Subcontractors Charge Queensland

The Head Contractor Has Gone Under. Here Is What You Can Do About the Principal.

The Payment Chain: Security of Payment in Queensland — Part 3

By Damon Laffin, Director | Odyssey Legal | Queensland Construction Lawyers

What This Article Covers

When a head contractor stops paying or enters insolvency, Queensland's Building Industry Fairness (Security of Payment) Act 2017 (Act) gives subcontractors a direct mechanism to claim against the principal, the party at the top of the contractual chain who engaged the head contractor, whether that is a developer, property owner, insurer, government body, statutory authority, or body corporate.

This article explains how the subcontractors' charge under Chapter 4 of the Act works, the strict deadlines that govern it, and the critical strategic election between a charge and adjudication.

This is Part 3 of The Payment Chain series. Part 1 covered payment claim validity. Part 2 covered the consequences of no payment schedule. This article covers the subcontractors' charge under Chapter 4 of the BIF Act.

What a Subcontractors' Charge Is

A subcontractors' charge is a statutory mechanism under Chapter 4 of the Act that gives a subcontractor a charge directly over money payable by the principal to the head contractor under the head contract. It operates independently of the subcontractor's contract with the head contractor and gives the subcontractor a proprietary interest in funds that have not yet been paid down the chain.

The term "principal" in this context means the party who contracted with the head contractor for the construction work. On a residential or commercial development that is typically the developer or property owner. On insurance reinstatement work it is commonly the insurer. On strata remediation it may be the body corporate. On government or council projects it is the relevant authority. The mechanism operates the same way regardless of who the principal is; what matters is that they owe money to the head contractor under a construction contract.

On receiving a valid notice of claim, the principal must retain a sufficient portion of the money owed to the head contractor to cover the subcontractor's claim. That money cannot be paid to the head contractor, or to an administrator, liquidator, or receiver, until the claim is resolved.

The charge also attaches to security held under the head contract, including retention money held by the principal and any bank guarantee given by the head contractor in support of its obligations.

The Right to Information

Before giving a notice of claim, a subcontractor may not know who the principal is or how much is payable under the head contract. Under section 119 of the Act, a subcontractor can request that information from the head contractor or any contractor higher in the chain.

The information that can be requested includes the name and contact details of the principal, details of the head contract, the amount payable under it, and details of any security held. The head contractor must respond within 10 business days. Under section 120, failure to provide the required information without reasonable excuse is an offence and exposes the head contractor to liability in damages for any loss caused by the failure.

Giving the Notice of Claim

The charge is activated by serving a notice of claim under section 122 of the Act. The notice must be given to the principal and must comply with the formal requirements prescribed by the Act, including details of the work certified by a qualified person as prescribed by regulation.

Under section 123, a copy of the notice must be given to the head contractor within 24 hours of serving the principal. Under section 124, a copy must also be given to any holder of security under the head contract.

A defective notice of claim can invalidate the charge entirely. The formal requirements must be strictly satisfied.

The Deadlines

For construction work generally: under section 122(5), the notice of claim must be given no later than three months after practical completion of the relevant work under the subcontract, or at anytime if the work has not been completed (subsection (4)).

For retention amounts: under section 122(8)(b), the notice must be given no later than three months after expiry of the defects liability period under the subcontract, or at anytime if the works are still being performed (subsection (8)(a)).

These deadlines operate independently of the head contractor's solvency. A notice given after the three-month window has closed is invalid, regardless of when the insolvency occurred.

If the charge is disputed, under section 136 of the Act, court proceedings to enforce it must be commenced within one month of giving the notice of claim. Missing this deadline causes the charge to lapse.

What the Principal and Head Contractor Must Do

Under section 126 of the Act, the principal must retain sufficient money or security to cover the subcontractor's claim and must not pay it to the head contractor or any insolvency practitioner until the claim is resolved.

Under section 128, the head contractor must respond to the principal within 10 business days, either accepting or disputing liability for the subcontractor's claim. Failing to respond without reasonable excuse is an offence.

The Critical Election: Charge or Adjudication?

This is the most important strategic issue a subcontractor faces when considering their options.

