The essentials of any subcontracting agreement
Subcontracting is an opportunity to learn new skills, expand your network and make a wedge of cash. What could possibly go wrong?
You’ve just scored a big contract on new development. How are you feeling? Elated? Anxious? Overwhelmed? Perhaps a mix of all three. Whether you’re a new contractor or you’ve been around the block, it’s important to be prepared for the issues and risks faced in today’s construction industry.
On a post-pandemic job site, where costs of materials have soared and interest rates are going the wrong way, it’s harder than ever to recover what’s owed to you if something goes wrong. Here are a few things to think about before you load up the van.
Do your due diligence when entering a subcontract
What do you know about the main contractor who’s hiring you for the job? It’s not enough to ask around, you need to get to the facts first-hand.
“There are a number of checks you can do. Here in Queensland, the Queensland Building and Construction Commission (QBCC) lists a builder’s previous works, their licence, and infringements or suspensions.”
You can access similar information via Service NSW or an equivalent body in your state. For a small fee, you can also check a company’s credit history online via a credit reporting agency — all you need is the ABN.
Understand the terms of the subcontract
Tradies don’t have a great reputation when it comes to reading the small print. Subbies take on huge jobs that then get even bigger, and they’re simply too busy to do the admin and fully understand what they’re signing.
“It’s critical to understand the terms of the game (see box) and understand that you can ask for the subcontract to be amended,” says Fionna.
This may mean asking a professional to look over it. A contract administrator will be more affordable than a lawyer and could save you a fortune in the long run.
Have your own subscontracting terms of trade
Subbies are often left waiting for a contract and will start a job before it’s signed. In this instance, your own terms of trade will act as a reference point should conflict arise.
“It’s important that your terms of trade are relevant, up to date and specific to your trade,” says Fionna. “Take a look at tradebox.com.au if you need help setting up your terms.”
Be vigilant with your subcontract paperwork
Paperwork is never a fun part of the job, but it can make or break a subcontracting business. “You might be the best craftsperson, but if you do not send your variations and extension of time claims in accordance with the time frames in your contract, or enforce payment in a timely manner, you could be looking at payment disputes, liquidated damages, and not getting paid,” says Fionna.
Understand your legal protections when subcontracting
According to Fionna, most – if not all – states and territories have their own version of security of payment, which is designed to provide payment protections for subcontractors.
“The issue is that most of these legislated protections have strict time limits, so subcontractors need to know what time frames are ahead of time.
"So often, subcontractors do not seek help until after the time limits have passed, which makes enforcing payment 10 times harder."
Subcontracting rules of the game
Some good news for subcontractors is that as of November 10, 2023, new federal laws come into play that provide real financial consequences for businesses with unfair terms in their standard form contracts.
“If construction was a sport, then your contract would be the rules of the game,” says Fionna.
“Unfortunately, historically, subcontractors have generally been handed a rule book full of unfair terms. So, when there’s a dispute, the subbie is already on the back foot. With these new laws coming in, we’re starting to see some of the big builders changing their terms to make them far more fair.”