Wednesday 30-03-2022 8am
Project Trusts Accounts is a Queensland centric issue and partly designed to protect subbies retentions.
What is a retention;
"Retention is a percentage (usually up to 5% of the contract sum but can be as high as 10%) of each payment made under a construction contract which is withheld in order to try and ensure that works under the construction contract are completed to the required standard".
A SubbiesUnited friend from Victoria, let's call him Ronaldo, has been registered as a Builder in Vic, Qld, NT, WA and SA.
He said; "it's only Queensland Builders who really push hard to collect retentions from subbies".
In Victoria, retentions represent bad faith from the builder, the only subbies who accept retentions are those who are desperate for work.
Ronaldo said; "in my own construction business, I have never taken retentions from subbies. In saying that, I have known all my subbies for a very long time and wouldn't change from them just because someone else is cheaper.
Each project I win has to be independently assessed on the contract sums and construction documents prior to warranty insurance being issued, meaning if the job is not profitable, no insurance is issued. This stops what has typically happened in Queensland in recent liquidations which is under-market bids from builders".
On a personal note, in most cases I said no to retentions for that reason, it shows a lack of faith in your ability to complete your contract as a QBCC licensee in a tradesman like manner.
You have to ask the question, why did the builder hire you in the first place if he doesn't trust you to complete or return for repairs if necessary? After all, its your reputation on the line.
We had been in the industry for over 30 years and if ever there was an issue even after the warranty period, we would always attend to it. Like most subbies, I looked at retentions as blackmail to ensure you return but they make it that hard to get it back, many subbies give up and write it off.
The other thing it does is add an unnecessary percentage to the job because some subbies know they won't get it back so they inflate the contract to cover it.
There is no need for builders to hold a financial gun to your head because if you value your QBCC licence you will always return for any maintenance issues.
Having done file reviews on many failed Qld Builders and having watched 5 days of the Cullen Group Public Examination, it's clear builders subsidise their own lack of cash flow with the retentions taken from subbies.
This is the nexus that needs to be broken. MBAQ would see Project Trusts as simply taking money out of the builders cash flow or payment chain.
It's a reflection of a toxic culture in the Qld market as is the MBA in the way they look after broke builders at the expense of every other industry players. It comes back to the lack of relevance of the MBA for subcontractors as members and of Minimum Financial Requirements because all a builder has to do is submit false financials just like Cullen Group did along with many others.
Try getting retentions back from builders, its a long drawn out process that does not always end successfully.
Ronaldo said "I do wonder how many Qld builders would fare in the Victorian Construction Supplier Register, or say the NT CAL accreditation and 3rd party credit assessment for warranty insurance.
They all have much more robust processes to determine a builders capacity & their profitability".
There is a few things becoming clear to us about the delay in the trust roll out. Call us cynical but I think the MBA assisted delays are to allow builders to liquidate to rid themselves of debt under Safe Harbour, leave the debt with subbies and start again afresh.
Nothing would surprise me in this poisonous broken industry where those who should be working hard to make it better work even harder to keep it the same as it has been for decades.
Mick, if you want to do something really useful for the commercial industry, legislate to ban/outlaw builders from taking retentions from subbies and do the same with developers holding retentions over builders.
All retentions do is add to the corruption, cause thousands of subbies undue stress and extra workload chasing what is part of their contract.
When the builder doesn't pay willingly which is most of the time, subbies have to resort to threats of or actual mediation and legal action to recover them. It allows unscrupulous builders to steal a percentage of subbies contracts and for bigger subbies, retentions can be 7 figure sums but no matter the size, its relevant to the business.
Outlawing retentions would go some way towards redeeming yourself for allowing the MBA to manipulated you on trusts.
It might go a long way to solving some long standing issues in the industry. Let the developers take some risk for a change instead of all the other players down the supply chain.
Abolishing retentions wouldn’t stop the blatant non-payment of subbies but it would make builders operate on proper margins so we must have trusts in place.
Subbies add a level of protection to your business and join SubbiesUnited and make use of our private members forum for up to date information but a warning, do not join if you are NOT a subcontractor, we will weed you out before you get a foot in the door. If you're not a subbie or a trusted supplier, you are not welcome.
On the subject of not being welcome:
This week we have found 4 ring-ins (a person or thing that is not a genuine member of a group or set) trying to infiltrate SubbiesUnited.
A couple in particular through the guise of being subbies while holding large builders licenses. We would like to thank you for your donations, rest assured they will be spent wisely, on even more security to keep people like you out.
How many times do we have to tell you, don't join if you are NOT a subbie, you are not welcome and you will be weeded out.
Ringer says
It was proposed four (4) years ago and a long time before that that retention’s shall they stay in the “commercial” sector of our industry be secured in a Q leave style of arrangement where as intrest earnt on such monies would be feed back into the industry… and similar if not along the lines of a rental bond system.
We all know this trust account thing has been farked and farked from the begining when DPW listening to the “elite” 2% of the top echelon of our industry yes they invited some subbies, but they didnt listen to what was being put forward by the 85% of the states licensee,s and telling them it would not work.
The question you should really be asking is where in the hell is the minimum sub contract value to which it was AGREED that retention would not be taken out of .. It was written into the act and it to date an amount has never been put into the regulations – this 4 years ago was $20 to $30k.
Any tradie in Micks elect of Springfield should vote this guy out next state election its as simple s that imho atm as your going to be promised so much next state election but he has failed to deliver on promises.
and why there is delays on the trusts for lower end as again 4 years ago they were told it not only costs to much but the lower amount should be $3m, with the recent 2 year price increases we have experience this should be raised to $5m imho foresight isnt the greatest attribute of either the current minister or HPW department heads (rant over)
Silly Sausage says
I would be very keen to knock the entire retention crap on the head.
The only way for this to work would be for all subbies to band together and refuse to enter contracts with retentions.
Personally while the industry is so ridiculously busy I am having retentions removed. 1 – because getting them released is a time consuming process. I could count the builders I work for on one hand that release retentions on time and without having to chase them. and 2 – it is busy and using that to my advantage.
Like the article reads “the only subbies who accept retentions are those who are desperate for work” I look at it as; if I am desperate for work maybe I’m not good at what I do and I should move out of the way and leave it to the professionals.
YBR says
Retentions held by the PC are subcontractors money. It’s not as though we haven’t completed 5% of the contract value. The work has been done in full. Walton was running his business on subcontractors retention money. I still don’t understand why this isn’t seen as stealing. You can’t spend others people money without their permission.