money within five business days of the contractual or statutory retention trigger. Implement dual-authority withdrawal protocols that require documented justification referencing one of the four cl 10(1) exceptions. Route all withdrawals through cheque or EFT only. Reconcile accounts at least weekly to detect overdrafts immediately; maintain a standing instruction to notify the Secretary within five business days of awareness using a templated letter containing the three mandatory particulars.
Quarterly ledger extracts must be generated automatically and sent to each subcontractor. Retain all records for at least three years post-closure. For the transitional 2019 year (if applicable), engage a registered company auditor early, prepare the approved form statement, and budget for the $1,500 fee.
Adjudicators must track and complete the Secretary’s CPD Guidelines annually. Nominating authorities should diarise their five-year authorisation expiry and maintain records demonstrating ongoing compliance with any conditions imposed by the Minister.
Legal and compliance teams should maintain a master checklist cross-referencing each clause, responsible officer, deadline and evidence of compliance. Annual internal audits should test a sample of ledgers, withdrawal authorisations and notification records. Where doubt exists about whether money has ceased to be retention money, obtain contemporaneous legal advice before any transfer out of the trust account.
By treating the trust account regime as a core financial control rather than an administrative afterthought, head contractors can avoid the 1,000-penalty-unit corporate sanctions and associated director liability. Subcontractors should request ledger copies promptly and verify that deposits match contractual retention amounts. Early engagement with the Secretary on account notifications and reporting formats reduces the risk of technical breaches.
approved ADI means an authorised deposit-taking institution approved under section 87 of the Property and Stock Agents Act 2002 or approved by the Secretary by order in writing.
retention money trust account—see clause 8(1)(b).
6 Application of Part—contracts with value of at least $20 million
6 Application of Part—contracts with value of at least $20 million
6 Application of Part—contracts with value of at least $20 million
(1) This Part applies to a head contractor if the head contractor’s construction contract with the principal (the main contract) has a value of at least $20 million (the $20 million threshold).
(2) The value of a construction contract is—
(a) the amount of the consideration that the contract provides is payable for construction work carried out under the contract or for related goods and services supplied under the contract, or
(b) if the contract does not provide for that amount—the market value of the work to be carried out or the value of the goods and services to be supplied.
(3) The value of a construction contract is its value including any variation to the contract after the contract is entered into, with the result that the value of the main contract can increase and reach the $20 million threshold after the main contract is first entered into.
(4) If the value of the main contract reaches the $20 million threshold after the main contract was first entered into, the head contractor becomes subject to this Part but only for construction contracts between the head contractor and subcontractors entered into after the value of the main contract reached the $20 million threshold.
7 Executive liability offences
7 Executive liability offences
7 Executive liability offences
Section 34D of the Act applies to an offence against clause 8(1) or (2), 10, 13, 14 or 16.
Note.
Section 34D of the Act provides for the personal liability of directors for certain offences committed by a corporation.
Division 2 Trust account requirements
Division 2 Trust account requirements
Division 2 Trust account requirements
8 Retention money to be held in trust account
8 Retention money to be held in trust account
8 Retention money to be held in trust account
(1) A head contractor to whom this Part applies must—
(a) hold the retention money in trust for the subcontractor entitled to the money, and
(b) ensure that the money is paid into and retained in a trust account established with an approved ADI (a retention money trust account).
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
(2) A head contractor must ensure that the money is paid into the retention money trust account as soon as possible, but no later than 5 business days after the head contractor is required to retain the retention money.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
(3) A retention money trust account may be established as—
(a) a separate trust account for the retention money held in respect of a particular subcontractor, or
(b) a separate trust account for all retention money held in connection with a particular construction contract of the head contractor, or
(c) a separate trust account for all retention money held in connection with 2 or more (or all) construction contracts of the head contractor.
9 Requirements for establishment of trust account
9 Requirements for establishment of trust account
9 Requirements for establishment of trust account
(1) A head contractor who establishes a retention money trust account must ensure that the name of the account and the description of the account in the records of the head contractor include the name of the head contractor and the words “Trust Account”.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
(2) When establishing a retention money trust account with an approved ADI, a head contractor must ensure that the approved ADI is notified in writing that the account is a trust account required to be established for the purposes of this Part.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
(3) A head contractor must, within 10 business days after establishing a retention money trust account, notify the Secretary in writing of the following—
(a) the name of the approved ADI and the branch or BSB number of the branch of the approved ADI at which the account has been established,
(b) the name of the account,
(c) the number of the account,
(d) the opening balance of the account,
(e) the date the account was opened.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
10 Withdrawals from trust account
10 Withdrawals from trust account
10 Withdrawals from trust account
(1) A head contractor must not withdraw retention money from a retention money trust account except—
(a) for the purpose of the payment of the money in accordance with the terms of the construction contract under which the money was retained by the head contractor, or
(b) as may be agreed in writing by the head contractor and the subcontractor concerned, or
(c) for the purpose of the payment of the adjudicated amount that the head contractor is required to pay under section 23 of the Act, or
(d) in accordance with an order of a court or tribunal.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
(2) A head contractor must not withdraw retention money from a retention money trust account otherwise than by cheque or electronic funds transfer.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
11 Interest earned on trust account
11 Interest earned on trust account
11 Interest earned on trust account
Interest earned on retention money held in a retention money trust account is to be held on the same trust as the retention money and dealt with accordingly unless—
(a) the contract between the head contractor and the subcontractor under which the money is held as retention money otherwise provides, or
(b) the head contractor and subcontractor otherwise agree in writing.
