Subcontractors’ charges
What is a subcontractors’ charge?
A subcontractor’s charge is a useful tool to help you receive payment you do for work as a subcontractor.
A subcontractors’ charge is a way for subcontractors who are not being paid to secure a claim over monies owed to them by a contractor.
A subcontractor can make a charge over money due to be paid by the principal or a higher contractor to the contractor they have a subcontract with.
Positives and negatives to issuing a subcontractors charge claim
- Positive – If you’ve issued a notice and the Contractor subsequently goes into liquidation, you will be classed as a secured creditor. As a secured creditor, you hold priority over other creditors.
- Positive – If the builder is playing games and not responding quickly and seriously, this can be an effective step to avoid this
- Negative – The BIF Act sets out various requirements that must be met and a failure to strictly comply with the requirements of the BIF Act may result in a subcontractors’ charge not attaching/being invalid. In addition, there must be strict compliance with time frames. Many subcontractors are tripped up by the strict compliance rules of this regime.
- Negative – A subcontractor’s charge is only available where there is money owing to the Contractor by the Principal or where the Principal is holding some form of security. As a result, where a Principal has, prior to receiving a notice, already paid a Contractor, a subcontractors’ charge would not be of effect.
- Negative – A subcontractors charge will likely result in your relationship with the builder being damaged and them not giving you further work. However, if the dispute has reached such a point that you are considering a claim, perhaps the relationship is too far gone anyway.
Who is involved in a subcontractor’s charge?
There are usually 3 parties involved in a subcontractor’s charge. These would typically be:
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- a subcontractor engaged by a contractor to perform construction work or supply related goods and services pursuant to a subcontract agreement (the Subcontractor); and
- a contractor engaged by a principal to complete the construction work pursuant to a construction contract (the Contractor); and
- a principal who engaged the contractor to complete the construction work and owes money to the contractor pursuant to a construction contract (the Principal).
In circumstances where the Principal is not the owner of the land, you may be in a position to ‘leap frog’ the Principal and file a subcontractors’ charge against the owner of the land directly.
Before you lodge a subcontractors’ charge
If you have never lodged a subcontractors charge, you should consult a lawyer familiar with subcontractors charges. The process is fairly straightforward but requires strict compliance and if you get it wrong, you can lose your rights under such a claim which will set you back quite a way.
Unless you are comfortable and familiar with the subcontractors charges process, we suggest that you always seek legal advice before engaging in the process. If you are considering a charge, you should seek legal advice.
Here are some things you need to consider before pursuing this process:
- If you lodge subcontractors’ charges, you will not be able to access the adjudication process as a means to resolve the payment dispute – you need to pick one or the other.
- A subcontractors’ charge will only apply if there is still money owing to the contractor by the person higher in the contracting chain – if they have been paid all remaining amounts owed under their contract, subcontractors’ charges cannot be used.
- Strict time limits apply for lodging subcontractors’ charges – within three months after practical completion for the work.
- The subcontractors’ charges process is very technical and minor mistakes made on written documents can render your claim invalid – always seek legal advice and assistance before lodging a subcontractors’ charge.
Who can lodge a subcontractors’ charge?
Any subcontractor who has been engaged by a contractor under a building contract to carry out ‘work’ as defined under section 105 of the Building Industry Fairness (Security of Payment) Act 2017 (BIF Act).
This could include labour carried out in connection with construction, demolition, alteration, repair of a building, plant or machinery used for these types of work under a building contract.
We have seen these claims arise in large commercial & industrial projects including government projects. So, if you are in doubt as to whether this regime applies, its definitely worthwhile considering same.
To lodge a charge, you also need to make sure the following all apply:
- your claim for payment is in accordance with your subcontract
- your claim is for payment for work done under your subcontract
- you will be able to prove your entitlement to your claim.
Please note, subcontractors’ charges do NOT apply to domestic building work or damages for breach of contract or where it relates to money held in a project bank account or retention trust account.
What information does a subcontractor need to lodge a subcontractors charge?
The BIF Act requires that a Subcontractor is to give written notice to the Principal (the person obliged to pay monies to the Contractor), with a copy to the Contractor (the person that owes money to the Subcontractor).
