builders cpd online

BUILDERS CPD ONLINEPO BOX Q1225, QVB Post Office, SYDNEY NSW 1230

Ph: 1300 730 752www.builderscpdonline.com.au

http://www.builderscpdonline.com.au/

SUBCONTRACTORS AND THE LAW

COURSE CONTENT

This Online CPD Course covers the following topics:

1. Is the person a Sub-Contractor or an Employee?The ‘Control’ TestFactors suggesting the person is an ‘employee’Factors suggesting the person is a ‘sub-contractor

2. What are the risks if a person is deemed to be an employeeby law?

Employee EntitlementsIncome TaxWorkers Compensation PremiumsPayroll TaxLiability

3. What can a builder do to protect his sub-contractors frombeing deemed employees?

4. If I engage genuine sub-contractors, what should I lookout for?

LicensingWorkers CompensationOther insurancesSub-Contractor’s Employees’ entitlementsSub-Contractor’s Payroll Tax Obligations

5. Liability for performing defective work

6. Home Warranty Insurance

7. Security of Payment Act

8. Contractors Debts Act

9. Sample Trade Contractor Statement

www.builderscpdonline.com.au© 2021 Edition – Builders CPD Online

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1. IS THE PERSON A SUB-CONTRACTOR OR AN EMPLOYEE?

In the building and construction industry, sub-contractors are engaged by buildersand principal contractors all the time. Even though a builder may think he hasengaged a person as a sub-contractor, the law may very well consider that theperson is an employee of the builder, and not a sub-contractor.

The legal principles used to determine whether a person is a sub-contractor or anemployee may at times be difficult to understand, however, the summary below willassist you in determining the status of the people you provide work to.

The ‘Control’ TestThe courts have long used this test to determine whether a person is asub-contractor or an employee. The question to ask yourself is:

To what extent or degree of control do I as the builder have over this person?

Examples of ‘control’ can be where a builder:

▪ instructs an individual how to carry out the work; or▪ requires when the individual is to start and finish the work; or▪ requires where the individual is to do the work, usually on an ongoing basis;

or▪ pays the individual ‘employee-type’ benefits (e.g superannuation, allowances,

annual leave)

However, the first three of the above examples do not usually help a builder indetermining whether a person is a sub-contractor or an employee. This is because:

(a) if a builder instructs a sub-contractor how to carry out the work, this is usuallybecause this is how the client of the builder wants the work to be carried out;

(b) if a builder instructs a sub-contractor when to start and finish, this may bebecause other sub-contractors must carry out their work either before or afterthe sub-contractor has completed his work;

(c) a builder will instruct a sub-contractor where the sub-contractor is to perform thework, because the sub-contractor must attend the building site to perform thework, and cannot physically perform the work from any other location.


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Given that the above examples that have been derived from the ‘control test’ do notappear to assist the builder, other factors have been summarised below to assist thebuilder in determining whether a person is a sub-contractor or an employee.

Factors suggesting the person is an EMPLOYEEBelow are a number of factors which are common to an Employer – Employeerelationship, and if they exist, will suggest that the person is an employee.

Note that the existence of any of these factors will merely suggest that the personmay be an employee.

o The person is paid by the hour or day (i.e a carpenter paid $30 an hour), or ona piece rate basis (i.e a bricklayer paid per brick laid)

o The person is paid other ‘employee-type’ benefits (such as a meal allowance /travelling allowance, or annual leave)

o The person is instructed when to start and finish work (i.e 7:00am start,3:00pm finish, with a 45 minute break)

o The person is required to wear a uniform with the builder’s business logo on it

o The person is at times required to do ‘unskilled’ work which is not relevant totheir trade (i.e where a carpenter is required to help clean up after demolition)

o The person has superannuation paid for them by the builder

o Before paying the sub-contractor, the builder deducts taxation

o The builder has the sub-contractor covered under the builder’s OWN workerscompensation policy

o The person only provides labour, or provides substantially only labour (i.e theperson does not also buy, supply and install materials for the builder).


