From 1 May 2015, head contractors in New South Wales must establish trust accounts for retention money held under subcontracts for projects with a value of at least $20 million.

The reforms have been introduced by the Building and Construction Industry of Payment Amendment (Retention Money Trust Account) Regulation 2015 (NSW) (the Regulation) in an effort to give added protection to subcontractors on large projects.


The Regulation affects all head contractors who, on or after 1 May 2015, enter into construction contracts with a principal for a project in NSW valued at $20 million or more.

The value of the project is determined by either:

  1. the amount of consideration to be paid by the principal to the head contractor under the construction contract; or
  2. where the construction contract does not provide a value, the market value of the goods and services to be supplied under the construction contract.

Where the value of a project increases to $20 million or more through a variation, then the Regulation will only apply to retention money held by the head contractor pursuant to subcontracts entered into after the date when the value of the project reached $20 million or more.

“Retention money” is defined by the Regulation as simply “money retained by a head contractor out of money payable by the head contractor to a subcontractor under a construction contract, as security for the performance of obligations of the subcontractor of the contract.”


Head contractors are required by the Regulation to hold on trust for subcontractors any retention money covered by the Regulation in a trust account established with an authorised deposit-taking institution (ADI) approved under section 87 of the Property, Stock and Business Agents Act 2002 (NSW) or by the Chief Executive of the Office of Finance and Services.

The Regulation allows for a head contractor to either establish a separate trust account for:

  • the retention money held in respect to each particular subcontractor;
  • all the retention money held in respect to a construction project; or
  • all retention money held in respect to all construction projects.

The Regulation requires a head contractor to:

  • ensure that the name of the trust account includes the name of the head contractor and the words “Trust Account”,
  • notify the ADI in writing that the account is a trust account required to be established under the Regulation;
  • notify the Chief Executive of the Office of Finance and Services in writing within 14 days of a trust account being opened or closed;
  • meet certain prescribed record-keeping obligations;
  • provide an annual account review report for each financial year, within 3 months of the end of the financial year; and
  • to pay an annual fee of $1,500 with the report.

A number of offences are established for failing to comply with the Regulations, each with a fine of up to $22,000.


A withdrawal from a retention trust account can only be made by cheque or electronic funds transfer, and only in the following circumstances:

  • for the purpose of the payment of the money in accordance with the terms of the subcontract under which the money was retained by the head contractor;
  • as may be agreed in writing by the head contractor and the relevant subcontractor; or
  • in compliance with an order of a court or a tribunal.

It is therefore critical that a subcontract clearly and unambiguously provide for:

  • when the head contractor has the right to have recourse against the retention money, and withdraw money from the trust account; and
  • who has the right to claim any interest accrued on the retention money while in the trust account.


Head contractors will need to ensure that they have procedures in place to comply with all of their obligations under the Regulation, and that their subcontracts have been drafted to ensure that any right to have recourse top the retention money is clear and unambiguous.

To avoid the obligations of the Regulation, head contractors may wish to seek alternative forms of security from subcontractors, such as bank guarantees, instead of retention money.