Three actions subcontractors must take to protect their right to payment

Latest update 02/08/2023 | Last update 02/08/2023 | First published 13/11/2022

This guidance was provided to TradeBox Australia by Aitchison Reid Building and Construction Lawyers. Individual liability limited by a scheme approved under professional standards legislation.

It all started off very simply enough, a civil contractor agreed to carry out civil works for a developer. The work was to be carried out on a residential development, but well before any subdivision occurred on the site. The contractor wasn’t naïve and knew the importance of having a QBCC licence. Its licence was “Builder – restricted to structural landscaping” and it meant that the civil contractor could build retaining walls and do most things that civil contractors are required to do. The scope of work included site clearing, earthworks, construction of roading, water and sewerage.

During the works the contractor was instructed to carry out a variation that included the:

• Removal of a very simple bus seat fixed to the concrete footpath next to a pole with an official bus stop sign on it;

• Re-fixing the bus seat to the new concrete paving it had created;

• Removal of a small, very simply prefabricated metal shelter and relocating it to a different place on the same road as a temporary bus stop established for use during the roadworks. The shelter was then relocated to its original position fixed to a new concrete footpath; and

• Removal and reinstalling to the new footpath a bike rack, which was a tubular piece of metal in the shape of a “U” that was fixed to the footpath beside the original shelter. It was to be removed and fixed to the new footpath next to the shelter in its final position

The contractor carried out the work.

There was no dispute about the workmanship, the amount claimed for the variation, or that the site supervisor had certified the variation.

Despite this, the developer raised three reasons in its payment schedule for disputing the variation including that the contractor was not licensed to carry out the works and should have had a carpentry licence.

Faced with non-payment the contractor applied for adjudication. The adjudicator found that the contractor’s QBCC licence did cover the work and found for the contractor in the order of $1,439,070.69 (including GST).

Unfortunately, that was not the end of the story, because the developer judicially reviewed the decision to the Supreme Court.[1]

The Supreme Court judge found that the contractor was licensed to demolish, move and reassemble a prefabricated bus shelter, but was not licensed to carry out the same actions in relation to the much simpler structures of a freestanding bus seat and bike rack. The judge was understandably disturbed by her own finding and said that her decision:

“is a result of stochastic and illogical provisions in the schedules to the QBCC Regulations and produces a result which, although it may be correct in law, is absurd in reality”[2]

But her concern was not just that the contractor was unable to be paid for these small parts of the work that fell outside its licence, her concern was that the contractor was not entitled to be paid at all.

However, again that was not the end of the story because the contractor appealed the decision. The Court of Appeal[3] held that the work was carried out on a footpath next to a road and therefore, the footpath could be included in the meaning of road – which was exempted from the need to have a contractor’s QBCC licence.[4] Therefore, the contractor did not need a QBCC licence to remove and reinstall the bus seat and the bike rack.[5]

What does this all mean for your right to payment?

1. What this means for security of payment?

Despite the Court of Appeal’s extension of the meaning of “road”, they did not change the “kick in the teeth” fundamental issue; if you carry out any work that you are not licensed to carry out, you cannot use security of payment law to enforce payment.

Technically it actually goes further than this:

Section 42 of the QBCC Act, states that if someone carries out building work without the appropriate licence, then they are not entitled to any monetary or other consideration for doing so;

• This means that there is no contractual right to be paid for any of the work under the contract;

• If you have no contractual right to be paid, you are not entitled to send a payment claim under the Building Industry Fairness (Security of Payment) Act 2017;

• If you are not entitled to send a payment claim, then an adjudicator does not have any jurisdiction to hear the dispute at all.

2. Understanding your QBCC licence and “incidental work of another class”.

This story is not just relevant to civil contractors, it’s relevant to anyone carrying out building work with a QBCC licence.

In the rush and business of carrying out work on site, it is so easy to agree to carry out work that is not quite in the scope of your QBCC licence.

In most QBCC trade descriptions there is the line “incidental work of another class”. Please note that this means:

“Incidental work is minor work you need to do to finish your job, where that work is covered under a licence class other than the one you hold. The total value of incidental work cannot be any more than $3,300 and may be included in your contract….

