The Payment Chain: Security of Payment in Queensland — Part 4:

Retention Money and Project Trust Accounts. What the BIF Act Protects and What It Does Not.

By Damon Laffin, Director | Odyssey Legal | Maroochydore, Queensland

Retention money is withheld from subcontractors as security against defective work. On larger projects, it usually requires that money to be held in a statutory trust account, quarantined from the head contractor’s general assets and protected against insolvency. On smaller projects, it does not. Knowing which regime applies to your project, and what your rights are in either case, is one of the most important things a subcontractor in Queensland can understand.

You finished the work. The defects liability period ended. You asked for your retention to be released. Nothing happened.

Alternatively, the head contractor went into administration halfway through the project, and the retention withheld from your progress payments disappeared into the insolvency. You lodged a proof of debt and waited, knowing that unsecured creditors in a construction insolvency rarely recover much and that the money you were owed had already been withheld from payments you had earned.

Retention disputes are among the most common and most costly in Queensland’s construction industry. The money has already been earned. It has already been withheld. The question is whether the law protected it while it was being held, and that question has a very different answer depending on the size and nature of the project you are on.

This is Part 4 of The Payment Chain series.

Part 1 covered what makes a payment claim valid.

Part 2 covered what happens when no payment schedule is received.

Part 3 covered subcontractors’ charges and claims against the principal when the head contractor fails to pay.

This article covers the trust account framework under Chapter 2 of Queensland’s *Building Industry Fairness (Security of Payment) Act 2017* (Act) — what it protects, which projects it covers, and where it currently falls short.

The Problem the Trust Account Framework Was Designed to Solve

In Queensland’s construction industry, money flows down the contractual chain. The principal pays the head contractor. The head contractor pays the subcontractors. At each link in that chain, a retention amount is commonly withheld, typically between 2.5% and 5% of the contract price, as security against defective work during the defects liability period.

The structural problem is straightforward. Under a conventional arrangement, retention money withheld from a subcontractor does not sit in a separate account waiting to be returned. It sits in the head contractor’s general operating funds. When the head contractor becomes insolvent, which happens regularly, that money is simply gone. It is not quarantined. It is not protected from general creditors. The subcontractor who earned it and had it withheld from their progress payments becomes an unsecured creditor, recovering cents on the dollar if they recover anything at all.

The Act’s trust account framework was introduced to address exactly this problem. The intent is clear: retention money belongs beneficially to the subcontractor who earned it. It should be held in trust, quarantined from the head contractor’s general assets, and returned when the contractual conditions for release are met.

Two Types of Trust Account

Chapter 2 of the Act establishes two types of trust accounts that may be required on eligible projects.

Project trust accounts are the primary account under which all payments between the principal and the head contractor flow. Under section 11 of the BIF Act, a project trust is a statutory trust established for an eligible head contract. Under section 11A, the head contractor is the trustee, and both the head contractor and each first-tier subcontractor are beneficiaries.

The critical feature is the payment waterfall. Under section 20 of the Act, all payments to subcontractor beneficiaries must be made from the project trust account. The head contractor cannot pay itself first and distribute what remains. Subcontractors are paid first from the account. The head contractor takes the remainder.

The head contractor must open the project trust account within 20 business days after entering into the first subcontract for the project.

Retention trust accounts are separate accounts into which cash retention amounts withheld from subcontractors must be deposited. Under section 31 of the Act, a retention trust is a statutory trust established for the benefit of subcontractors from whom retention has been withheld. Unlike a project trust account, which is established per project, a single retention trust account can be used across all of a head contractor’s eligible contracts.

Under section 36 of the Act, money may only be withdrawn from a retention trust account for limited purposes: to pay the retention amount to the subcontractor when it is due for release, or to make a legitimate claim against the retention where the contractual conditions for doing so are satisfied. Any other withdrawal is an offence.

Under section 36A of the Act, all retention amounts held in the trust must be released at the end of the retention period unless there is a legitimate contractual basis for withholding them. The obligation to release is positive and time-bound. A head contractor cannot simply sit on retention because they have not got around to assessing whether defects exist.

Which Projects Are Currently Covered

This is where the picture becomes more complicated and where many subcontractors are surprised to discover they are not protected.

The trust account framework has been implemented in phases since March 2021. The framework currently applies to Queensland Government, hospital and health service contracts of $1 million or more and private sector, local government, statutory authority, and government-owned corporation contracts of $10 million or more.

The previous Queensland Government had legislated a further expansion of the regime, with the private sector and local government threshold due to drop to $3 million from 1 March 2025 and to $1 million from 1 October 2025. In February 2025, the new Queensland Government paused that expansion indefinitely and announced a broader review of the security of payment regime by the Queensland Productivity Commission. The $10 million threshold for private sector projects remains in place while that review is conducted.

The practical consequence is significant. If your project is a private sector project with a contract value below $10 million, the trust account framework does not apply. Your retention is not required to be held in trust. If the head contractor becomes insolvent, your retention is exposed in exactly the way it has always been.