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Factors suggesting the person is SUB-CONTRACTORBelow are a number of factors which are common to a Principal - Contractorrelationship, and if they exist, will suggest that the person is a sub-contractor.

Note that the existence of any of these factors will merely suggest that the personmay be a sub-contractor.

o The person carries on a registered business (with an ABN), as a sole trader, apartnership, or a company

o The person is registered for the GST if their business income exceeds$75,000 per year

o There is a written contractor agreement in place between the person and thebuilder

o Overall, the person is generally paid to complete a project (a fixed amount toachieve a fixed result), and is paid a lump sum and / or progress paymentsupon submitting tax invoices to the builder

o Upon receiving initial instructions from the builder, the person has total controlover how the work is carried out, and how the project is completed

o The person has contributed to capital for their business (i.e has bought a utefor work purposes, with their business logo on the side of the ute)

o The person provides their own tools, equipment and materials that areneeded to carry out the work and complete the project

o The person employs his own employees or engages his own sub-contractorsto carry out the work and complete the project, or has the power / authority todo so

o The person has in place their own workers compensation and / or personalaccident / sickness insurance policy, public liability insurance policy, and holdsthe required trade licence for the work they are carrying out

o The person accepts liability for any work they carry out that is defective, andhas an obligation to rectify any defects at his own cost

o The person also does work for other builders, and may also advertise to thepublic


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SUMMARYGenerally speaking, a person who is seen by the world as:

A. as running their own business is likely to be a SUB-CONTRACTOR

B. being part of the builder’s business is likely to be an EMPLOYEE

GENERAL TIP: Once a ‘contractor’ starts to earn more than 30-40% of their incomefrom the same builder, they will start to enter the ‘danger zone’ of being deemed thatbuilder’s employee.


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2. WHAT ARE THE RISKS IF THE PERSON IS DEEMED TO BE ANEMPLOYEE BY LAW?

Although a builder may believe that he is engaging a person as a sub-contractor, thelaw may nevertheless still deem that person to be an employee of the builder. If thishappens, the builder may be at risk in a number of different ways:

A. Employment EntitlementsIf the law deems a person, who the builder thought to be a sub-contractor, to be anemployee of the builder, then all industrial awards and industrial laws will come intoplay.

The builder may be liable to pay the person the following entitlements, and theseentitlements will be in addition to whatever you have already paid the person whilstthey performed work for you:

Annual Leave and Sick Leave – the person may be able to claim 4 weeks per year ofpaid annual leave from you, for every year they have worked for you (provided theyhave worked on a full-time basis for you. If they have worked on a part-time basis,this figure is to be pro-rated).

Allowances – Building and Construction awards provide for the payment ofallowances where an employee incurs an employment-related expense, or carriesout certain tasks. The main allowances that the builder may be liable for are Faresand Travel, Inclement Weather, Tools and Meal allowances.

Overtime and Penalty Rates – if the person has worked on Saturdays and / or hasworked longer hours to get a project finished (50-60 hours per week), you may beliable to pay that person overtime and penalty rates, based on the hourly rate youhave been paying them.

Superannuation – the person may be entitled to superannuation at 9.5% of theTOTAL of whatever the builder has paid them, and whatever the builder owes them(see above).


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B. Income TaxGenerally speaking, an employer is liable to deduct PAYG tax from an employee’swages before the employee is paid.

If a builder’s sub-contractor is deemed to be that builder’s employee by law, and thesub-contractor has not paid the correct amount of tax, the builder may become liableto pay the difference between the tax that the sub-contractor has paid, and the taxthat the sub-contractor should have paid.

C. Workers Compensation PremiumsEvery business must cover its employees under a workers compensation insurancepolicy. Given this, many builders do not cover the sub-contractors they engage,because they do not believe them to be their employees.

Workers Compensation laws operate to ‘deem’ certain workers as “employees”,which would then require the business who provides them with work to also coverthese workers under the workers compensation insurance policy.

