The NSW Government has established a cash retention trust scheme to protect sub-contractors in the building industry in the event of a construction company’s collapse.
According to a NSW Fair Trading media release, the retention trust scheme, which is the first of it’s kind, is a result of the NSW Government’s response to the Collins Inquiry. The Collins Inquiry investigated the causes of insolvency in the building industry, which included the collapse of major construction companies Reed Constructions, the Kell & Rigby Group and the Hasties Group.
The retention trust scheme will involve imposing a requirement on construction companies to hold retention money in a trust fund for sub-contractors. This will end the practice of using the trust money of subcontractors’ for the head contractors’ working capital purposes. The head contractors will now be responsible for holding the retention money in their own accounts with NSW Fair Trading conducting regular audits to ensure they comply with the requirements.
If head contractors are found to not be complying with the requirements, they will face fines up to $22,000. The scheme will initially apply to head contractors and their direct subcontractors for projects over $20 million in value.
NSW Fair Trading Minister, Matthew Mason-Cox stated that the scheme and the new requirements will deliver better outcomes for subcontractors and minimise red tape in the industry. He also acknowledged that most builders do the right thing and pay their subcontractors on time, but also emphasised the need to protect subcontractors if a construction company collapses.
NSW Fair Trading have released a draft regulation and regulatory impact statement, which is open for public consultation until January 8.The new requirements and laws are expected to come into effect soon after.
More information on the retention trust scheme, including the requirements and where to comment on the regulatory impact statement can be found here.