Subcontractor's Charges

What is a subcontractors' charge?

A subcontractor's charge is a statutory security granted to certain parties in the building industry under the subcontractors' Charges Act. The charge secures payment of monies owed to subcontractors. Only Queensland Act and South Australia have these Acts. This Fact Sheet is explained in terms of the Queensland Act.

What parties are involved?

There are generally 3 parties involved in a subcontractor's charge:

The developer (employer) - The developer owes money to the builder under the building contract. The Act defines an employer as: "a person who contracts with another person for the performance of work by that other person, or at whose request or on whose credit or behalf, with the person's privity and consent, work is done.."
The builder or contractor - The party engaged by the developer to complete a building project. The Act defines a contractor as: "regards an employer, means a person who contracts directly with the employer to perform work and, as regards a subcontractor, means a person with whom the subcontractor contracts to perform work".

The subcontractor - The party engaged by the builder to conduct part of the work under the main building contract. The subcontractor is owed money by the builder for work performed under this subcontract. The Act defines a subcontractor as "a person who contracts with a contractor or with another subcontractor for the performance of work."

What is the purpose of the charge?

The charge provides the subcontractor with some protection from an insolvent builder by securing the monies owed by the developer to the builder and directing some of those monies to the subcontractor. A subcontractor will lodge a subcontractor's charge when he doubts that he will be paid by the builder.

Who can lodge a charge?

Any subcontractor of a builder, as defined by the Act, is entitled to charge monies payable to a builder or a superior contractor. The monies must be owed to the subcontractor for "Relevant Work" as defined under the Act. Monies owed for work that falls outside that definition cannot be the subject of a charge.

What is relevant work?

Relevant work is:

"work" includes work or labour, whether skilled or unskilled, done or commenced upon the land where the contract or subcontract is being performed by a person of any occupation in connection with--
(a) the construction, decoration, alteration or repair of a building or other structure upon land; or
(b) the development or working of a mine, quarry, sandpit, drain, embankment or other excavation in or upon land; or
(c) the placement, fixation or erection of materials, plant or machinery used or intended to be used for a purpose specified in paragraph (a) or (b); or
(d) the alteration or improvement of a chattel;

and includes also the supply of materials used or brought on premises to be used by a subcontractor in connection with other work the subject of a contract or subcontract but does not include--

(e) the mere delivery of goods sold by a vendor under a contract for the sale of goods, to at or upon land; or (f) work or labour done or commenced by a person--
(i) under a contract of service; or
(ii) in connection with the testing of materials or the taking of measurements or quantities; or

(g) the supply under a contract of hire of materials, plant or machinery not intended to be incorporated in the work.

Section 3AA of the Act extends this definition. If in doubt, seek legal advice.

What can be charged?

Money. The subcontractor can lodge a charge on money owed to a contractor, including retention monies and any security monies held by the developer. But the developer must still have the money and still owe a debt to the builder. Money cannot be charged after it has been paid to the builder.

How is a charge lodged?

A notice of the subcontractor's charge must be given in the form prescribed under the Act. The notice of charge must be given to both the builder and developer (and the holder of any security). The notice must specifying the amount and particulars of the claim in relation to relevant work. It must also be certified by a "prescribed person" and supported by a statutory declaration from the subcontractor.

Subcontractors will usually engaged solicitors to prepare the charge notice. As charges may be overturned if not completed properly and within the relevant time periods, subcontractors generally have their solicitors lodge these charges.

What are the time periods?

A notice of charge can be given at any stage during the subcontract period, but time restrictions apply after the completion of the subcontract. The following time restrictions apply:

1. for contract monies - Within (3) three months after the completion of works.
2. for retention monies - Within (3) three months of the expiration of the maintenance period.
3. for monies held under a security - Within (3) three months of the expiration of the release period

The charge must be lodged before the developer pays the monies to the builder to have any effect. If the charge is lodged after the payment has been made, there will be nothing to charge and it will be ineffective.

Consequences of a notice of charge

Within fourteen days after the notice of charge is received, the builder must give a "contractor's notice" in the approved form to the developer, stating that the builder:

(a) Accepts liability to pay the claimed amount;
(b) Disputes the claim; or
(c) Accepts liability to the amount stated in the "contractor's notice", but otherwise disputes the claim.

When a builder provides notice accepting the liability the developer will pay the amount to the subcontractor.

If the builder does not provide such notice, it is the subcontractor's responsibility to take steps to enforce the charge. If they have not already done so, they should seek legal advice.

What if there is more than one charge lodged?

Where the money payable under a contract is insufficient to meet the claims of two or more subcontractors, any deficiency shall be borne by subcontractors in proportion to the amounts of each claim. Each subcontractor will share equally in the charged monies.

Usually, where there are two or more subcontractors lodging charges and a shortfall, the developer will pay the monies into the Court and have the Court determine the disbursement of the funds.

What should the developer do when receiving a charge?

The lodgment of a charge secures the monies for the subcontractor. It is possible that a number of subcontractors will lodge such charges and it is possible that the amount of claims made by subcontractors will exceed the amount that is still to be paid under the contract.

The developer will not have to pay any more money than they would have had to pay under the original contract. The charge does not create an extra obligation on the developer, it just to directs payment of the monies due under the contract.

The developer may be able to withhold all monies that have been charged and use these monies to complete the project (maybe using another builder if the original builder is insolvent). The developer may not be obliged to pay out any of the monies under a charge until after the project has been completed and these costs have been paid.

It is not uncommon for the developer to pay surplus monies (monies due under the contract after it has been completed) into Court. This will remove the obligation of disbursing the monies from the developer and place it on the Court. This also applies to parties that hold security in respect of the builder's contract.

Disclaimer
The enclosed information is of necessity a brief overview and it is not intended that readers should rely wholly on the information contained herein. No warranty express or implied is given in respect of the information provided and accordingly no responsibility is taken by Worrells or any member of the firm for any loss resulting from any error or omission contained within this fact sheet.

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Last Updated: 5.3.2008