Getting paid in the construction industry can sometimes be challenging. The good news is that there are a range of options that you can pursue to get paid. The course of action you take to enforce your right to payment will depend on a number of factors. One option to pursue is a subcontractors’ charge.
The Building Industry Fairness (Security of Payment) Act 2017 (QLD) (the BIF Act) regulates subcontractors’ charges in Queensland. This article explains what a subcontractors’ charge is and sets out the process of making a subcontractors’ charge in an easy to understand question and answer format.
What is a subcontractors’ charge?
A subcontractors’ charge is a means to enforce a payment right. If you are a subcontractor, a subcontractors’ charge can be used as a way for you to secure monies owed to you by a contractor. This is achieved by placing the higher contractor (for example the contractor higher in the chain or the principal) on notice to redirect money owed to the contractor to you.
As the above suggests, there are usually 3 parties involved in a subcontractor’s charge. These would typically be:
• 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.
When is a subcontractors’ charge available?
Before you go-ahead and lodge a subcontractors’ charge, you must ensure that, the:
• monies owed to you as a Subcontractor arise out of “work” as defined in section 105 of the BIF Act; and
• claim for payment must be in relation for work done under a subcontract (i.e. you must be a Subcontractor).
In addition, it is important to note that a subcontractor’s charge is only available where there is money owing to the Contractor by the Principal. If monies are indeed owing, then any charge will be limited to the amount owing by the Principal to the Contractor. By way of example, if a Subcontractor is owed $10,000.00 but the Contractor is only owed $7,000.00 by the Principal, the subcontractors’ charge will be limited to $7,000.00 only.
How is a subcontractors’ charge made?
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.
What happens if you don’t have any information about the Principal?
You may rely on section 119 of the BIF Act to obtain any relevant information from the Contractor that would be necessary to give a notice of claim.
Section 119 of the BIF Act requires a Contractor to provide, within 10 business days of being notified in writing, the name and address of the Principal together with any other details that would enable a Subcontractor to give a notice of claim to the Principal. A failure to comply will result in a maximum penalty of 20 penalty points.
Do I need to provide a copy of the notice to the Contractor?
Yes. A copy of the notice must be served on the Contractor. If a Subcontractor fails to serve the notices as required by the BIF Act (that is to the Principal with a copy to the Contractor), the notices shall be of no effect resulting in the subcontractors’ charge not attaching.
What happens after the notice is served?
Both the Principal and the Contractor may be required to take action if they are in receipt of a notice.
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, 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).
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.
How do you enforce a subcontractors’ charge?
Where a notice has been validly served and the amounts claimed are disputed, a Subcontractor must commence Court proceedings to enforce the subcontractors’ charge. It is important to note that the BIF Act requires that Court proceedings are to be commenced within one month of the date of the notice, unless it is a claim of subcontractors’ charge in respect of retention monies, in which case Court proceedings must commence within four months after the retention money becomes payable. A failure to comply with the timeframes for commencing Court proceedings shall result in any charge being extinguished.
What are the benefits of issuing a notice?
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.
What are the pitfalls of a subcontractors’ charge?
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.
No money or security
As previously mentioned, 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.
Insufficient money or security
A subcontractors’ charge is limited to the amount owing by the Principal to the Contractor. Furthermore, where there are multiple claims, any secured money will be allocated in accordance with the proportion of each claimed lodged.
In order to enforce a subcontractors’ charge, a Subcontractor must commence Court proceedings to enforce the subcontractors’ charge.
A subcontractors’ charge should only be used as a measure of last resort – in circumstances where the Contractor is experiencing cashflow problems and you’re certain that the Contractor will not be in a position to pay you. A Contractor that is the subject to a subcontractor’s charge that is unmeritorious is unlikely to give you further work.
If you are a Subcontractor and you are owed monies, a subcontractors’ charge can be an effective means to recover monies due and owing. However, there must be strict compliance with the BIF Act in order to make a valid subcontractors’ charge. If you think you may be entitled to recover monies due and owing to you by way of a subcontractors’ charge, it is strongly recommended that you get advice from experienced building and construction lawyers.
Rostron Carlyle Rojas have an expert team of building and construction lawyers. If you have a question or you’d like more information on the content of this article, contact us today on (07) 3009 8444 or email us at [email protected].