More specifically, the law states that:

▪ all workers who perform work which exceeds $10 in value;

▪ except for work which is incidental to a trade or business regularly carried onby the contractor in the contractor’s own name, or under a business name;

▪ where the contractor does not sub-contract any work out or does not employany other employees,

then that person is deemed to be an EMPLOYEE under workers compensation laws.

If a person that the builder provides work to is deemed to be the builder’s employeeunder workers compensation laws, and the builder has not covered this personunder their own workers compensation insurance policy, then the builder will becomeliable to pay additional workers compensation premiums for that person, based onthe TOTAL of whatever the builder has paid them, and whatever the builder owesthem (see above).


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Usually, the builder’s liability is only identified after a random audit conducted byWorkCover, where they determine that additional workers compensation premiumsshould have been paid by the builder.

D. Payroll Tax

Payroll Tax is payable for businesses who pay their employees’ wages that, in total,exceed $1,000,000 each year (this figure is indexed each year). If the wages that abusiness pays its employees exceeds $1,000,000 per year, then the payroll tax rateis 5.45% (this is the current rate as at 1 July 2020) of the amount of wages thatexceeds $1,000,000).

(Example: where the annual wages are $1,200,000, the payable tax will be $10,900,being 5.45% of $200,000).

Payroll tax laws are very similar to workers compensation laws in deemingcontractors to be employees. If a builder’s contractor is deemed to be an employeeunder workers compensation laws, it is very likely that the contractor will also bedeemed to be an employee under payroll tax laws.

Although the wages threshold of $1,000,000 initially appears to be very high whenfirst looked at, it can be very easy to exceed by an average builder. See theexample below:

Example: A builder has engaged 15 sub-contractors in a 12 months period. Themajority of those sub-contractors have worked on a regular and full-time basis forthat builder throughout that year.

If the average annual wage of each sub-contractor (including superannuation thatmay be payable) is approximately $70,000 – $90,000, then the total contractor feespaid by the builder will be approximately $1.05m - $1.35m for that year.

Now, if those sub-contractors are deemed to be the builder’s employees, thecontractor fees paid to these sub-contractors will automatically be deemed to be“wages”, and since the wages paid to these workers exceed the threshold, thebuilder will immediately be liable to pay payroll tax on the amount that exceeds$1,000,000 - an amount between $2,725 - $19,075.

Payroll tax is administered by the NSW Office of State Revenue – for moreinformation visit www.osr.nsw.gov.au


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http://www.osr.nsw.gov.au


E. LiabilityA sub-contractor will at all times be liable for their own actions, including when theycarry out building work that is defective.

If the law deems a person, who the builder thought to be a sub-contractor, to be anemployee of the builder, then everything changes.

Under an employment relationship, the builder will be ‘vicariously liable’ for theactions of its employees, provided those actions were carried out “in the course oftheir employment”. Therefore, where a third party (such as a home owner) hassuffered loss as a result of actions carried out by an employee of the builder acting inthe course of his employment (such as defective work), the builder will at all timesremain liable, and the builder cannot pass the liability onto its employee.


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3. WHAT CAN A BUILDER DO TO PROTECT HISSUB-CONTRACTORS FROM BEING DEEMED EMPLOYEES?

The following tips are merely guidelines which can assist the builder in protecting hisbusiness from having his sub-contractors being deemed employees.

