What is a Subcontractors’ Charge?
The Subcontractors’ Charges Act 1974 (Qld) provides a mechanism for subcontractors to secure money owed to them by a head contractor or superior contractor.
Under normal circumstances, the building owner or employer (“the employer”) would pay the head contractor pursuant to the contract between the employer and head contractor. It is then the head contractor’s responsibility to pay the subcontractors which the head contractor has engaged. Refer to the following flow chart.
Sometimes the head contractor would fail to pay to the subcontractor the money owed under the subcontract, despite having been paid by the employer. The subcontractor is then placed in a difficult position as there is no contract between the employer and the subcontractor which would allow the subcontractor to seek payment directly from the employer. The Subcontractors’ Charges Act provides a solution for subcontractors from the difficulties which arise from being outside the ‘protection’ of the head contract.
How do I lodge a charge?
To lodge a subcontractors’ charge, the subcontractor must give a notice of claim of charge to the employer. The Act requires the notice to be in a prescribed form and include certain information including the amount and particulars of the claim supported by a statutory declaration from an independent professional, certifying the amount claimed. The subcontractor must also give notice to the head contractor that the claim has been made.
What happens after I give notice of a claim of charge?
Upon receipt of the claim of charge the employer is obliged to hold the monies, which have not yet been paid to the head contractor with respect to the subcontract. The subcontractor is then considered a secured creditor. If the employer fails to comply with this obligation, they can be held liable for the amount owing to the subcontractor.
The money held by the employer may need to be apportioned between subcontractors where a number of subcontractors lodge a subcontractors’ charge in relation to the same project.
Within 14 days after the notice of the claim of charge is given to the head contractor, the head contractor must give to the employer and the subcontractor a notice (“contractor’s notice”) that it:
(a) accepts liability to pay the amount claimed; or
(b) disputes the claim; or
(c) accepts liability to pay the amount stated in the contractor’s notice, but otherwise disputes the claim.
Can the employer pay the money being held directly to the subcontractor?
Subcontractors should note that money held by the employer can only be paid to the subcontractor in the event that the head contractor consents or the Court makes an order that the money is payable to the subcontractor. While the Subcontractors’ Charges Act provides a useful mechanism for subcontractors to secure monies owed to them, it is important to be aware that a claim of charge frequently results in litigation.
The subcontractor does not always receive the full amount claimed, particularly in the event that the head contractor becomes insolvent. However, even in these circumstances the subcontractor is in a position to recover some of the money owed as a secured creditor, which otherwise would not be possible in the case of the head contractor’s insolvency.
Can I ‘leapfrog’ to the employer?
The Subcontractors’ Charges Act allows subcontractors to lodge a charge directly with the ultimate owner or employer for a project, even where there is a number of contractors in the chain of command. This may ensure a better return for the subcontractor as it ‘leapfrogs’ directly to the entity which is funding the project. Refer to the following flow chart.