MICHELLE CIRSON (00:01.038)
Hello everyone, welcome to the Subbies Toolbox Podcast. I'm your host, Michelle Cirson, construction lawyer, adjudicator and the founder of the Subbies Toolbox. Today on my podcast I want to talk about the maximum due dates that can exist in construction contracts around Australia.
Because in most states and territories there are actually laws around how late subcontractors can be paid. And most subcontractors don't even realise this exists. So recently I've had quite a few people asking me how do I actually tell my builder about this without sounding too contractual? And what do I do about all my OG long-term builder customers who have been paying me 45 days end of month for 20 years?
It's a really interesting question because ultimately your cash flow is being tied up because of your relationships. You're holding off on asking for what you're actually entitled to in the law because you're
Tiptoeing around relationships that are holding you back from having better cash flow. Now, it's not lost on me that relationships are how many of most of you have built your business, but this is a real issue, and there's a real reason that the government has brought these rules into place, and it's because the construction industry makes up such a massive portion of the Australian economy. And it's so important to the Australian financial bubble that people are paid on time in the construction industry.
industry. If these due dates were not in place, these maximum due dates, then
MICHELLE CIRSON (01:42.21)
There's a good chance that, well, we know from his history and the need for these laws to exist in the first place, that builders would pay late, and so would principals pay builders late. So if there were no regulations around this, then we know that the upstream parties would withhold payment for as long as absolutely possible. And in the past, that has had catastrophic consequences for our industry with the people who are actually doing the construction work, their businesses
Collapsing, insolvencies, people being owed a heap of money, and things come to a grinding halt. So the government recognised, and these laws have been around for 20 plus years now, so what I'm talking about today is not a new concept, but
It's about building awareness so that subcontractors know this stuff actually exists. So when I go through these dates with you on this podcast, I want you to know that this applies to subcontractors, not to builders. So builders actually get better maximum due dates in some states and territories than subcontractors do. And that's because if you're working directly for the upstream party, the principal,
There's no builder above you, the legislation recognises that those parties need to be paid a week or so sooner than they should be required to pay their subcontractors. So if you're watching this and you're a builder, you need to go and get separate advice about what the maximum due dates for payment are for head contractors under construction contracts, because there's good chance that they might be better than what I'm talking about today.
But for those of you who are genuinely subcontracting to a builder above you and they've got a client above them, those the maximum due dates that I'm going to go through with you on this podcast will give you a good understanding of how long money should take to flow down the chain in the construction industry. So the due dates, the due dates for payment run from when the invoice is given. So even though you will have a deadline to give
MICHELLE CIRSON (03:43.448)
the builder or the upstream party will have a deadline to give you payment of your invoice.
They can still dictate when you're allowed to put your invoice in. So when you are signing up to your contract terms, it's incredibly important that you work out what your reference dates are and work out how frequently you need to have reference dates so that these due dates flow from when you put your payment claims in on those reference dates. For those of you listening to this wondering what a reference date is, a reference date is the date that your contract says you're allowed to invoice your client, the upstream party, and if the contract
Doesn't have any reference date or a date that the contract says you're allowed to put in an invoice, then the Security of Payment Acts around the country kick in and say it is the last calendar day of the month in which you did the work. And so you will effectively be able to put one in at least once per month under the statutory regime if your construction contract doesn't allow you to do so.
So moving on to what these maximum due dates actually are, and I think most of you will be quite surprised to see this. So I'm going to share, I've made a little table for you. Now if you're listening to this and you're not watching the video, you can go to the show notes and you can download this sheet. So we're going to put this sheet in the show notes for you. So I'll just go through each state and territory. So starting with Queensland.
Queensland has a maximum statutory due date for subcontractors of 25 business days after the invoice is given. So if your builder does not pay you within 25 business days in Queensland and their contract says they're allowed to pay you later, that clause in the contract.
