Security of payment laws apply anyway

Every Australian state and territory, and many countries, have a security of payment law. It gives anyone doing construction work or supplying related goods and services to a construction project a right to make progress payment claims. This is often called ‘pay now, argue later’. The law can apply to written and oral contracts (you can check this for yourself by googling [your location] + security of payment act + oral contract).

These laws can override the contract in important ways:

• No ‘pay when paid’. A head contractor can’t make your payment depend on being paid by the client (Building and Plumbing Commission).
• No contracting out. Unless the law specifically allows it, contract terms that are inconsistent with the law are void. In practice, a void term is often followed unless someone challenges it. Many contractors agree to payment terms that would be void if challenged, because they need the work / money (the money they aren’t being paid) (Victorian Building Authority).
• Client silence allows for full payment. In Victoria, a respondent who doesn’t pay or give a payment schedule within 10 business days must pay the full amount claimed (Victorian Building Authority).

A written subcontract that matches these rules avoids arguments about which terms apply. A subcontract that does not might have clauses that are void.

What a subcontract should cover

Topic	What to write down
Parties	Full legal names and ABNs, and the representatives who can give and receive instructions
Scope	The work, drawings and specifications, assumptions and exclusions
Price and payment	Lump sum / fixed fee / rates, milestones, when to claim, days to pay
Variations	How to request a change, price the change and approve it before the work is done
Time	Start date, end date, how to claim an extension of time
Defects	How long you are responsible for defects, how you’ll be notified and what happens if you don’t respond
Retention and security	How much is held back, and when it is released
Insurance	Public liability, workers compensation, professional indemnity (if doing design or professional services) and any contract works cover
Safety	Site rules, safe work method statements and inductions
Termination	Notice, time to fix a problem, and payment for work done
Disputes	Who to notify, by when, and the steps before mediation / arbitration / court

Beware the head contract pass-through

Many subcontracts pass down the head contract’s terms “back to back”. This usually means you get less time to issue a notice, higher liquidated damages, fewer claimable delay events, liability to parties you don’t have a contract with. If your subcontract refers to a head contract, get a copy, read the parts that are referred to in your subcontract, and check what you are agreeing to – you might not be insured for taking on third party liability.

Homeowner jobs are different

In Victoria, a contract between a builder and a homeowner is a domestic building contract under the Domestic Building Contracts Act 1995, not the security of payment law. Contracts between that builder and its subcontractors and suppliers are still covered by security of payment (Victorian Building Authority). Each state has its own domestic building legislation.

If you are the head contractor

A short, fair subcontract is easier to get signed and to enforce. You can’t just pass through all your risks to smaller contractors. If you use the same unfair standard form with small subcontractors, unfair contract terms law applies. Since 9 November 2023, courts can impose penalties for unfair terms (ACCC). That means you need to discuss and negotiate departures. Letting your commercial managers say ‘take it or leave it’ to every subcontract is no longer safe business.

This guide is general information, not legal advice for your situation. Security of payment laws differ between states and territories.