This can be done by completing an approved form as issued by the Queensland Building and Construction Commission.
It is important to note that section 122 (2) of the BIF Act states that the notice must be in the approved form and must:
- state the amount of the claim; and
- include details of the work done as certified by a qualified person; and
- include the other information prescribed by regulation.
To ensure compliance with the BIF Act, you must complete the form accurately.
In addition, the amount of the claim must be certified by a qualified person. Section 147 (1) of the BIF Act states that a qualified person is:
- an architect registered under the Architects Act 2002; or
- a registered professional engineer under the Professional Engineers Act 2002; or
- a person licensed under the Queensland Building and Construction Commission Act 1991 to carry out or supervise work of the type to which the claim relates; or
- a quantity surveyor who is a member of the Australian Institute of Quantity Surveyors; or
- a person having expert knowledge of the work to which the claim related and who is accepted in a particular case as a qualified person by the contractor and subcontractor.
It is important to note that if the works have been completed, the notice of claim must be given within 3 months after practical completion of the work.
How and when do I lodge a charge?
A subcontractor must give their notice of claim form to both:
- the contractor who owes the money
- the relevant person higher in the contract chain who pays the contractor.
A subcontractor can submit a notice of claim at any stage during a subcontract but no later than three months:
- after completion of work – for money owed under a contract or subcontract
- after expiry of the defects liability period under the contract – for retention monies.
If a subcontractor does not submit within time, the subcontractor may have lost their rights to submit a subcontractors charge. At this time, a subcontractor should consult a lawyer to identify other paths of securing payment. These timeframes are strict.
What happens after a subcontractor issues a claim for a subcontractors charge?
Both the Principal and the Contractor may be required to take action if they are in receipt of a notice of claim of subcontractors charge.
The Principal
- The Principal, must, until a court order is made in respect of the amounts claimed, retain the amounts that is or is to become payable to the Contractor. The Principal can do so by holding the monies itself or generally in most circumstances paying the monies into Court.
- If the Principal fails to do so, the Principal may become personally liable to pay to the Subcontractor the amount of the claim (to the extent of the amount the Principal is required to retain).
The Contractor
- The Contractor, must, within 10 business days respond to both the Subcontractor and the Principal. The response must be made on the prescribed form and must state whether the claim is accepted (in whole or in part) or rejected.
- Any amount that is accepted by the Contractor is to be paid by the Principal to the Subcontractor (where the Principal is holding monies that are payable to the Contractor).
- If the contractor fails to respond to a subcontractor within the specified timeframe, it is an offence and can be reported to the QBCC to investigate. Any builder or principal contractor who receives a subcontractors charge claim should immediately take action and consult a solicitor to avoid being penalised under these rules.
- In circumstances where the Contractor rejects the amount sought in the notice, where there are funds captured by the notice, then those funds will be deposited into Court.
Disputed charges go to court
Subcontractors often fall into the trap of thinking that once they have given the Charge, they have done all they need, to secure the amount claimed.
If the contractor does not accept liability for the full claimed amount, you must enforce the charge by commencing court proceedings within one month from when the notice of claim was first given. If however the claim is for the retention amount only, court proceedings must be commenced within four months after the due date for payment of the retention amount.
If you miss these timeframes for commencing legal action, you may be able to piggyback on proceedings commenced by another subcontractor.
Failure to commence proceedings within this time will result in the Charge being extinguished. If the Charge is extinguished, the BIF Act prevents another Charge being given that includes the same claims as made in the extinguished Charge.
Need help?
Feel free to contact any of the members of the commercial law team at SMR who are happy to help and have a quick chat to get you started. There is no obligation when you call but we usually recommned that you seek advice earlier rather than later.
We help builder, subcontractors and all people involved in building dispute matters. We offer a commercially focused serviced designed to get you the result that you need without costing you the world. Many of our disucssions with you will balance up the best strategy for your particular case.
Head to our contact page to get in touch or call 07 4931 1888 to speak to a lawyer today.
Disclaimer
This article is provided for general information and educational purposes only and does not constitute legal advice. Readers should obtain appropriate independent legal advice based on their own specific circumstances.