1. The builder should ensure that the sub-contractor has a registered business,with an ABN, and is registered for the GST if required to do so

2. Although businesses that operate as sole traders and partnerships arelegitimate in today’s world, if a sub-contractor was a company, it is highlylikely that the builder would be completely protected. This is because:(a) the builder would be engaging a company, not a person;(b) the sub-contractor’s company would be liable to pay its own workers

compensation premiums(c) it is highly unlikely that the contract fees paid to a sub-contractor that

carries on its business as a company will be deemed “wages” forworkers compensation and payroll tax purposes

3. The builder should ensure that a written contractor agreement is entered intowith the sub-contractor

4. The builder should ensure that the sub-contractor is paid lump sums and / orprogress payments upon submitting tax invoices to the builder

5. The builder should rely on the sub-contractors expertise, and try to exerciselittle control over how the sub-contractor carries out the work

6. The builder should ensure that the sub-contractor provides his own tools andequipment, and where possible, his own materials that are needed to carryout the work and complete the project

7. The builder should acknowledge and allow the sub-contractor to employ hisown employees or engage his own sub-contractors to carry out the work andcomplete the project

8. The builder should ensure that the sub-contractor has in place their ownworkers compensation (if required by law) and / or personal accident /sickness insurance policy, public liability insurance policy, and holds therequired trade licence for the work they are carrying out


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9. The written contractor agreement should provide that the sub-contractoraccepts liability for any defective work carried out by the sub-contractor, andhas an obligation to rectify any defects at their own cost

10.The builder should ensure that the sub-contractor offers their services to thepublic at large, and perhaps also does work for other builders. A good rule ofthumb is that the sub-contractor receives no more than 30-40% of theirbusiness income from any one builder

As stated earlier, the above tips should only be used as a guide.


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4. IF I ENGAGE GENUINE SUB-CONTRACTORS, WHAT SHOULD ILOOK OUT FOR?

As a builder, if you are confident that you are engaging genuine sub-contractors (thatis, contractors that are not likely to be deemed employees by law), then there are stillthings that you must look out for and check in order to protect your business.

Below is a summary of the different aspects that a builder should keep track of inorder to protect their business:

LicensingIf a builder engages a sub-contractor to perform “residential building work” asdefined in the Home Building Act (see our online CPD course “Home BuildingContracts” for more information), that sub-contractor must hold the relevant licenceas issued by the NSW Fair Trading.

It is illegal for the sub-contractor to perform residential building work whilstunlicensed, and it is also illegal for the builder to engage a sub-contractor to performresidential building work whilst that sub-contractor is unlicensed. The maximumpenalties for the builder and the sub-contractor are as follows:

Offence Sole Trader orPartnership

Company

Doing residential buildingwork whilst unlicensed(Maximum penalties for theSub-Contractor)

$22,000 $110,000

Engaging a sub-contractorto perform residentialbuilding work whilst thesub-contractor is unlicensed(Maximum penalties for theBuilder)

$22,000 $110,000


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Workers Compensation

Sole Trader or PartnershipIf the sub-contractor is a sole trader or partnership, and it employs employees, thoseemployees must be covered under the sub-contractors own workers compensationinsurance policy. The workers compensation insurance policy does not cover thesole trader or the partners in a partnership (because they are not employees), it onlycovers the employees employed by that business.

CompanyIf the sub-contractor is a company, then that company must cover all of itsemployees (including its directors) under its own workers compensation insurancepolicy.

Legal Requirements – Trade Contractor StatementThe law states that the builder will be liable for any unpaid workers compensationpremiums by the sub-contractor for the period of the contract, UNLESS the builderhas a statement (accompanied with a copy of the sub-contractor’s certificate ofcurrency) given by the sub-contractor for that period (either at the beginning or at theend of the project), stating:

1. that all workers compensation premiums payable by the sub-contractor havebeen paid;

2. whether the sub-contractor is also a principal contractor in relation to the contractperiod with the builder (i.e whether they have sub-contracted any of the work outthemselves);

3. if the sub-contractor is a principal contractor in relation to the contract period withthe builder, whether the sub-contractor has been given a statement from theperson they themselves have engaged as a contractor.

NOTE: If the sub-contractor operates their business as a sole trader or apartnership, and that business does not employ any employees or engage anycontractors themselves, then there is no requirement for the sub-contractor to giveyou a Trade Contractor Statement (this is because they have no employees or‘deemed employees’ to have covered under a workers compensation policy).