Note: The value of building work includes all labour and material costs, regardless of who supplies the materials.”

The total value of the incidental work must be less than $3,300 (including GST) whether you do the work yourself or engage a subcontractor/s to carry out the work for you.

Further, if you are not correctly licensed you cannot carry out any occupational work, such as electrical, plumbing, drainage, pest control or fire protection work. Occupational work must always be carried by a correctly licensed contractor.

3. You can still get paid for something

Just when you thought the law was completely heartless, there is an exception.

Section 42(4) states that you are not stopped from claiming reasonable remuneration for carrying out building work, but only if the amounts claimed relate to your costs and does not include the supply of your own labour, the making of profit or costs that are not reasonably incurred.

See our article next month, in which we look at a recent case where this section 42(4) was tested.

So, what can Subcontractors and Tradies take from this?

1. Check your scope of work

Many head contractors and developers are very schooled on the ways to avoid paying their hard-working trade contractors and subcontractors.

A classic method of avoiding payment would be to plant in the scope of work for each trade, something that that trade is generally not licensed to do. That way if needed, the head contractor or developer could play the unlicensed work card, when required to avoid payment.

This means you must diligently and thoroughly check your scope of work to make sure all of the work fits within the boundaries of your licence scope.

2. Check every variation against your scope of work

The above story involved a variation and a variation is the perfect time for an unscrupulous developer or head contractor to introduce work you are not licensed to carry out. This is because you are already busy and it is so easy to miss things when you are caught up in the throes of the job.

So when a variation is requested, intentionally slow down your agreement process until after you have diligently and thoroughly checked that that the variation fits within your licence scope. You would do this because the consequences of agreeing to vary the scope of works to include unlicensed work, fundamentally affects your entitlement to payment.

3. Before adjudicating assess the risk

If you have carried out unlicensed building work, there is no point adjudicating as the adjudicator will not be able to hear the decision.

In addition, if there is any hint from the payer that you may have carried out unlicensed building work, again adjudication may be a complete waste of time and expense. You may be better off taking the civil proceedings route in court although this is long, slow and expensive. To find out more about this option see our article next month.

Conclusion

If you want to learn more about TradeBox and the trade contracts and terms that we provide, check out tradebox.com.au. If you would like to have a chat about whether TradeBox could work for your tradie business, shoot an email to the director Riley at riley+questions@tradebox.com.au or leave a voicemail on 07 21134067 so he can call you back.

Please note

This article was written by Fionna C A Reid, director of law practice Aitchison Reid Building and Construction Lawyers (Aitchison Reid) for TradeBox Australia (TradeBox), so that TradeBox can share the article as guidance with tradies and subbies. Use of this article is subject to TradeBox’s terms and conditions of use stated here: https://www.tradebox.com.au/terms-and-conditions-our-ar-content

Aitchison Reid, like TradeBox, is based in Queensland.

This article has been drafted in reference to building and construction trade businesses in Queensland only.

TradeBox is not a law practice. This article is not legal advice and is for guidance purposes only. Seek advice on matters of interest arising from the commentary, information and guidance in this article.

Aitchison Reid’s content for this article was released to TradeBox in November 2022. Individual liability limited by a scheme approved under professional standards legislation.

End notes [1] Galaxy Developments Pty Ltd v Civil Contractors (Aust) Pty Ltd t/a CCA Winslow [2020] QSC 51 [2] Galaxy Developments Pty Ltd v Civil Contractors (Aust) Pty Ltd t/a CCA Winslow [2020] QSC 51, paragraph 109 [3] Civil Contractors (Aust) Pty Ltd v Galaxy Developments Pty Ltd & Ors; Jones v Galaxy Developments Pty Ltd & Ors [2021] QCA 10 [4] Civil Contractors (Aust) Pty Ltd v Galaxy Developments Pty Ltd & Ors; Jones v Galaxy Developments Pty Ltd & Ors [2021] QCA 10, paragraph 60-62 [5] Unfortunately, the civil contractor still lost its appeal on another matter.