Having trouble getting paid as a sub-contractor? Here are some things you can do to protect yourself

Being in the building game is hard. We get that. As a subcontractor in the commercial building sector, holding your own against often uncommercial and unreasonable principals, is even harder. Managing the relationship to get an opportunity to tender, running a competitive tender, winning the tender, negotiating the terms of the contract, lining up your contract administration, securing labour, services and subbies, fronting up the bank guarantees, often on wafer thin margins. Yet, you persevere. You enjoy what you do. Once the job is signed up and in full swing, you’re in your element.

Until the bills go unpaid.

Cash flow is the life blood of any business, but this is critical make or break stuff in the building game.  The construction industry has the highest rates of insolvencies of any sector and gone are the days when subcontracting to a Tier 1 or Tier 2 principal guaranteed payment. The collapses of household name builders like Porter Davis, Probuild, ABG, Dyldam Developments, Condev, to name a few has taught everyone some hard lessons.

Whatever the reasons for non-payment, some genuine and some no more than poor excuses, the non-payment of subcontractors has devastating consequences for the subcontractor. It also impacts everyone else downstream on the contracting chain. Often there is a significant power imbalance between the subcontractor and the principal which makes matters exponentially more difficult. Subcontractors are often not as protected as they should be or fail to take corrective action at the crucial time. A lack of visibility in respect of the project higher up the contracting chain means subbies are all too often at the mercy of the principal when it comes to payment.

The lawyers in the Construction and Projects team at PCL Lawyers understand the building industry. We’re often in the trenches fighting alongside the subcontractors we act for extracting payment from unfair, unreasonable and sometimes underhanded principals. We have an insider’s perspective on how disputes are negotiated. We understand how subcontractors should set themselves up for effective recovery of payments and to protect their interests. We are also intimately familiar with the pros and cons of the various methods of recovery.

Steps to help you get paid as a subcontractor

Debt recovery is not a one size fits all approach. Proper due diligence, the status of the project, contractual exposure, commercial consideration.  That said, there are some constants. Here are some steps subcontractors can take to correct the power imbalance.

1. Always use a written contract: when you can issue a progress claim, to who, how it is to be assessed, by who, when you entitled to be paid and how to deal with disputes and other key terms should be clear and in writing. Even a short one-page document is better than no document. Without a written contract enforcing your position is more complicated. If the principal does not offer to sign a written contract or objects to signing one, it is a pretty good indicator about how they will treat your right to be paid.
2. Don’t be fooled by Standard Form Contract: When unamended they will provide you with a false sense of security. Most of these standard form contracts have been the subject of litigation which means they do not work the way you’d think they work. Most are also “principal friendly”.  If the standard form has been amended it’s a safe bet it has not been amended in the subcontractors favour. Take the time to review your contract. What rights does the principal have to terminate the contract? Can they take the work away from you? What obligations do you have to provide certificates, drawings and the like. Is it possible for the principal to take over security of your equipment and plant? These might seem like they have nothing to do with payment but they will become relevant when you decide to walk away from a job for non-payment.
3. Secure your plant and equipment: Are you supplying equipment to the site on the assumption that the legal title to the goods will not pass until you have paid the full amount? You may need to register an ownership interest in the equipment on the Personal Property Securities Register (PPSR) before you can enforce it. Similar rules apply to temporary works, such as scaffolding.
4. Ongoing Due Diligence: Are you getting paid on time for your progress claims? Are being asked to negotiate a different payment cycle? Are you being denied progress on the job (forced to “go slow”)? Have back charges, unjustified claims and claims for liquidated damages suddenly become a talking point?

These are red flags that your principal might be in trouble.  Does your contract allow you to ask for proof of financial capacity?

Some other tips to consider:

1. Negotiate a parent company or personal guarantee;
2. Check and negotiate your rights under any funding / tripartite agreement.
3. Take security where possible

Whatever you do, the worst thing you can do is allow history to repeat itself by continuing to perform the work on the basis older debts are paid if you just keep going o the next stage. We see is all the time – it will catch up with you on the final progress claim. It always does, when any leverage you have is likely gone.

Expert legal advice to enforce & protect your position

You need a lawyer who is able to give you accurate, timely, and practical advice. They also need to have the expertise to represent you in court when necessary. You should feel comfortable calling your lawyer and asking, “What do you think about this?” “, “Does this pose a problem?” Do you think I should …?”

It only takes a few minutes to get in touch with us and that one call could help you save thousands.

Our building and construction lawyers can provide timely advice and legal support to subcontractors. We have deep practical and legal experience and can assist anyone navigating payment issues, recoveries, building defects and insolvencies.

To get advice today complete an online form or call us on 1300 907 335.

About The Author - Nelson Arias-Alvarez

Practice Focus: Construction Law & Projects Delivery, Commercial Litigation Nelson Arias-Alvarez is the Managing Partner in Sydney and lead in our Building & Construction team.  His...