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Here are some additional rules relating to this Trade Contractor Statement:

(a) the builder must keep a copy of all Trade Contractor Statements for no lessthan 7 years

(b) if the sub-contractor is a sole trader / partnership with employees, or is acompany, and has not given the Trade Contractor Statement to the builder, thebuilder is allowed by law to withhold payment to the sub-contractor (penaltiesfor late payment to the sub-contractor do not apply here)

(c) if the builder becomes liable for paying the unpaid workers compensationpremiums of its sub-contractor, the builder can legally recover this paymentfrom the sub-contractor.

Other insurancesIn addition to workers compensation, all sub-contractors should have in place apublic liability insurance policy, and at times, a construction works insurance policy.

Furthermore, where sub-contractors are carrying on their business as a sole traderor a partnership, the sole trader or each partner in the partnership should be coveredunder a personal accident and sickness insurance policy (as they are not considered‘employees’, they cannot be covered under a workers compensation insurancepolicy).

Sub-Contractor’s Employees’ EntitlementsIf a sub-contractor employs any employees, then the law states that the builder willbe liable for any unpaid wages to the sub-contractor’s employees, during the periodof the contract, UNLESS the builder has a statement given by the sub-contractor forthat period (either at the beginning or at the end of the project), stating that all wagesto the employees of the sub-contractor have been paid for work performed during thecontract period.



(b) if the sub-contractor employs any employees, and has not given the TradeContractor Statement to the builder, the builder is allowed by law to withhold


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payment to the sub-contractor (penalties for late payment to the sub-contractordo not apply here)

(c) if the builder becomes liable for paying the unpaid wages of the sub-contractorsemployees, the builder can legally recover these payments from thesub-contractor.

Sub-Contractor’s Payroll Tax ObligationsIf a sub-contractor employs any employees, and payroll tax is payable by thesub-contractor in relation to the wages paid or payable to these employees, then thelaw states that the builder will be liable for any unpaid payroll tax by thesub-contractor, during the period of the contract, UNLESS the builder has astatement given by the sub-contractor for that period (either at the beginning or atthe end of the project), stating:

1. the sub-contractor is either registered as an employer under the Payroll Tax Act,or not required to be registered under that Act;

2. that all payroll tax payable by the sub-contractor has been paid;

3. if the sub-contractor is a principal contractor in relation to the contract period withthe builder, whether the sub-contractor has been given a statement from theperson they themselves have engaged as a contractor.



(b) if the sub-contractor is liable to payroll tax, and has not given the TradeContractor Statement to the builder, the builder is allowed by law to withholdpayment to the sub-contractor (penalties for late payment to the sub-contractordo not apply here)

(c) if the builder becomes liable for paying the unpaid wages of the sub-contractorsemployees, the builder can legally recover these payments from thesub-contractor.


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Trade Contractor Statements – GeneralAs we can see, THREE separate laws require statements to be given by asub-contractor to a builder, in order for a builder to be protected. In particular, theselaws are:

In

order to reduce paperwork, builders should try and incorporate all three legalrequirements into ONE Trade Contractor Statement that covers all three of theseareas.

Also, as the three different laws require each statement to be kept for 5, 6 and 7years, it is advisable to keep the one Trade Contractor Statement, covering all threelaws, for seven (7) years.

A sample Trade Contractor Statement, covering all three of the above areas, isincluded at the end of this Online CPD Course.


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CHECKLIST

Below is an easy to use Checklist that can be used as a guide in order to assistbuilders with compliance:

□ Does the sub-contractor have a current licence, as issued by the NSW FairTrading, to carry out the work that you are engaging them to do?

□ If the sub-contractor is a sole trader or partnership that employs employees,or if the sub-contractor is a company, does the sub-contractor have a currentworkers compensation insurance policy, and has the sub-contractor given youa copy of their certificate of currency?

□ If the sub-contractor is a sole trader or partnership, does the sub-contractorhave a current personal accident and sickness insurance policy to cover thesole trader, or the partners in the partnership?

