Getting paid in the building industry is sometimes more difficult than winning a job in the first place. In this article John Warlow goes through the best ways for builders and subcontractors to ensure they receive payment.
1. Have clear written agreement on the scope of work and price
(a) Ensure there is a clear scope of work
We frequently see disputes about what work is included (and what is excluded) from the quoted price. Before work starts, make sure you have a written contract which clearly sets out what work you are to perform, and what is outside your scope of work.
(b) Ensure the price and/or rate are clear
Make sure you have clear written agreement before work starts on what the price is, or how the price will be calculated. We often see disputes arising from a lack of clarity about how the amount payable is to be calculated.
2. Ensure there is clear written agreement on variations.
Variations are a frequent source of disputes. Before starting work on a variation, make sure you have a clear written agreement on what extra work is to be performed, and what the additional cost will be.
3. Use the security of payments legislation.
Under the Building Industry Fairness (Security of Payment) Act, if a subcontractor serves a valid invoice on contractor who engaged them, and that contractor doesn’t provide a ‘Payment Schedule’ disputing the claim within the required time (usually 15 business days), then the subcontractor can apply to an adjudicator or a court for an order that the amount claimed be paid.
Significantly, if the contractor who is liable to pay doesn’t deliver a ‘Payment Schedule’ disputing the invoice within the required time (usually 15 business days), then they are unable to dispute the claim in any adjudication process or court proceedings. Savvy subcontractors can use this to their advantage.
Even if the builder does deliver a ‘Payment Schedule’ disputing the invoice, you can ask the QBCC to appoint an independent adjudicator to determine how much is payable. The adjudication process is quicker and usually much cheaper that court or QCAT proceedings. An adjudicator’s decision can be registered in court and enforced as a court order.
4. Use the Subcontractors Charges legislation.
If you are a subcontractor who is concerned that the owner or principal is going to pay the builder, but the builder won’t pay you, you can serve a Notice on the owner or principal claiming a charge over the money payable to the builder.
The Notice claiming the charge obliges the owner or principal to deduct from the amount which they must pay the builder, the amount which the builder is liable to pay you, and pay that amout direct to you or into court instead of paying it to the builder.
This process can be used to ensure that you are paid ahead of most other subcontractors if it appears the builder is in financial difficulty and is unable to pay everyone.
5. Suspend work
If you have not been paid, suspending work may be an option. The threat of work being suspended is often enough to ensure you are next in line for payment.
Both the Building Industry Fairness (Security of Payment) Act and the QBCC Act contain provisions which entitle subcontractors to suspend work in certain circumstances if they have not been paid. Your contract might also give you the right to suspend work. But before suspending work you must give a notice which complies with the legislation warning of your intention to do so.
If you suspend work when you are not legally entitled to do so, you are actually breaching your contract. That breach can give the builder the right to terminate your contract which they may then be able to use as an excuse not to pay you. Consequently we recommend you only suspend work after obtaining legal advice.
6. Complaint to QBCC
If the company liable to pay you holds a QBCC licence, then a ‘Monies Owed’ complaint can be made to the QBCC. The QBCC often takes an active interest in such complaints as the failure to pay subcontractors can indicate a builder doesn’t meet the minimum financial requirements to hold a building licence.
The QBCC form to make a monies owed complaint can be found here. It is usually best to make a complaint to the QBCC before taking other enforcement action. In our experience, once you have taken other steps to enforce payment, the QBCC can be less inclined to take action.
7. Know you rights regarding Retentions
In this short article it is not possible to go into detail about retentions. But some key points to remember are:
(a) The maximum retention that can be held once the subcontractor reaches practical completion of their works is 2.5%.
(b) At least 10 business days before the end of the defects liability period the party holding the Retention must give the subcontractor a notice in the approved form which essentially states when the retention is to be released and in what amount. A failure to comply with this requirement can leave the party holding the retention liable to a fine of up to 100 penalty units (currently $13,345).
(c) A Retention can only be held after the defects liability period expires (which cannot exceed 12 months) if the party holding the Retention has a legitimate claim to the monies. Keeping the retention beyond the defects liability period without have a legitimate reason is an offence which is punishable by up to 200 penalty units (currently $26,690) or one year imprisonment.
(d) Retention monies can only be used to cover particular costs such as rectifying defects or paying costs incurred as a result of delays or a breach of contract by the subcontractor.
(a) If the party holding the Retention plans to use the Retention, they must give written notice of their intention to do so within 28 days of becoming aware that the recourse to the Retention may be needed. That notice must set how much of the Retention they propose to use and for what purpose;
8. Statutory Demand
A Statutory Demand is a formal demand for payment under the Corporations Act which requires a company to do one of three things – either pay the debt referred to in the Demand, show that there is a genuine dispute about the debt, or provide reasonable security for payment of the debt.
Ordinarily the debtor company has 21 days to either pay, show there is a dispute or provide security, failing which you can apply to court to have the company placed into liquidation. The threat of being placed into liquidation is powerful leverage to force a builder to pay you ahead of other subcontractors.
However, during the COVID-19 pandemic, the Government has temporarily changed the period to comply with the Statutory Demand from 21 days to 6 months. Consequently, at this time (mid 2020) a Statutory Demand isn’t a worthwhile option. However in late 2020, when the 6 month period for compliance changes back to 21 days, Statutory Demands will return to being a good option to recover payment.
For more information, or if you are having difficulty getting paid, contact John Warlow on 07 3002 7419 or firstname.lastname@example.org. John’s vast experience in building and construction law, and has assisted many builders and subcontractors to ensure they receive payment.