Contracts 

A contract is a legally binding agreement between two or more parties. While not legally required, a written contract or quote between two or more parties before you start any work can be helpful in ensuring that everyone understands each other's expectations, obligations and roles.   

Generally, it will include the following aspects:  

• Work to be completed, including the expected standard or other details of the work 
• Costs that will be paid   
• Payment terms   
• Dates of commencement and completion of the work   
• What to do in the event of a dispute   

Additional resources on contracts and quotes can be found here: https://business.gov.au/legal/contracts-and-tenders 

Knowing who are the parties involved 

Generally, agreements and contracts will be between two parties, though there may be others involved at various stages. Knowing who the other parties are beforehand will help you to know who you’re dealing with, the responsibilities of each party and what to do if there is a problem. 

If you are working on a government project, it’s important to know you may not have a direct contract with the government if you have been subcontracted by someone else. Your contract will be with whoever engaged you to do the work, whether it’s the client themselves, a head contractor or another subcontractor. This means you’ll be paid by whoever contracted you, and you will need to raise any issues with them. 

If you have been engaged by a government agency and you haven’t been paid on time, you should refer to your contract about any payment terms. You may be able to report it to the government agency responsible for the primary contract.  

If you are registered under the Faster Payments policy, or having other issues with a government agency, you can contact our team. 

Dealing with other businesses 

Before entering an agreement, you may want to research the reputation of the other party by making enquiries about their business, operations and finances. You can 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 may ask the other party 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 checking for any defaults or history of payment delays. This may help you to decide whether you want to engage with a particular business. 

An information broker may also check for a history of ‘phoenixing’, that is when company directors abandon the company or transfer the business of an existing company to a new company, leaving debts with the old company. You can also report a business to ASIC if you think they’re acting illegally. 

A Business Connect Advisor with experience in the construction industry may be able to provide business advice, including how to manage risks of dealing with other businesses. 

https://www.service.nsw.gov.au/business/business-connect 

Licensing requirements 

Licence requirements for builders and subcontractors in NSW - There are different types of licences available in NSW depending on whether you want to contract for another party, supervise work, do the work, or a combination of these roles. This includes licence or qualification requirements for tradesperson or builder when taking a job in NSW. The Home Building Act NSW has licencing requirements for builders engaging in work on residential premises, but there's nothing that requires a specific licence for general building work on a commercial premises. Though there may be requirements for specific trades on a commercial premises, like an electrical work or plumbing. 

Further information on licence and qualification requirements in NSW can be found on Fair Trading NSW: 

Licensing and qualifications | NSW Fair Trading 

Timeframes 

In some instances, there may be multiple businesses involved on the same construction       project, it may be ideal to know the start and completion date of the work you agreed and be mindful of what impact it may have on your business if and when there are delays caused by other businesses at different stages of the project. This may delay the completion of work on your end and have potential impact on your future jobs. 

Pricing Correctly 

Things to consider when providing a quote include materials, labour costs, contingency costs and insurances, as well as your profit margin. These costs may vary, according to supply and demand, so you should consider the following when providing a quote:  

Labour costs 

One of the main costs for any project will be the cost of labour. This may include wages or salary, superannuation, overtime and penalty rates. If you use labour-hire agencies, you may also need to consider their charges, including their commission. If you have a permanent employee, you will need to pay them according to their contract and any award, which may include downtime in between projects. The rates you may pay, may also depend on the experience and qualifications of the employee, as well as the availability of those candidates in the labour force. 

Job costing involves tracking costs and revenue for each individual project, breaking down labour hours, material, and overhead expenses. It provides detailed overview of financial on an entire project so you can track expenses in real-time and easily calculate future profitability. 

Materials and variations 

Materials and equipment are the other major costs for any project. The cost of materials may vary over time, depending on availability, so you may need to account for this in your quote, especially if you are providing a quote a long time before any material is purchased. Make sure you have a plan in place in advance and regularly review and update the contract, so all parties know what to expect. 

Another thing to consider is excess materials – who owns any materials left over at the end of a project, and who is responsible for removing them? 

Contingency planning 

To anticipate and manage potential challenges, consider keeping a list of reliable vendors, frequently comparing material prices, and preparing for possible disruptions. These may include: 

• Delays in supplies 
• Delays in staffing 
• Weather 
• Delays on other tradespersons or required approvals 
• Unforeseen increases in cost of supplies 
• Unforeseen increases in cost of staffing 
• Additional time necessary to rectify defects 

Payments 

A contract will usually specify terms of payment, however there are some specific things you may want to add in your agreement to ensure that parties have a clear understanding on what will be paid, and at which stage of the project. These include: 

Deposits 

Requesting a deposit is an effective way to secure a commitment from the other party. When negotiating a construction contract, consider asking for an upfront deposit, which can act as a financial safety net and a demonstration of the other party’s seriousness and capability. Make sure the terms of the return of the deposit are clearly outlined in your contract. A deposit may also be used to purchase necessary materials to commence the job.  

Progress Payments 

Progress payments involve payments made in accordance with the project milestone and work completion, typically releasing a portion of the payment as each milestone is reached. Use of this payment approach can require withhold of a percentage of payment pending completion of the entire project. This approach ensures that funds are released as work progresses, promoting transparency, cashflow and accountability within the project.  

Retention Monies 

Retention money is a sum withheld by head contractor until the project’s completion. The purpose of retention money is to safeguard against any non-conformance of work, defects, or delays by the contractor.  In Subcontractor agreement, usually a percent of the total contract value is held by the head contractor until the subcontractor has completed the job and fixed any defective work.  

I haven’t been paid on time or at all. What can I do? 

Taking a proactive approach to outline obligations and responsibilities may avoid a dispute but nonetheless they may still arise. 

If that’s the case, you have a few options including: 

• Direct negotiation with the other party, focusing on what is in your interests, as well as the other parties, and what you’re willing to accept to move forward. Sometimes, it will be better commercially to agree to a payment plan over time, or a lesser amount, to finalise the matter and move forward with your business. 
• Mediation via the NSW Small Business Commission with an independent mediator to help the parties reach an agreement.  
• 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) 
• Going to court. 

While going to court or adjudication may be options, they are often a time-consuming and costly process. The NSW Small Business Commissioner offers cost-effective mediation services, providing parties in dispute with an opportunity to come to a mutually agreeable resolution. Mediation is a facilitated negotiation process that can be highly effective in reaching an agreement. 

For further information on the mediation services provided by the NSW Small business Commissioner or other dispute resolution options, please contact our team at 1300 795 534.  

When does the other party have to pay me? 

Your contract may include what happens if there is a delay in payments, for example, is interest charged? Your contract is the authority on what happens here, though there may be aspects of 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. 

How do I ensure I’m paid on time? 

Issue a correct invoice 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. You may serve the claim/invoice in person, by email or any other way outlined in the contract. You should record the dates when the claim is sent and received. Follow up with the other party as soon as possible, if payment is overdue. 

Things to include in your invoice: 

• Amount due and a description of the construction work, related goods or services, 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. 
• 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 invoice/claim can also include attachments such as: 

• an outline of the work completed 
• completion certificates 
• delivery dockets 
• Photographs 

What are the timeframes I can expect? 

Your contract or agreement will outline the relevant dates payment is due. 

The Building and Construction Industry Security of Payments Act has the following due dates for payments where contracts were signed after 21 October 2019. 

 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.  

Insolvencies and protecting yourself  

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. 

On site:  

• 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. 

Commercial:   

• 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).