Construction is one of the most important and fastest growing industries in the world. Construction subcontractors, as a result, are also on their way to being leaders in their field. However, there are many questions about how payments for construction subcontractors, that need answering.
Construction is an industry where it’s hard to find reliable information because there are so many different players involved (main contractors, sub-contractors and clients). As a result, you may be unsure about what your rights and responsibilities are when it comes to payment from main contractors.
We’ve put together this FAQ guide with all the top questions answered so you can make sure you’re not missing out on any money owed to you by your main contractor.
How do payments for construction work?
This will depend on your contract, each contract and the payment terms may well be different.
Generally, a valuation date will be given for you to submit your application, this could be the last day of the month, the last working day, the 15th, the 20th or whatever the main contractor decides.
Check your contract.
This should state whether you will need to submit an application for payment or an invoice. An application can be set out as a template to ensure the basics are always covered, often some of these are missing. We run through this in our training.
Dates of when the payment will be due should also be included in your contract, named schedule of payments.
What is a payment schedule in construction?
A payment schedule has a list of dates when payments will be made. The schedule is also used for other things, like which activities the money will be paid for. For example, it could say that you will pay each month or when the project is complete.
By putting a payment schedule in the contract, it will be easier to remember when people need to do things. This means that people can avoid mistakes, and there is less chance of disagreements.
Do I submit an invoice or application?
This depends on your contract, however nearly all contracts will be setup for the subcontractor to provide a cumulative application and not a separate invoice for each month the work is completed.
When do I submit my application?
The payment schedule within your contract will tell you the exact date to submit your application and also the date of when it should be valued up to.
Ensure this schedule is understood and it should reduce the problem you have with payments. 5 different main contractors could have 5 different dates for submission.
What information do I include with my Application?
Generally, the application for payment is the best set up to reflect the CSA of BoQ provided to you by the main contractor. Following this layout will ensure you follow the agreed figures in your contract.
A summary of what should be included:
- Measured work completed against the CSA / BoQ
- Variations completed in the month
- Day works completed in the month
- Re-measure for work the work completed
- Materials on-site, if applicable
- Backup should be given for variations or daywork claimed
For more information on Daywork Sheets, see our Tips for Daywork Sheets article.
There is more detail that can be added to this and we will cover this in our training.
What is a Payment Notice?
A payment notice should be provided by the main contractor for every payment, i.e. every month.
Where a payment notice isn’t specifically provided by the main contractor within the correct time frame, the application for payment from a subcontractor will become the payment notice.
What is a pay less notice?
If the client decides they will pay less than what the payment notice states, they must issue a pay less notice. This should state the reason for why this is taking place and how it was calculated.
The Pay Less Notice should state:
The amount the main contractor thinks is is to be paid
The breakdown of how that amount is calculated.
This is a large subject which we will cover in more detail in a future post.
Can a contractor withhold payment to a subcontractor?
They can withhold payment if they provide the appropriate notices stated above and the reason for with holding payment is linked to a failure to complete your work correctly and / or completely.
Evidence of the issues should be provided to the subcontractor. They must provide a list of reasons why this withholding is taking place.
What happens if a contractor doesn’t pay a subcontractor?
If the above notices have been provided then you need to question have they stated they will withhold the payment or not. If so, can they justify the payment held?
If not then you need to raise this issue with the contractor and point out the lack of information provided and they should not be holding the payment. If this negotiation doesn’t move things along there is the option to provide a 7 day notice and then if payment is not made, suspend works and remove labour from site.
We have other posts going into detail about what to do if the main contractor doesn’t pay.
If you want A Quick Guide on How to read a Construction Contract.
Construction subcontractors need to be aware of how payments work in construction, they are the key ingredient in your business.
Many are not aware of the items you need to include and the detail of how they work. To further improve your construction business, you can also explore Lean construction principles
If you’d like to know more then please send a message in our community where we can discuss this together!
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