A subcontractors’ charge (Charge) given under the Building Industry Fairness (Security of Payments) Act 2017 (BIF Act) provides a way for subcontractors to secure payment of amounts owed to them under a contract by someone who is higher in the contractual chain. A Charge can also attach to security held under such a contract.
For example, if Person A (the subcontractor), is owed money by Person B (the contractor), under a subcontract, Person A may give a Charge to Person C (the principal or another contractor higher in the contractual chain) requiring Person C to withhold money payable to Person B (being a progress payment, retention money or under the superior contract) sufficient to cover the money owed to Person A.
We have put together five things you should be aware of if you are a:
- subcontractor who wants to issue a Charge;
- contractor who has been given notice of a Charge from a subcontractor and is required to respond; or
- person who has been given a Charge and is required to withhold or secure money.
1. Subcontractors can issue a Charge for a progress claim that is not yet due
Sometimes, a subcontractor becomes aware that their contractor has or is about to go into liquidation, and the subcontractor wants to secure payment for the work they have performed to date even though an entitlement for payment has not yet arisen under the subcontract.
The good news is that the BIF Act allows a Charge to be issued to secure payment in accordance with the subcontract for all money that is payable or is to become payable under the subcontract for the subcontracted work.
This means that a subcontractor, who has given the contractor its progress claim for work completed to date, may give a Charge to secure money even before that progress payment would have become payable under the subcontract.
2. Subcontractors’ Charges have strict time limitations
Subcontractors who wish to issue a Charge must do so within three (3) months of practical completion of the work.
If the Charge is seeking to secure payment of retention monies only, the Charge may be given any time during performance of the work or within three (3) months after the expiration of the defects liability period under the contract.
3. Contractors must respond to the Charge (penalties may apply)
If you have been given notice that a Charge has been given by a subcontractor, the BIF Act requires you to provide a response to the subcontractor within 10 business days of receiving the Charge (Response).
The Response must use the form available on the QBCC website and advise whether you:
1. accept liability to pay the amount claimed; or
2. accept liability to pay a partial amount, but otherwise dispute the claim; or
3. dispute the claim.
The maximum penalty for failing to provide a Response is 20 penalty units (or $2,669 as at March 2020).
4. Subcontractors must commence Court Proceedings to enforce the Charge
Subcontractors often fall into the trap of thinking that once they have given the Charge, they have done all they need, to secure the amount claimed.
However, subcontractors must commence court proceeding within one (1) month of issuing the Charge, unless the Charge is in respect of retention money only, in which case court proceedings must be commenced within four (4) months of the retention money becoming payable.
Failure to commence proceedings within this time will result in the Charge being extinguished. If the Charge is extinguished, the BIF Act prevents another Charge being given that includes the same claims as made in the extinguished Charge.
5. Charges do not guarantee payment of the claimed amount
Just because you have given a Charge and commenced proceedings to enforce the Charge, this does not guarantee payment of the amount claimed. We have put together the following (non-exclusive) list of some of the potential risks to be aware of:
1. the contractor may have a valid reason to dispute payment under the contract such as defective or incomplete work;
2. if there is no money payable to the contractor under the contract (or retention money held) by a person higher up in the contractual chain, it will result in the Charge having nothing to secure to and it will not “attach”;
3. there may be a number of other valid Charges given by other subcontractors which results in the money held by the person higher up in the contractual chain having to be shared proportionally between those subcontractors.
Our experienced team at Construct Law Group are able to help you make or respond to a subcontractors’ charge, please call (07) 3139 1874 to talk to one of our lawyers today.
This article is provided for general information and educational purposes only and does not constitute legal advice. Readers should obtain appropriate independent legal advice based on their own specific circumstances