NSW is experiencing an infrastructure boom, which is great news for small businesses in the construction industry. Like in any sector, there are issues that can get in the way of a smooth-running business. These range from not being paid on time (or at all) and running out of cash flow to managing contracts and business administration.
Here is some information on a range of common issues.
It’s important to know you don’t have a direct contract with the government even if you’re subcontracting on a government project. Your contract will be with whoever engaged you to do the work, whether it’s another subcontractor or the head contractor. This means you’ll be paid by whoever contracted you.
If you're working on a government project and you haven’t been paid on time, report it immediately to the government agency responsible for the primary contract. If you’re having issues, you can contact our team.
Yes, you should absolutely have a written and signed contract before you start any work. Having a contract means you have a written document to fall back on if your relationship with a head contractor goes bad. This includes having a dispute resolution clause that outlines a clear process for any disagreement, termination or late payment. Your contract should also include when payment claims can be made, a payment plan or schedule* as well as clear payment terms and conditions.
Negotiating a contract is your opportunity as a subcontractor to protect yourself through things like asking for a personal guarantee or registering a security on the Personal Properties Securities Register (PPSR) This added protection can be helpful in the event of an insolvency (see article: Insolvencies and protecting yourself)
We also recommend you get legal advice to understand your obligations and to ensure you’re protected.
*Under the NSW Building and Construction Industry Security of Payment Act (SOPA), subcontractors must be paid 20 business days after you’ve submitted a correctly-rendered invoice. Your contract may specify earlier payment due dates than the 20 days but not later. If you’re having problems with getting paid there are some steps you can take (see article: I haven’t been paid on time or at all. What can I do?)
Before you sign a contract
One of the best things you can do before you sign a contract is to investigate the reputation of the head contractor by researching their business, operations and finances. Look up their Australian Business Number (ABN) details to make sure they’re legitimate and still in operation, and confirm the information they’ve given you is true via the ASIC registers.
You also have every right to ask the head contractor questions as part of your research. ASIC has a few suggestions to get you started.
If you’d like to outsource this research, ASIC lists information brokers who can offer a variety of services, such as searching a company director to see if there’s been any history of ‘phoenixing’ (when company directors have a history of their companies going into liquidation or administration). You can also report a business to ASIC if you think they’re acting illegally.
While it’s quite common for changes to happen on a project, make sure you get the request in writing outlining the changes to work, price and delivery date. Once both parties agree, this will need to be written in as a variation in your contract. If you get into a dispute, the written variation means you can enact the dispute resolution clause in your contract.
Before you agree on a price and sign a contract, it’s a good idea to do your own estimation of time, cost and materials. Once you’ve agreed on a price, perhaps ask the head contractor for a deposit to cover your costs and as a goodwill indicator.
Here are some tips to getting paid on time as well as some information on the Security of Payment Act (SOPA), designed to legally protect subcontractors.
Issue a correct invoice
Issuing an invoice may be Business 101 but even minor mistakes can delay payment.
What to include in your invoice:
- the amount due and a description of the construction work, related goods or services
- a statement that you’re making the claim under the NSW Building and Construction Industry Security of Payment Act. For example: This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999 NSW
Including this will help if you experience late or non-payment, as you can use the Act to try and recover money owed.
Your claim can also include attachments such as:
- an outline of the work completed
- completion certificates
- delivery dockets
A few other tips:
- issue invoices by the agreed timeline outlined in your contract
- if your contract doesn’t have a payment claim date, issue it on the last day of the month
- follow up with the head contractor as soon as possible if payment is overdue
- only submit one invoice for completed works (unless your contract allows for more). If you aren’t paid, include the unpaid amount in your next invoice
- serve the claim in person, by post or fax (or in any other way outlined in the contract) to the respondent at the time specified in the contract or on/after each reference date
- record the date when the respondent receives the claim.
Use the Security of Payment Act (SOPA)
The NSW Building and Construction Industry Security of Payment Act (SOPA) is a regulation designed to protect you by outlining payment requirements that principals, head contractors, subcontractors and suppliers must follow.
If your contract doesn’t specify a timeframe, have a look at the NSW Building and Construction Industry Security of Payment Act payment claim processes and timings outline.
It’s important to note that SOPA was updated on 21 October 2019, which means some due dates for progress claims have changed. The impact will depend on where you sit in the contract chain. The table below provides a summary of the key dates, including for contracts signed before 21 October 2019.
|Payment claim||New key deadlines/due dates (after 21 October 2019)||Old key deadlines/due dates (before 21 October 2019)|
|Payment by principal to head contractor||15 business days after claim is made||15 business days after claim is made|
|Payment by head contractor subcontractor (non-residential)||20 business days after claim is made||30 business days after claim is made|
|Payment by head contractor to subcontractor (residential)||10 business days after claim is made if there is no express provision in the contract||10 days after claim is made if there is no express provision in the contract|
If you’re having a dispute, you can enact the NSW Building and Construction Industry Security of Payment Act.
Fair Trading can help if you have any questions.
What if I’m not paid on time?
Have a look on Fair Trading’s website if you have not been paid by the due date* to find out your rights under the NSW Building and Construction Industry Security of Payment Act.
*If you notice a pattern of erratic, late and/or non-payment, this could be a sign that the head contractor is experiencing cash flow problems or worse. (See article: Insolvencies and protecting yourself).
The best way to avoid business disputes is to have upfront written agreements to ensure everyone is on the same page from the outset. Read our top 10 tips to avoid disputes.
What if I can’t resolve my dispute?
While you may have taken all the necessary precautions and attempted to resolve a dispute, not all can be resolved using the dispute resolution clause in the contract.
If that’s the case, you have a few options including:
- Mediation via the NSW Small Business Commission
- Adjudication though the NSW Building and Construction Industry Security of Payment Act
- Submitting a payment withholding request (this can only be done if you’ve made an adjudication application)
- Getting legal advice and going to court.
It’s important to note that not all resolution options will work. Contact our team for free strategic advice.
Although managing your cash flow is a basic business practice, inadequate cash flow or high cash use was the main reason for construction insolvencies in NSW in 2017-18. This was followed by poor financial control including lack of records.
Basic cashflow management means you understand how your business operates and that you know you’re able to cover operating costs.
There are many tools you can use to manage your cash flow including:
The collapse of a business can be devastating and impact many people, from the business’s management and employees to suppliers and contractors. In regional towns, a single insolvency can affect entire communities.
So how can you protect yourself? If you’re an unsecured creditor (i.e. you don’t hold a security interest in the company’s assets), before you sign a contract it’s a good idea to register a security interest on the Personal Properties Securities Register (PPSR) and read their business guide.
In addition, be on the lookout for common warning signs that a company is in financial difficulty so you can take steps to recover money before it’s too late.
Here are some signs to look out for both on site and commercially.
- high turnover of employees
- a general decrease of labour on site
- delays in making payments to subcontractors
- slowdown in progress of the works
- not delivering in accordance with agreed timeframes or to a poor standard
- an increase in the number of defects in the works
- removal of plant, equipment and/or materials from site.
- requests from the supply chain for deposits, upfront payments or reduced retentions
- attempts to inflate payment applications or pursue false claims and/or contra-charges to increase the amount payable
- complaints about payment delays or non-payment from others in the supply chain
- lack of response to ongoing correspondence
- silence and evasion tactics and/or a more contentious approach
- rumours and market intelligence about the company's financial position (although this information should always be treated with caution).