Are subcontractors' charges all they're cracked up to be?
Updated: May 28
Latest update 03/08/2023 | Last update 21/01/2022 | First published 10/10/2019
Written by Aitchison Reid Building and Construction Lawyers, published by TradeBox with permission.
A subcontractor's charge can be a handy tool for getting paid but there are some traps you can fall into if you’re not careful. If you fall into any of these traps, you may find that your subbie's charge is of no value whatsoever.
Before we get in to the traps though, let’s cover the basics – what is a subcontractor's charge and when can you use it.
What is a subcontractor's charge?
It goes without saying that subbies’ charges are only available if you are a subbie or a sub-subbie. This is because the charge is placed over funds owed to your payer or their payer (in the case when you are a sub-subbie). This includes retention monies.
For example, you are a subbie on a commercial project. You are working for the head contractor, who has a contract with a developer. You can put a subbie's charge over the money held by the developer to be paid to the head contractor.
The effect of the subcontractor's charge is that it secures payment of all money that is payable to you under the contract for work you have carried out. This means that if the person you contracted with goes broke, you’ve got security over the money owed to you.
You cannot use subbies’ charges if you are working for a residential builder and the residential builder is working for a homeowner, unless the work is carried out for the purpose of a business conducted by the individual either alone or as a member of a partnership.
When can you use a subcontractor's charge?
If you haven’t been paid for work you have carried out or you think you will not be paid future payments, you can use a subcontractor's charge to secure the payment owed to you. It’s just one of the security of payment options under the Building Industry Fairness (Security of Payment) Act 2017.
Trap 1 – You use an outdated form
There are three relevant forms:
S122 – Notice of claim
S125 – Withdrawing a notice of claim
S128 – Response to a notice of claim
The forms are regularly updated so it can be easy to use an outdated form. Make sure you use the most current forms by downloading your forms from the Queensland Building and Construction Commission website.
It’s also important for us to mention here that if a contractor fails to give the subcontractor a response to a notice of claim (form S128) informing the subcontractor whether they agree that the amount in the notice of claim is owing, they can be fined by the QBCC. A response to a notice of claim must be provided within 10 business days of a contractor receiving a notice of claim.
Trap 2 – You don’t fill out the form correctly
Not filling out the notice of claim form correctly can have dire consequences. The charge may be overturned, meaning, you don’t get paid. The forms are highly technical and legalistic. Therefore we recommend that you enlist the help of a construction solicitor experienced in subcontractor's charges to help you with the forms.
Trap 3 - You miss the timeframes
If you are claiming a charge whilst the work is ongoing, you can give notice of your claim at any time.
If you are claiming a charge after the work has been completed, you only have three months from practical completion to give notice of your claim.
If you are claiming for retention only, you only have three months from the end of the defects liability period to give notice of your claim.
When the time comes for you to claim a charge for a final payment or retention, you will no doubt be busy on other projects. Be sure to diarise the deadline so that you don’t miss your opportunity to claim a charge.
Trap 4 – You don’t give the notice correctly
You must give your notice of claim to the contractor who owes you money under your contract.
Also, you must give a copy of your notice of claim to:
the recipient who is obliged to pay money to the contractor; and
the holder of any security for your contract (if this differs to the recipient).
If you don’t, your charge won’t attach to the money or security you claim is owing to you.
Make sure you give your notice of claim to the contractor, recipient and if appropriate, the holder of any security, in accordance with the relevant contact details under your contract and any relevant head contract.
The recipient can be the developer, higher subcontractor or head contractor depending on where you sit in the contractual chain.
Trap 5 – You forget to enforce the charge
What is the point of fishing, if you don’t ever check the lines once they're in the water? The same can be said for a subbie's charge that isn’t enforced.
If you give a notice of claim to a person who owes you money under your contract and they don’t pay you, or make suitable arrangements for paying you, you can recover the amount from the person as a debt due in court. This is where the true strength of subcontractor's charges can be found. You must enforce a subbie's charge in court:
if the claim is for a retention amount only—within 4 months after the balance of the retention amount is payable; and
otherwise—within 1 month after a notice of the claim is given to the person who owes you money.
A subbie's charge can be a powerful tool when there’s no dispute and the recipient and/or holder of any security still has money to pay the contractor, because you can use it to get a court judgment. Whereas if you had proceeded down the traditional avenue of making an application or filing a claim for moneys owed in court, it could be two to four years before you get a result!
On the other hand, if the recipient and/or holder of any security disputes your claim or doesn’t have any money to pay, a subcontractor's charge may be of little value. You will still have to prove your claim in court and you may have to wait in line with other creditors if the recipient and/or holder of any security has gone bust.
What are your chances of getting paid if you give a subcontractor's charge?
Tune in for our next instalment where we will answer this question.
If you would like to speak with us about subcontractors' charges, please call our office on 07 3128 0120 or email subcontractors@arbuildinglaw.com.au.
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