Tips for getting paid: subcontractors in the building industry

As lawyers we regularly encounter subcontractors who have not been paid for commercial building jobs. Reasons for non-payment are varied by often include insolvency higher up the contractual chain, bad payment practices, disputes about defects, or all of the above. The effects of non-payment for subcontractors can be catastrophic.

Subcontractors are the most vulnerable party in the contractual chain. They are usually completely dependent on timely payment and are reluctant to withdraw labour even where they are unpaid. The inequality in bargaining power is inherent in the vertical structure of contractual chains.

But there are steps that subcontractors can take to improve the power imbalance. We frequently see situations where subcontractors have not protected themselves as well as they could, or have failed to take the right action at the right time. It all comes down to subbies being properly informed about their legal rights, and being aware of what is going on around them.

While there is no such thing as a foolproof strategy to get paid 100% of the time, adhering to the following general 'tips' will often put you, the subcontractor, in the best position possible.

Tip 1: always use a written contract. Where you stand to receive a significant sum of money, your rights and obligations should be clearly defined and in writing. If the party engaging you does not propose to enter into a written contract at the start of a job, then you are opening yourself to problems in the future. Variations should also be recorded in writing.      

Tip 2: know your contract. Take some time to read your contract. What rights does the principal have to terminate the contract and take work out of your hands? Do you have to provide a retention and if so is it cash or a bank guarantee? What is the process for the principal to call on your retention? Can the principal take security over your plant and equipment?

Tip 3: take security if possible. If you are supplying equipment to the site, are you doing so on the basis that legal title to the goods does not pass until you are paid in full? If so, you may be required to register an interest in that equipment on the Personal Property Securities Register (PPSR) before you can enforce it. The same applies to 'temporary works', for example scaffolding.  

Tip 4: monitor the financial health of your superiors in the contractual chain. Are your progress claims consistently being paid late? Is the principal trying to negotiate an alternative payment cycle? Are your progress claims being met with unjustified disputes and back charges? These things could be indicators that your superior is in financial difficulty. If you have concerns about the financial health of your superiors, then you should be considering how you can protect yourself in an insolvency event. This is often the most crucial time to get legal advice.

When it comes to lawyers, you need one with the expertise to provide accurate, timely and practical advice; as well as the clout to fight for you when the time is right. Your lawyer should be someone who you can pick up the phone and ask "What do you think of this?", "Is this a problem?", "Do you think I should...?".   A two-minute phone call with the right lawyer at the right time could save you thousands down the track. This is the sort of relationship we enjoy with our clients, and why they have come to trust no-one else with their legal affairs.