□ Does the sub-contractor have public liability insurance?

□ Has the sub-contractor given you a Trade Contractor Statement covering thefollowing areas:

(a) workers compensation(b) sub-contractor’s employee entitlements(c) payroll tax obligations?


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5. LIABILITY FOR PERFORMING DEFECTIVE WORK

Any builder is well aware that when they contract with a home owner to performresidential building work, and some of that work is defective, the builder is liable torectify the defective work, or to compensate the home owner.

Where a builder engages a sub-contractor to perform residential building work, andthat work is defective, then:

(a) the sub-contractor will be liable to the builder for the defective work, and(b) the builder will be liable to the home owner for the defective work.

Thus, if a home owner takes action against the builder for defective work, and thatdefective work was carried out by a sub-contractor engaged by the builder, then thebuilder can also take action against the sub-contractor in relation to that defectivework. In such circumstances, it is difficult to determine how the liability will be sharedbetween the builder and the sub-contractor, because:

● it is the sub-contractor who actually performed the defective work; and● it is the builder who has contracted with the home owner, and who has failed

to adequately supervise and ensure that the work was not defective.

In any event, if a sub-contractor who has been engaged by the builder performsdefective work, the builder has the right to, subject to the terms of the contractbetween them:

A. instruct the sub-contractor to rectify the defects, at the sub-contractor’sown cost; or

B. if the sub-contractor does not rectify the defects, seek compensation fromthe sub-contractor (perhaps by withholding payment to the sub-contractor,or taking legal action against them).


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6. HOME WARRANTY INSURANCE

In almost all cases, it is the builder who will have to take out a Home WarrantyInsurance policy, and the residential building work performed by all sub-contractorsengaged by the builder will be covered under this policy.

However, there are TWO cases where a person who normally carries on theirbusiness as a sub-contractor (and therefore does not need to take out a HomeWarranty Insurance policy) will be required by law to take out a Home WarrantyInsurance policy, namely:

1. where that contractor enters into a contract directly with a home owner, and thevalue of that contract exceeds $20,000; and

2. where that contractor enters into a contract directly with an owner-builder, andthe value of that contract exceeds $20,000.

If a sub-contractor is required to take out a Home Warranty Insurance policy, andfails to do so, this will not normally affect the builder, as that sub-contractor has beenengaged directly by the home owner or owner builder, and not the builder himself.


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7. SECURITY OF PAYMENT ACT

BackgroundSecurity of payment laws allow a contractor or builder to make a claim fornon-payment for completed construction work and/or for the supply of related goodsor services provided to a client or principal contractor. The law provides a procedurethat must be followed in order to recover the unpaid monies.

For more detailed information about how this works, see our Online CPD CourseSecurity of Payment Laws.

Who may make a claim?A person or business is entitled to make a claim under the security of payment lawsif they are a:

✔ contractor – against principals / developers;✔ subcontractor – against contractors;✔ supplier – against customers;✔ plant and equipment hirer – against clients; and✔ consultant – against clients.

In the Building and Construction Industry Security of Payment Act, the personclaiming payment is called the “claimant”, and the person whom the claimant isseeking payment from is called the “respondent”. However, it is easy to getconfused with such terms, and as it is very common for sub-contractors to makeclaims against builders under this Act, throughout this summary the person makingthe claim will be referred to as the “sub-contractor”, and the other person will bereferred to as the “builder”.


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What can be claimed?The sub-contractor is entitled to claim for:

o construction work completed;o construction materials or plant that have been provided or hired out;o consulting services that have been provided;o interest on overdue progress payments;o the person’s losses and additional expenses due to work being deleted

from the contract while the sub-contractor lawfully suspended work underthese laws;

o cash security and retention monies;

These laws allow a sub-contractor to make a progress claim, and to receive aprogress payment. There is a right given to make progress claims even where acontract does not allow this. If a sub-contractor makes a claim, payment of anyunpaid amount can be sought through a process called ‘adjudication’.

