Compliance inspections found two commercial builders holding subcontractors’ retention outside dedicated trust accounts. How the WA scheme works, who it covers, and how it compares with New South Wales and Queensland.
Two commercial building companies in Western Australia have moved more than $3 million of subcontractors’ retention money into trust accounts after inspections found it was not being held the way the law requires.
Neither builder has been named. Both fixed the problem quickly, according to the Building Commissioner.
The finding matters beyond the two businesses involved. Retention trust rules are not a box ticked once at contract signing. They are an ongoing obligation, and in WA the regulator is checking.
What did the WA inspections find?
Three recent compliance inspections by the Department of Local Government, Industry Regulation and Safety found the two builders had not been depositing retention money held from subcontractors into dedicated trust accounts. The department announced the outcome on 20 October 2026.
Building Commissioner Phil Payne said the builders took prompt action once the issue was raised, transferring more than $3 million into compliant trust accounts.
He reminded builders and head contractors that this includes giving subcontractors written notice once a trust account is set up. Those who fail to comply, he warned, could breach their fiduciary duties and face substantial liability as well as offences under the Act.
How does the WA retention trust scheme work?
The scheme sits inside the Building and Construction Industry (Security of Payment) Act 2021. It began on 1 February 2023 for contracts worth $1 million or more. From 1 February 2024 it widened to new contracts worth $20,000 or more, including GST, according to the department’s Retention Trust Scheme fact sheet.
When one party withholds retention under a construction contract, the law treats that money as held on trust for the party who provided it. It is not working capital.
The trustee must open a retention money trust account within 10 business days of entering the contract, or within 20 business days of the contract value crossing the threshold. An ordinary transaction or deposit account with a recognised financial institution is enough, but the words “trust account” must appear in its name.
Once the account is open, the subcontractor must be told in writing which institution holds it, the account name, and the BSB and account number.
One account can hold retention across several projects. Money can only come out where the contract allows it, where both parties agree, or where a court, arbitrator, expert determiner or adjudicator decides. Cash withdrawals are not permitted.
Subcontractors are also entitled to inspect and copy the trust records, free of charge, on reasonable notice.
Definition: deemed retention trust
A deemed retention trust is a trust created automatically by law, rather than by agreement between the parties. Under the WA scheme, retention money withheld under a covered construction contract is treated as held on trust for the party who provided it, and must sit in a dedicated trust account until it is due for release. Parties cannot contract out of it, and calling retention a “hold back” does not change its status.
Which contracts does the scheme cover?
The scheme only applies where retention is actually withheld. It does not touch bank guarantees or other performance bonds.
There are also exceptions. According to the fact sheet, subcontracts between a head contractor and a subbie, or between two subbies, for work on a single dwelling are excluded whatever their value. Contracts for associated structures on a single dwelling lot, such as granny flats, sheds, patios, decks, carports, driveways and pools, are excluded as well.
Head contracts directly with State or Commonwealth government principals are outside the scheme. So are contracts directly with individual homeowners for home building work valued at $500,000 or more, unless the work is for a residential development business or covers two or more dwellings on different lots.
Read together, the exceptions mean the scheme bites hardest on commercial work, townhouse and apartment projects, and the subcontract chains beneath them.
What happens if retention sits in the wrong account?
Failing to pay retention into a trust account is an offence under the Act. The fact sheet puts the maximum fine at $50,000 for individuals and $250,000 for corporations.
The trust exists by force of law whether or not an account has been opened. The fact sheet notes that failing to bank the money does not affect the subcontractor’s rights to it if the trustee becomes insolvent.
The trust exists by force of law whether or not an account has been opened.
The practical difference is visibility. Money in a labelled trust account is far easier to identify and recover than money mixed through a builder’s operating account.
Subcontractors who believe a trustee has not met its obligations can, in certain circumstances, suspend work under the Act or seek court orders. The Building Commissioner cannot assist with individual breach of trust claims.
How does WA compare with New South Wales and Queensland?
The short answer is that the rules depend heavily on where the job is.
In New South Wales, the retention trust requirement applies to head contractors on projects valued at $20 million or more, under the Building and Construction Industry Security of Payment Regulation 2020, according to Building Commission NSW. Fines run up to $22,000.
Queensland built the broadest framework, with project trust accounts and retention trust accounts under the Building Industry Fairness (Security of Payment) Act 2017. In early 2025, the state paused the further rollout of trust accounts to private projects below $10 million.
The Queensland Productivity Commission later found little evidence that project trust accounts had reduced the problem of subcontractors going unpaid, and recommended a review. In its formal response, the Queensland Government noted the recommendation and said work was underway to cut the burden on trustees while protecting subcontractors’ access to retentions held in trust.
WA is still adding to its own system. A bill introduced to State Parliament in February 2026 would bring in statutory construction trusts on state government projects, replacing project bank accounts.
Why does the WA result matter for builders everywhere?
Retention is money a subcontractor has already earned, held back as security until the work is finished and free of defects.
Commissioner Payne noted that retention has historically been especially vulnerable to misappropriation or loss. That risk is sharpest when a business higher up the chain fails and the money has never been separated from everything else.
Trust schemes are designed to close that gap. The WA inspections show that design is only half the job. Protection depends on the money actually being in the right account, and someone checking.
For builders working across state lines, the obligations are not portable. A $5 million commercial fitout in Perth with cash retention falls inside the WA scheme. On current settings, the same private job in Sydney or Brisbane would not trigger a statutory retention trust.
The Good Builder Take
The headline figure is $3 million. The more useful detail is that it took inspections to find it.
The announcement does not suggest the money was spent. The issue was where it sat. That is the quiet risk with retention. It is easy to drift from the rules, and nobody notices until something goes wrong.
Our community knows who carries the loss when retention is not ring fenced. WA has shown what checking looks like. The question for every other state is whether its rules are tested the same way.
Frequently asked questions
It is a dedicated account, with the words “trust account” in its name, that holds retention money withheld under a covered construction contract. Under the Building and Construction Industry (Security of Payment) Act 2021, that money is held on trust for the party who provided it and can only be withdrawn in limited circumstances.
Often not at the subcontract level. Subcontracts for work on a single dwelling, and contracts for associated structures such as sheds, patios and pools, are excluded. The scheme does apply to commercial work and to projects covering two or more dwellings on different lots.
The WA Government fact sheet sets the maximum fine at $50,000 for individuals and $250,000 for corporations for failing to pay retention money into a retention money trust account.
Yes, but more narrowly. NSW requires head contractors on projects valued at $20 million or more to hold retention in trust. Queensland applies trust accounts to eligible contracts, but paused further rollout to private projects below $10 million in 2025.
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Last updated: 27 October 2026
General Information Only: This article provides general information only and does not constitute legal, financial or professional advice. Retention trust obligations depend on the contract, its value and the state or territory where the work is carried out. Readers should obtain independent professional advice about their own circumstances.
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