MICHELLE CIRSON (05:31.746)
Would be void and the due date would revert to 10 business days. So you can see here the contract maximum due dates can't be longer than the dates in this column here. And if the contract says they're going to pay you later than these time frames, then these due dates will kick in because the Security of Payment Act gives you a statutory due date where your contract clause is void. So just by way of explanation, using Queensland, if you if your contract says you're going to be paid later.
Than 25 business days, then the act will kick in and say no, it reverts to 10 business days. They're effectively punishing that party by having a due date for payment in their contract later than 25 business days. They say if you've got a contract term that says you're getting going to pay your subcontractors later than 25 business days, it will revert to 10 business days.
So it is a bit different in each state and territory, so bear with me as I go through this. And those of you listening, this is gonna be going to be a lot. If you are looking for a pen and paper to jot this down, just remember you can download this from the show notes. So Queensland maximum due date that can be in your construction contract is 25 business days after your invoice is put in. And if it is later,
If the contract is void, then it will revert to 10 business days. In Victoria, this is very recent, just came in earlier this year and it was a rush through legislation. So political influences
Really pushed the change to the Security of Payment Act down there. Now the rule is you cannot pay your subcontractors later than 20 business days. And if you try and you put a clause in your contract that is later than 20 business days, it will revert to 10 business days. South Australia does not currently have a maximum due date for payment under their legislation. So South Australia is lagging in terms of reform.
MICHELLE CIRSON (07:28.937)
So there is no rule in your contract if you're working in South Australia about when you would be paid.
But if your due date for payment is void because it's so ambiguous, it doesn't actually even clearly say when you would be paid, or if there are preconditions to that due date coming about that require you to do a hop, skip, and a jump and stand on one leg wearing your grandmother's hat, it's possible that your due date provision in your contract might actually be void for the purposes of security of payment laws. So an example might be where
The due date for payment is contingent upon your builder giving you a payment schedule and the builder doesn't give you a payment schedule and there's no backup provision that says if the builder doesn't give a payment schedule then the due date runs from X date.
And you can't actually work out when your due date is because the chaos in the builder's contract or the builder's contract is written so poorly that there is no catch-all provision that says, look, if none of that works out in a practical sense, then the due date would be X. Then you're in territory where you don't have a clear-cut due date under your contract, and you can argue that your payment claim was due within 15 business days after it was given.
ACT is my favorite state in the country at the moment because they have adopted recently 15 business days maximum due date for payment. And if the clause is void in the contract because it tries to pay the subcontractor later, it just reverts back to that same 15 business days. So ACT leading the charge in terms of the best absolute payment terms for subcontractors in the country. Tasmania does not have a limitation.
MICHELLE CIRSON (09:10.709)
Like South Australia doesn't have a limitation, but if your clause in your contract is so vague or put some precondition to payment based on you doing a particular thing or your builder doing a particular thing such that you can't work out what your due date is, then it would revert to 10 business days.
New South Wales has been this way for a while, and it is 20 business days after you put your invoice in, the builder is required to pay subcontractors. And if the clause in the contract tries to pay you later than 20 business days, it just reverts back to that 20 business days. Northern Territory works on a working day definition, which is pretty similar to the statutory.
Definition of what a business day is, anyway. But worthwhile looking up working days if you're working this out and you're in the Northern Territory because the legislation does have a particular definition for a working day. So if you're in the Northern Territory, the latest you your contract can say that it will pay you is 30 working days after your invoice is given. And if that contract tries to pay you later, it will revert back to 30 working days.
Last of all, Western Australia, this is relatively new as well, legislation, and they've adopted a maximum due date for payment of 25 business days. And if you are not your contract says that they're trying to pay you later than 25 business days, it will revert back to 25 business days. So you will be able to download this in the show notes and take it for your own resources.