What is adjudication?It is a process set up under these laws where an independent adjudicator will decideon the amount that is payable. Adjudication is a quick method to obtain a decisionand is an alternative to taking court action. An adjudicator’s decision can be madeinto a legal judgment.

What is the first step?When a sub-contractor is entitled to make a progress claim, the sub-contractor mustgive the builder a payment claim. The claim must:(a) be made at the time stated in the contract, or if no time is stated, then within

12 months after the work relates to the claim was last carried out;(b) be in writing, and addressed to the builder;(c) describe the construction work, related goods or related services for which the

sub-contractor is claiming;(d) state the amount that is being claimed.


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What happens next?After the sub-contractor has given the builder his payment claim, ONE of three thingscan happen:

1. The builder pays the sub-contractor the exact amount that they have claimedIf this happens, full payment has been made, and there is nothing left to resolve.

2. The builder gives the sub-contractor a payment scheduleWithin 10 business days of receiving the sub-contractor’s claim, the builder may givethe sub-contractor a written statement of the amount it is prepared to pay, along withthe reasons for not wishing to pay the full amount the sub-contractor is claiming (asstated in the sub-contractor’s payment claim). This is known as a ‘paymentschedule’, and the amount that the builder is prepared to pay is known as the‘scheduled amount’.

If the sub-contractor is given a payment schedule, the sub-contractor may:(a) accept the scheduled amount that the builder has agreed to pay in their payment

schedule; AND(b) commence legal proceedings in a court of law to recover the difference between

the full amount the sub-contractor is claiming and the scheduled amount thebuilder has offered to pay; OR

(c) go to adjudication to recover the difference between the full amount and thescheduled amount (an adjudication application here must be made within 10business days after receiving the payment schedule).


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The builder is limited in any adjudication from raising any defence not set out in thepayment schedule.

If the builder gives the sub-contractor a payment schedule stating the amount thatthe builder is prepared to pay, the builder must pay that amount before the due dateto which the payment relates. If they do not do so, the sub-contractor can:

(a) suspend the works by giving a notice to the builder; and(b) commence legal proceedings in a court of law to recover the full amount

claimed by the sub-contractor as a debt or go to adjudication (see below).

Also, if the builder does not pay the sub-contractor the scheduled amount (asabove), the builder will not be allowed to bring any cross-claim against thesub-contractor, or to raise any defence in any legal proceedings that thesub-contractor brings about against the builder (however, this restriction will notapply in adjudication).

3. The builder fails to pay in full or fails to give a payment schedule at allIf the builder does not pay the full payment claim or does not give the sub-contractora payment schedule, within 10 business days after the sub-contractor has given thebuilder their written claim, the sub-contractor can suspend the works after giving thebuilder notice, and the sub-contractor will be able to hold onto any unfixed plant andmaterials supplied by the sub-contractor to the builder.

The sub-contractor will also be able to commence legal proceedings in court torecover the full amount claimed by the sub-contractor as a debt; or go to adjudication(see below).

If the builder does not pay the full amount, or does not give the sub-contractor apayment schedule, they will not be allowed to bring any cross-claim against thesub-contractor, or to raise any defence in any legal proceedings that thesub-contractor brings about against them (however, this restriction will not apply inadjudication).

Where there is no payment schedule, then before an adjudication application ismade here, the sub-contractor must give the builder a written notice telling them thatthe sub-contractor intends to apply for adjudication of the payment claim and theyhave 5 business days to provide the sub-contractor with a payment schedule. If afternotice is given to the builder the sub-contractor has not received a payment schedule


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from the builder within 5 business days, the sub-contractor can then apply foradjudication.

Note: Keep all written noticesEvidence of all written notices sent and received should be kept. This may includefacsimile confirmation reports, registered mail receipts etc. as well as the originalnotices sent to the other party.

