A trust account is a legal arrangement wherein a third party, say a bank, holds the fund for the benefit of another party, like a subcontractor or head contractor. This account has two general types: the retention and project trust accounts.
A retention trust account is where eligible cash retention amounts are withheld until they become payable. This is required when the principal or head contractor holds cash retentions against the contractor they worked with. It aims to protect the employer from a contractor’s defective or nonconforming work. The trustee is allowed to have one or multiple retention trust accounts that can hold retention money from different projects.
On the other hand, a project trust account is a financial account where money is paid and held in trust for head contractors and subcontractors until payments for construction work become due. Unlike retention accounts, the framework of project accounts only allows one account for each project. The payment for contractors can only come from this account.
These accounts have been existing for a long time. But recently, Queensland has made some revisions in the regulations and management of project finances for enterprises engaged in building and construction. These revisions aim to create and include a more streamlined approach to account requirements. The new Project Trust Account framework also seeks to strengthen the security of payments to subcontractors.
The updated framework requires head contractors to hold the money paid by the project principal in a separate trust account for the benefit of subcontractors. These changes are applied to eligible contracts of entities under the state government, hospital and health services, local government, and private sector.
Since there are quite changes in the framework, construction firms must adjust their record-keeping systems to comply. Trust ledger, a record of deposits and withdrawals, trial balance, and bank reconciliation statement are just some of the reports they must keep.
Creating and managing these files will be challenging, especially if done manually. Fortunately, there are document management software available to help in organizing these records. Apart from document management, there are also building estimating software that will further help you in managing all the requirements.
To know more about these, you may check out this infographic created by Bizprac.