Why will Trusts shape the construction industry in 2022?
In a striking article featured in The Australian on 30 December 2021, titled ‘Builders brace for Trust Account rule’, journalist Mackenzie Scott states:
“From Saturday, all private sector works valued over $10M will be required to implement specific bank accounts called Project Trusts, which will effectively lock in funds required to pay Subcontractors for the duration of the project.”
This means that now, eligible private sector building and construction contracts (contracts) worth >$10M are subject to the Statutory Trust requirements of the Building Industry Fairness (Security of Payment) Act 2017 (BIFA).
The Queensland Government or a Hospital and Health Service, with eligible contracts over $1M, have already been captured by Project Trust requirements since 1 July 2021. This 18-month delay from 1 July 2021 to 1 January 2023 means that the effect of the Trusts rollout will not fully apply to eligible private sector contracts in the same manner as they currently do for Government contracts. However, while this cautious rollout approach by the Government is appropriate, it does mean that the private building and construction sector will need to make major operational adjustments in 2022.
This is why Trusts will have an ‘on steroids’ affect, as there will be thousands of eligible private sector contracts captured this year, compared to the hundreds of Government sector contracts in 2021.
The Security of Payment (SOP) objectives concerning Trusts, as stated in the BIFA amendments Explanatory Notes, are:
In layman’s terms, the Government is putting their faith in Project Trusts reducing the frequency of insolvency in the industry and reducing non-payment for parties who have carried out work. While on occasion Government agencies are accused of being slow payers, it has been my experience that they do pay for work carried out per contractual requirements and are not, thankfully, candidates for becoming insolvent.
However, the full rollout of Project Trusts in the private sector will generate a Trusts ‘on steroids’ effect and significantly disrupt the construction industry in 2022.
My Helix colleague and former CFO of McNab constructions, David Cahill, is quoted by Mackenzie Scott in her article as saying:
“This is the biggest disruption I have seen in 30 years in financial management and I have been through the single currency in Europe, the introduction of the GST, and Superannuation here”
In 2021 Helix was ecstatic to welcome David to the team given his financial expertise and hands-on experience in helping McNab to prepare for Trusts. David was at the forefront of the changes back in March 2018 when they were called Project Bank Accounts and brings the insight, he gained from leading the finance team in a construction business far ahead of the pack when it comes to Trusts.
Elsewhere in the same article, David predicts that once the Trusts regime is fully implemented, $800M to $1BN could be removed from mid-tier builders cashflow and more than $2BN of cash each month will be moving between thousands of new bank accounts across more than 5000 construction projects.
Now, let’s compare
Let’s see the level of industry disruption and impact on this sector compared to what has occurred concerning Government contracts since Trusts commenced on 1 March 2021.
In his December Trusts Update, David stated that at the end of November 2021, there were 43 builders operating Trust Accounts. Of these 43 builders, there are 113 Retention Trust Accounts operating and 134 Government projects underway. Keep an eye out for his January Update that will be released later this month!
In summary, under the Government trial of Project Trusts over 8 months, only 134 projects were captured by these requirements. As stated above, David predicts 5,000 projects will be captured by these Trust requirements once the private sector rollout is completed.
In 2022 we also expect to see the following developments:
As I say, 2022 will be the year of Trusts ‘on steroids’ and Helix will be a trusted source of information.
Are you someone who is facing, or is yet to face, changes to your business due to the new Statutory Trusts requirements? It is important that you are aware and up to date with your changing obligations. David Cahill has created a free resource that you can subscribe to below to receive an inside scoop into all things Trusts. David’s Monthly Trusts Wrap Up can help you to stay prepared for what is to come, help navigate what is going on and to forecast how Trusts are affecting the construction industry as it happens.
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