What happens if the builder fails to pay the adjudicated amount?The sub-contractor can ask the body that appointed the adjudicator to give thesub-contractor an adjudication certificate. This certificate can be filed in theappropriate court as a judgment. The sub-contractor must support the certificatewith an affidavit stating that the adjudicated amount is still outstanding.

TIPS FOR THE BUILDER1. If you receive a payment claim from a sub-contractor, and you do not agree with

the amount the sub-contractor is claiming, make sure that you send thesub-contractor a payment schedule within 10 business days of receiving theirpayment claim.

2. If you give a sub-contractor a payment schedule stating an amount you areprepared to pay the sub-contractor (the scheduled amount), make sure you paythat amount to the sub-contractor by the due date for the payment.

As stated earlier, the above information is merely a brief summary of these laws. Formore detailed information about the Building and Construction Industry Security ofPayment Act, see our Online CPD Course Security of Payment Laws.


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8. CONTRACTORS DEBTS ACT

Apart from the ‘Security of Payment’ system summarised above, the ContractorsDebts Act also establishes a system whereby a sub-contractor can recover payment.

The difference between this system, and the ‘Security of Payment’ system, is thatthat under this system, the sub-contractor can only recover from the person or entitythat has contracted with the builder (usually the home owner), and the sub-contractorcan only recover payment from money that is or becomes payable to the builder (notmoney that has already been paid to the builder).

The system works as such:

1. Where a builder has not paid a sub-contractor for work carried out and / ormaterials supplied by the sub-contractor on a home owner’s property, then thesub-contractor can obtain payment directly from the home owner “out of moneythat is payable or becomes payable” to the builder from the home owner for workand / or materials that the home owner engaged the builder to carry out and / orsupply.

2. However, this is only possible if the work carried out and / or the materialssupplied by the sub-contractor is (or is incidental to) work and / or materials thatthe home owner engaged the builder to carry out or supply.

3. The sub-contractor must go to court, obtain judgment against the builder for themoney that the sub-contractor is owed, and then obtain a debt certificate for thatamount.

4. The sub-contractor must then give the home owner a notice of claim, togetherwith the debt certificate.

5. If the claim is for wages, the sub-contractor’s claim cannot exceed wages formore than 120 days (approximately 4 months).

6. Once the home owner receives the notice of claim and debt certificate from thesub-contractor the home owner must pay the sub-contractor the amount beingclaimed, and if they fail to do so, the sub-contractor can directly sue the homeowner for that amount.


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SAMPLE TRADE CONTRACTOR STATEMENT

To: _________________________________________________________ (Principal Contractor)

From: _______________________________________________________ (Trade Contractor)

Job Site: ______________________________________________________________________

Contract Date: ________________________ Progress Claim: ___________________________

The trade contractor states:

(a) that all remuneration payable to the trade contractor’s employees has been paid for workdone under the contract and to which this payment relates;

(b) that all insurance required under the contract (including personal accident and sickness, andpublic liability) have been and are in effect;

(c) that the trade contractor:(i) is registered as an employer under the Payroll Tax Act 1971; or(ii) is not required to be registered under that Act; *

(* Delete whichever is NOT applicable)

(d) that all payroll tax payable by the trade contractor in respect of wages paid or payable to therelevant employees during any period of the contract for work done in connection with thecontract has been paid;

(e) that all workers compensation insurance premiums payable by the trade contractor in respectof the work done in connection with the contract during any period of the contract have beenpaid;

[A copy of any relevant certificate of currency in respect of that workers compensation insuranceMUST be attached to this Statement]

(f) the trade contract IS / IS NOT* also a principal contractor in connection with that work;

(* Delete whichever is NOT applicable)

(g) If the trade contractor is also a principal contractor in connection with that work, the tradecontractor has been given a written statement from all sub-contractors in relation to all of theabove matters in connection with that work.

Trade Contractor

Signature: ___________________________________________________________________

Full Name: ___________________________________________________________________

Position / Title: ________________________________________________________________

Note: A trade contractor who knowingly gives a false statement commits an offence


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