For the majority of subcontractors working on smaller commercial projects across Queensland, the trust account framework provides no protection. Understanding that gap, and how to manage the risk it creates, is as important as understanding the protections that do exist on larger projects.

Notice of Project Trust: What Subcontractors Are Entitled to Know

Before a head contractor withholds retention from a subcontractor on a project where the trust account framework applies, they must give the subcontractor a notice of project trust under section 23 of the Act. That notice must be given before the subcontractor enters into the first subcontract for the project.

The purpose of the notice requirement is straightforward: subcontractors on covered projects need to know that a project trust account exists and that they are a beneficiary of it before their money is withheld.

As a beneficiary, you are also entitled to request information about the trust. Under section 23B of the Act, a subcontractor beneficiary may request particular information from the trustee about the trust account, including the amounts held. A head contractor who fails to give the required notice or respond to a legitimate information request may be in breach of their obligations under Chapter 2 and subject to QBCC disciplinary action.

What the Trust Account Means in an Insolvency

The critical practical benefit of the trust account framework becomes most visible when the head contractor becomes insolvent.

Money held in a project trust account or a retention trust account is not available to an administrator, liquidator, or receiver as a general asset of the head contractor. It is held on trust for the beneficiaries, including the subcontractors, and the insolvency of the trustee does not extinguish the beneficial interest of those subcontractors in the trust money.

Under section 51A of the Act, amounts in a trust account are expressly unavailable for the trustee’s debts. This is the statutory quarantine that the framework provides. Where the framework applies and has been properly administered, a subcontractor’s beneficial interest in the trust money survives the head contractor’s insolvency.

Where the framework applies but the head contractor failed to establish the required account or failed to deposit retention into it, the position is more complex. The failure is an offence, and the QBCC has investigative and enforcement powers in respect of trust account breaches. But the practical recovery position in an insolvency where the required funds were never quarantined is significantly more difficult, and immediate legal advice is essential.

Protecting Yourself on Projects Below the Threshold

If the trust account framework does not apply to your project, which for most private sector projects in Queensland currently means projects below $10 million, these steps reduce your exposure.

Negotiate the form of retention security at the contract stage. Cash retention held in the head contractor’s general account is the highest-risk form for a subcontractor. Where the contract permits, seek a bank guarantee or retention bond in place of cash. A bank guarantee is a direct obligation of the issuing bank; it sits outside the head contractor’s assets entirely and is not affected by their insolvency.

Track your retention release date and pursue it promptly. Understand when retention is contractually required to be released and diarise it. Many subcontractors allow retention to sit unclaimed past the end of the defects liability period simply because they have not tracked the date. Once the release conditions are met and no legitimate defects claim has been made, you are entitled to the money.

Act early at the first sign of financial difficulty. Delayed payments, disputed amounts, or changes in behaviour on site can be early indicators of financial stress in a head contractor. A payment claim for withheld retention, served while there are still funds available to enforce against, is worth considerably more than a proof of debt in a liquidation.

The Ongoing Review

The Queensland Productivity Commission’s review of the security of payment regime is ongoing. The outcome of that review will determine whether and how the trust account threshold for private sector projects changes. Odyssey Legal will publish updates as the review progresses and any changes to the framework are confirmed.

The Series in Summary

The Payment Chain has now covered the full arc of a subcontractor’s payment journey under the Act.

Part 1 covered the technical requirements for a valid payment claim — what the document must contain, when it can be served, and what happens when those requirements are not met.

Part 2 covered what crystallises when no payment schedule is received — the statutory debt under section 77, the three options under section 78, and the adjudication deadlines under section 79.

Part 3 covered subcontractors’ charges, how to claim directly against the principal when the head contractor fails to pay; the three-month deadline from practical completion; and the critical election between a charge and adjudication.

This article has covered the trust account framework, what it protects, the current thresholds, and how to manage the risk on projects below them.

The consistent message across all four parts is the same. The Act provides genuine and powerful protections for Queensland subcontractors. But those protections are only available to people who understand the mechanisms, act within the timeframes, and make informed decisions before a crisis arises rather than during one.

Damon Laffin is the Legal Practice Director at Odyssey Legal, a Queensland boutique litigation and business law firm.

Odyssey Legal is a boutique commercial litigation and business firm on the Sunshine Coast. We advise builders and subcontractors on various building disputes, from debt recovery to defective works claims across Queensland.

07 5370 8759 | info@odysseylegal.com.au | odysseylegal.com.au

If you need advice are considering your options, contact Odyssey Legal at odysseylegal.com.au or (07) 5370 8759.

This article is general information only and does not constitute legal advice. If you have a retention dispute, a trust account query, or any other security of payment matter, contact Odyssey Legal immediately at odysseylegal.com.au or (07) 5370 8759. You can also download the BIFA Payment Claim Checklist to use before every claim you serve.

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