Retention money

Retention money (Clause 15)

Retention money held by head contractors for projects valued over $20 million must be held in a trust account with an authorised deposit taking institution (ADI). This is set out in the amended Building and Construction Industry Security of Payment Regulation 2008.

The changes to the Regulation apply to all contracts entered into on or after 1 May 2015. The changes set out to protect subcontractors’ retention money in trust for major construction projects, including if a construction company becomes insolvent.

Project value (Clause 15)

The project value is determined by the contract price or, where the contract does not provide an amount, the market value of the work carried out and the goods and services supplied. If the value of a construction project reaches the $20 million threshold after the head contractor first enters into the construction contract with the principal, the requirement to hold retention money in trust applies only to contracts entered into by the head contractor after the $20 million threshold has been reached.[3]

Trust account requirements (Clause 7 & 8)

A head contractor must keep retention money separate in an account with an ADI. The name and description of the account must include the head contractor’s name and the words ‘trust account’. The head contractor must notify the ADI in writing that the account is a retention money trust account for the purposes of the Regulation. Within 14 days of opening the account, the head contractor must also let the Secretary know:

  • the name of the approved ADI
  • the branch or BSB number of the approved ADI
  • the name and number of the account
  • the opening balance of the account.

Head contractors can only withdraw money from the trust account by the terms of the contract between them and a subcontractor, or as otherwise agreed upon in writing. Withdrawals can only be made by cheque or electronic funds transfer (EFT). If a trust account becomes overdrawn, within five days the head contractor must let the Secretary know:

  • the name and number of the account
  • the amount by which the account is overdrawn, and
  • the reason for the account becoming overdrawn.

To notify the Secretary in writing, email SecurityofPayment@finance.nsw.gov.au or write to:

NSW Fair Trading
Security of Payment Branch
The Barrington
PO Box 972
Parramatta NSW 2124

Reporting requirements (Clause 16)

Within three months after the end of the financial year, the head contractor who operates a retention money trust account must provide the Secretary with:

  • an account review report for the account in respect of the financial year
  • a retention account statement for the account in respect of the financial year in the form set out in Schedule 2 of the Regulation.

An account review report must be obtained from a registered company auditor and certify that the account operator has complied with all of the requirements of the Regulation.

Failure to provide the required financial report and/or statement within three months of the end of the financial year, is an offence pursuant to Clause 16(1) of the Regulation. The Regulation provides for a maximum penalty of $22,000.

The retention account statement sets out a schedule of retention money held in the trust account, detailing the following:

  • subcontractor’s name
  • subcontractor’s Australian Business Number (ABN)
  • full retention amount retained from subcontractor
  • retention amount paid to subcontractor during audit period
  • retention amount held at end of audit period.

Annual reporting exemption

A head contractor does not have to report for the previous financial year if:

  • there is no money in the trust account, and
  • no money was deposited or withdrawn from the trust account during that period.

You must still let NSW Fair Trading know of these facts within three months from the end of the financial year.

To submit an account review report, retention account statement or a notification, email SecurityofPayment@finance.nsw.gov.au or post these documents to:

NSW Fair Trading
Security of Payment Branch
The Barrington
PO Box 972
Parramatta NSW 2124

What is cash retention?

A form of security provided by subcontractors to a head contractor. This money is held by the head contractor from progress payments to the subcontractor. The money is held as a security for defective work or late completion.

How much is held in retention?

Usually up to five percent of the total contract value is held by the head contractor until the subcontractor has completed the job and fixed any defective work.

Who needs to carry out the requirements?

Currently the scheme applies to head contractors and their direct subcontractors for projects worth $20 million or more.

How will the retention trust scheme work?

The scheme requires head contractors to set up trust accounts to hold retention funds. Through audit reports, NSW Fair Trading will check that head contractors are keeping trust accounts as required. Head contractors who fail to comply will face fines of up to $22,000.

What are the costs associated with setting up the trust account?

A $1500 administrative fee covering operating costs will be payable by companies when they submit their annual account audit reports to Fair Trading. This only applies to projects with a total contract value of $20 million or more.

Need more information?

For other questions on security of payment laws, go to our frequently asked questions page. Or make an enquiry on our contact us page or call 13 32 20.

Prev Enforcing payment
Next Security of payment frequently asked questions