Under section 62 of the BIF Act, a subcontractors' charge and an adjudication application are mutually exclusive pathways for the same claim. Giving a notice of claim for a subcontractors' charge causes any undecided adjudication application for the same work to be taken as withdrawn. Where a charge is given first, the right to make a subsequent adjudication application for the same claim is no longer available.

Adjudication is faster and produces a binding interim determination within defined timeframes. It is generally the right pathway where the head contractor is still solvent and cash flow is the primary concern.

A subcontractors' charge is generally the right pathway where insolvency is a real risk. It freezes funds at the principal level before they can be absorbed by the head contractor's insolvency. It requires court proceedings to enforce if the claim is disputed, which is slower than adjudication, but it protects a fund that adjudication cannot reach.

The election between the two pathways is permanent for the relevant claim. Legal advice should be obtained before any step is taken.

What a Subcontractors' Charge Cannot Do

Under section 117 of the Act, a subcontractors' charge cannot be given over money already held in a project trust account or a retention trust account. On projects where the trust account framework applies, that money is already quarantined for the benefit of subcontractor beneficiaries.

Under section 118, there is a limit of one claim per piece of subcontract work.

What to Do When the Head Contractor Stops Paying

Step 1: Determine timing. Are works still ongoing or has practical completion been reached. If so, determine whether you are still within the three (3) month window. If it is, a subcontractors' charge is available. If it has passed, focus on payment claims and adjudication under Chapters 2 and 3.

Step 2: If the window is open and you do not have visibility of the head contract, use section 119 of the Act to request the information from your head contractor immediately.

Step 3: Take legal advice on whether a subcontractors' charge or adjudication is the appropriate pathway. This election is permanent and the consequences of the wrong choice are significant.

Step 4. If you elect a charge, ensure the notice of claim under section 122 is technically compliant, served on all required parties (principal, head contractor, and any security holder) within the required timeframes, and that you are ready to commence court proceedings within one month if the claim is disputed.

Step 5. Act before the head contractor formally enters administration or liquidation. Once an administrator is appointed, the window to act is severely constrained and the practical ability to freeze principal funds is significantly reduced.

Act Before the Window Closes

A subcontractors' charge is one of the most powerful tools available to Queensland subcontractors when a head contractor fails to pay. But it is time-critical. The three-month window from practical completion is short, and it does not pause for insolvency proceedings, commercial negotiations, or the time it takes to obtain advice.

Odyssey Legal acts for subcontractors across Queensland in payment disputes, subcontractors' charge proceedings, and insolvency-related recovery matters. If your head contractor has stopped paying or is showing signs of financial difficulty, contact us now.

Phone: (07) 5370 8759
Email: info@odysseylegal.com.au
Online: odysseylegal.com.au/contact

Frequently Asked Questions

Can I give a subcontractors' charge even though I have no contract with the principal?

Yes. The subcontractors' charge under Chapter 4 of the Act operates independently of privity of contract. You do not need a direct agreement with the principal to give a valid notice of claim.

What happens if the principal pays the head contractor after receiving my notice of claim?

A principal who pays the head contractor, or an insolvency practitioner, in breach of the obligation to retain funds under section 126 of the Act commits an offence and may be liable to the subcontractor for the amount paid away.

Can I use a subcontractors' charge and adjudication at the same time?

No. Under section 62 of the BIF Act, the two pathways are mutually exclusive for the same claim. The election between them is permanent.

What if the head contractor has already been placed in liquidation?

If the administrator or liquidator was appointed before you gave your notice of claim, the window to place a charge over principal funds may be significantly constrained. Legal advice should be sought immediately to assess what options remain available.

Does the charge attach to a bank guarantee held by the principal?

Yes. Under Chapter 4 of the Act, "security" includes bank guarantees and other valuable instruments given by the head contractor in support of its obligations. A valid notice of claim can attach to that security as well as to money payable under the head contract.

What is the time limit to commence court proceedings if the charge is disputed?

Under section 136 of the Act, court proceedings must be commenced within one month of giving the notice of claim. Missing this deadline causes the charge to lapse.