NSW subcontractors to get greater protection against builder collapse

Construction companies could be fined up to $22,000 if they don't comply with a new cash retention trust scheme in New South Wales.

New South Wales will soon become the first state in Australia to require construction companies to hold retention money in trust funds to pay subcontractors.

Usually, the contractor holds a portion of the subcontractor's payments until the work is completed. The new scheme will attempt to stop contractors from using that money for other purposes or withholding it from subcontractors if they become insolvent.

NSW Fair Trading Minister Matthew Mason-Cox says Fair Trading will be looking over audit reports to make sure head contractors are holding retention money in their own accounts.

In addition to fines, the NSW government will also consider making company directors personally liable for any breaches of responsibility for the trust accounts.

"This will end the widespread industry practice of using subcontractors' trust money for the head contractor's working capital purposes," says Mason-Cox.

"At the end of the day, this money belongs to subcontractors and it's about time it was protected as such.

"This principle underpins the proposed retention trust scheme and is widely supported by industry.''

The changes, initially applying to contractors for projects valued above $20 million, are part of the government's response to Collins Inquiry into Construction Industry Insolvency.

"While most builders do the right thing and pay their subcontractors on time, we need to protect subcontractors' retention money if a construction company collapses,'' he explains.

According to Mason-Cox, the government will next year begin a full review of the Security of Payment Act.

Building is a $40 billion industry in New South Wales.