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SUB-CONTRACTORS - Gain new right to earmark funds owed to contractor |
Under recent changes to the law, subcontractors can now claim against principal contractors for payments due to them from contractors. |
If you are a subcontractor, the changes effectively enable you to earmark money owed to a contractor from the principal contractor to secure the former’s liability for progress payments to you. It minimises the risk of non-payment due to a contractor’s insolvency. |
You must first lodge an adjudication application and then serve on the principal a “payment withholding request”. |
On receiving this, the principal contractor must hold back from any money owed to the contractor an amount equal to that specified in the request, pending a court decision. This obligation extends to owners. |
The result is that a principal contractor who does not comply with a request becomes liable (together with the contractor) for the debt owed to you. The obligation to withhold payment also operates as a defence for the principal contractor against claims for recovery of the money it owes to the contractor. |
The principal contractor’s obligation to withhold an amount equal to that specified in the request remains in force only until:
- the adjudication application is withdrawn;
- the contractor pays you the amount;
- you serve a notice of claim and debt certificate on the principal contractor; or
- a period of 20 days elapses after the principal contractor has been served with the adjudication determination;
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| whichever occurs first. |
A payment withholding request allows you, in effect, to use money owed to the contractor by the principal contractor as security for your entitlements to progress your payments under the subcontract. |