12 Retention money not available to pay head contractor’s debts
12 Retention money not available to pay head contractor’s debts
12 Retention money not available to pay head contractor’s debts
(1) Retention money held by a head contractor is not available for the payment of the debts of the head contractor, or liable to be attached or taken in execution for satisfying a judgment against the head contractor.
(2) This clause does not take away or affect any just claim that a head contractor may have against or upon retention money.
13 Overdrawn trust account
13 Overdrawn trust account
13 Overdrawn trust account
A head contractor must, within 5 business days after becoming aware that a retention money trust account of the head contractor has become overdrawn, notify the Secretary in writing of—
(a) the name and number of the account, and
(b) the amount by which the account is overdrawn, and
(c) the reason for the account becoming overdrawn.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
14 Closure of trust account
14 Closure of trust account
14 Closure of trust account
A head contractor must, within 10 business days after closing a retention money trust account, notify the Secretary of the closure in writing.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
15 Financial institutions not subject to certain obligations and liabilities
15 Financial institutions not subject to certain obligations and liabilities
15 Financial institutions not subject to certain obligations and liabilities
(1) An approved ADI with which a retention money trust account is established by a head contractor under this Part—
(a) is not under any obligation to control or supervise transactions in relation to the account or to see to the application of money disbursed from the account, and
(b) does not have, in relation to any liability of the head contractor to the approved ADI, any recourse or right (whether by way of set-off, counterclaim, charge or otherwise) against money in the account.
(2) Subclause (1) does not relieve an approved ADI from any liability to which it is subject apart from this Part.
16 Trust account records
16 Trust account records
16 Trust account records
(1) A head contractor must keep records in relation to a retention money trust account established by the head contractor showing the amounts deposited into or withdrawn from the account.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
(2) A head contractor must keep a separate ledger for retention money held in respect of each subcontractor in connection with each construction contract.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
(3) The ledger must contain the following information—
(a) the amounts deposited into or withdrawn from the retention money trust account in respect of the subcontractor,
(b) the date of each transaction,
(c) the balance after each transaction.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
(4) A head contractor must provide the subcontractor concerned with a copy of the ledger—
(a) at least once every 3 months, or
(b) as often as may be agreed in writing by the head contractor and the subcontractor (but at least once every 6 months).
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
(5) A head contractor must retain a record made in relation to a retention money trust account for the purposes of this clause for not less than 3 years after the account is closed.
Maximum penalty—In the case of a corporation, 1,000 penalty units or, in any other case, 200 penalty units.
Part 3 Miscellaneous
Part 3 Miscellaneous
Part 3 Miscellaneous
17 Recognised financial institutions
17 Recognised financial institutions
17 Recognised financial institutions
Each person or body that is a body regulated by APRA, within the meaning of the Australian Prudential Regulation Authority Act 1998 of the Commonwealth, is prescribed for the purposes of the definition of recognised financial institution in section 4(1) of the Act.
18 Supporting statements
18 Supporting statements
18 Supporting statements
The requirement for a head contractor to provide a supporting statement under section 13(7) of the Act relates only to those subcontractors or suppliers directly engaged by the head contractor.
19 Adjudicator eligibility
19 Adjudicator eligibility
19 Adjudicator eligibility
(1) For the purposes of section 18(1)(b) of the Act, a person is eligible to be an adjudicator in relation to a construction contract if the person has—
(a) a degree or diploma in architecture, building surveying, quantity surveying, building and construction, construction management, project management, engineering or law conferred by an Australian or foreign university or tertiary institution and at least 5 years of relevant experience, or
(b) at least 10 years of relevant experience.
(2) For the purposes of section 18(2)(b) of the Act, a person is not eligible to be an adjudicator in relation to a particular construction contract if—
(a) the person has not completed the required continuing professional development, or
(b) a reasonable person would conclude the person has an actual or perceived conflict or would not adjudicate impartially.
(3) Subclause (2)(a) does not apply until 1 September 2021.
(4) In this clause—
relevant experience means experience in—
(a) the management and administration of construction contracts, or
(b) the resolution of disputes in connection with construction contracts.
required continuing professional development means the continuing professional development required to be completed each year as specified by the Secretary in the CPD Guidelines for Adjudicators published on the Department of Customer Service’s website on 13 August 2020.
20 Authorisation of nominating authorities
20 Authorisation of nominating authorities
20 Authorisation of nominating authorities
(1) An authority given by the Minister to an applicant under section 28 of the Act remains in force for a period of 5 years, unless sooner withdrawn by the Minister under the Act.
(2
This is an opening excerpt, not the complete document.