On 17 December 2018, the Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) came into force, consolidating the laws for security of payment in the building and construction industry into one Act.
The BIF Act has now repealed and replaced the Subcontractors’ Charges Act 1974 (SC Act).
While the BIF Act improves the usability of subcontractors’ charges by modernising and simplifying the provisions, the substantive regime that existed under the SC Act is unchanged. The same strict time limits and technical requirements remain in place.
If you are a subcontractor wanting to serve a subcontractors’ charge or a contractor who has been served with a charge, it is important you are aware of these limitations and requirements to ensure that you comply with the Act.
What is a subcontractors’ charge?
If a subcontractor is owed money under a subcontract, they can have a charge placed on money owed by a superior contractor to their contractor. A subcontractor’s charge enables subcontractors who are owed money to cut out the ‘middle man’ and look up the contractual chain on a project to secure payment owed under their subcontract directly from either the principal or a higher subcontractor.
When is a subcontractors’ charge available?
Generally, a subcontractors’ charge only covers claims for payment for certain work carried out in relation to land or a building, where that work contributes to the performance of another contract because the work forms all or part of the work required to be carried out under that other contract.
The claim for payment must be in relation to payment for relevant work done under the subcontract or for retention money held under the subcontract.
A charge will only be available where there is money owing by a superior contractor to the subcontractor’s contractor and all charges will be limited to the amount owing by a superior contractor. For example, if a subcontractor is owed $19,000 under their subcontract, but their contractor is only owed $12,000 under the superior contract, the charge cannot be for more than $12,000. Complications can arise where the amount payable under the superior contract is disputed.
How is a subcontractors’ charge obtained?
The repealed SC Act will continue to apply where a notice has already been issued under that Act, however the BIF Act now applies to all subcontractors’ charges, even if a subcontractor becomes entitled to a charge before the new Act commences.
Under the SC Act, to obtain a charge, subcontractors needed to give a ‘Notice of Claim of Charge’ to their contractor and the superior contractor. A ‘Notice of Claim’ is now required under the BIF Act.
Formerly, under the SC Act, a Notice of Claim of Charge could not be challenged based on technical deficiencies, so long as the money sought to be charged and the amount of the claim were ascertainable.
Unlike under the SC Act, the validity of a Notice of Claim under the BIF Act will be affected by inaccuracies or failures to follow technical requirements, even if the money sought to be charged and the amount of the claim can be ascertained with reasonable certainty from the notice.
Otherwise, the process is substantially the same under the new regime.
A Notice of Claim must contain the certified amount of the claim and certified details of the work done. It can be given even if the work is not completed or the money claimed for the work is not yet due, so long as the work detailed in the claim has actually been done.
If a subcontractor needs any information from their contractor to complete the Notice of Claim, they may request that information in writing. Under the old SC Act, a contractor simply had to respond to such a request ‘without delay’. However, under the new BIF Act regime, the contractor must respond within 10 business days or face a penalty of up to 20 penalty units (currently equal to $130.55 per penalty unit).
Importantly, subcontractors must comply with strict time limits for issuing a Notice of Claim. If the work under the subcontract is ongoing, a Notice of Claim may be given at any time. However, if the work has been completed, the Notice of Claim must be given within three months of practical completion. If the charge is in respect of retention money, it must be claimed within three months of the expiry of the defect liability period.
How is a Notice of Claim responded to?
Under the SC Act, the contractor had 14 days in which to either accept or dispute a claim, either in whole or in part.
The BIF Act changes the response time to 10 business days and imposes a penalty of up to 20 penalty units for non-compliance.
How is a subcontractors’ charge enforced?
After a subcontractor issues a Notice of Claim, there are number of possible ways in which the matter can resolve, depending on whether the contractor accepts or disputes the claim and on how much remains to be paid by the superior contractor to the contractor.
On receipt of a Notice of Claim, the superior contractor must retain a sufficient portion of money payable by them to the contractor to satisfy the claim. The superior contractor can pay that amount into court, which discharges it of all further liability relating to the amount and of the costs of any proceeding in relation to the amount. Once paid into court, the money can only be paid out under a court order.
If the superior contractor does not retain money as required, it will be personally liable to pay the amount of the claim.
If the contractor accepts a subcontractor’s claim or part of a claim, and money has not been paid into court, the superior contractor must pay that subcontractor the accepted amount, but only if there are no other charges or if the remaining amount retained is enough to satisfy any other charges.
If more than one subcontractor has made a claim in respect of money owing to a particular contractor and there is insufficient money to satisfy both claims, the amount of each charge will reduce proportionately. For example, if there is one charge for $6,000 and another for $11,000, but the amount owing by the superior contractor is only $13,000, the amount recoverable under each charge would reduce to $5,000 and $9,000 respectively.
A subcontractor will need to begin court proceedings to enforce their charge if the superior contractor has paid money into court, if the charge is disputed or if the superior contractor does not pay as required. Importantly, subcontractors have only one month from the date of the Notice of Claim to start court proceedings. If the charge relates to retention money, subcontractors have four months after retention money becomes payable to start court proceedings.
If another subcontractor has already commenced proceedings to enforce a charge, a subcontractor may join those proceedings, rather than starting their own.
What has changed?
The basic legal effect of current SC Act has not changed with the commencement the of the BIF Act, as the key purpose of the revised provisions is to improve the usability of subcontractor’s charges.
The key differences are as follows:
- A subcontractor’s request for information must be complied with within 10 business days. A failure to comply within this time limit will attract a penalty of up to 20 penalty units.
- A contractor or subcontractor must respond to a Notice of Claim within 10 business days. A failure to comply within this time will attract a penalty of up to 20 penalty units.
- The validity of a Notice of Claim under the BIF Act will be affected by inaccuracies or failures to follow technical requirements, even if the money sought to be charged and the amount of the claim can be ascertained with reasonable certainty from the notice.
Otherwise the key time limits for subcontractors’ charges remain the same, as are the technical requirements that need to be followed when claiming or responding to a charge.