Now, in terms of business days, I want to talk to you about something you might not have considered because in a lot of contracts there is a definition of business days, and in the Security of Payment Act, there is a definition of business days. So where these maximum due dates for payment crop up and the act says you can't have a due date provision that says it's longer than 25 business days or 15 business days, whatever state or territory you're in, if your definition
MICHELLE CIRSON (11:21.901)
Of business days in your contract is different to the definition of business days in the Security of Payment Act. There could be a little loophole there where if your builder is proposing to pay you later because the business day definition in their contract
Is effectively provides for a later time frame than the business days definition and the Security of Payment Act, then you might be in territory where even though they've got 25 business days in the contract or 15 business days in the contract, there is a mismatch between the definition of business days between the Security of Payment Act definition and your contract definition, and it's possible that you might still have a void clause in your contract.
So I know this is a lot to take in and subcontractors who are giving me feedback about my podcasts is that 5% of what I'm talking about is blowing your mind in terms of how you can go back and implement this in your business. I still like to share what I can to try and help you guys out, but
The important thing for you to know is this all starts with a conversation with your builder and building awareness around what the rules are under security of payment laws. And there's a whole bunch of training you can do on security of payment compliance around the country. Master builders run things all the time, other private associations run things all the time. We have our Subbies Toolbox membership where we have comprehensive Australia-wide training for subcontractors on security of payment. So the way that we encourage our toolbox members to go
Back to their builder and broach this is usually at contract signing time. If you identify that your builder has a due date for payment in their contract that is void under the security of payment laws, we don't recommend that you just stay quiet about it. That's the time to say to them, hey, did you guys know that they just changed the laws in Victoria and now the maximum due date is 20 business days? Or
MICHELLE CIRSON (13:18.701)
I don't know if you guys are aware, but the latest you can pay me in ACT now is 15 business days. And if they don't believe you, you're in a better chance ever because of AI and the availability and the fingertip access of information to be able to say to them, yeah, look it up. Ask ChatGPT, it'll tell you. Or you can send them a link. or you could even just point them to this podcast and let them see that for themselves that there are maximum due dates around the country that subcontractors can be paid. Now
A lot of subcontractors say to me, well, I told my builder that this was coming in, I sent them a letter, and they're still paying me late, so what do I do? And there's that old 80-20 rule, if you haven't heard of it, it's based on this Italian philosopher Pareto. I hope I'm getting this right, but
the principle is 80% of your results come from 20% of what you do. And based on the 80-20 rule, 80% of subcontractors won't rock the boat if they get paid late. And the 20% that do, the builder can deal with. So they'll either just pay them on time because they started being the squeaky wheel, or if you're part of the 80% who's standing back like a gentleman saying, I don't want to rock the boat, I've got this relationship with the builder. I just want you to leave this podcast
Thinking about whether the builder is leaning on your relationship to claim value that you're not consenting to. Because there is, in my experience, good evidence that builders under construction contracts have those relationships to keep you under control. So if you're feeling gas-lit or pressured by that relationship or that there could be some kind of ultimatum
That your builder is giving you, even if you're just thinking it in your head because of conduct in the past that's led you to believe that if you rock the boat then and say, Hey, I'm entitled to these payment terms, you're gonna have to change the way you do things because the law's changed. This is no different to a change to the building code. So this is the actual law. So if your builder gets upset about that
MICHELLE CIRSON (15:23.147)
Then I would challenge you to take a realistic look at whether or not the relationship is real or whether it just exists to keep you under control. I know that that's a sad way to look at things, but bear in mind as a construction lawyer, I see people when the worst occurs all the time. And it's not lost on me that you guys are out there doing good bloke deals day in and day out and having a great time together in an industry that is very satisfying to work in, and that you see the good with the bad.
When clients come to me, typically I'm just seeing the bad day in and day out. So I may have a jaded view on this. This podcast is intended to give you the tools to be able to have those conversations. And our toolbox members have resources where we have email scripts for them to say particular things to builders. We show them how to mark up the contract so that they can explain to the builder that hey, that due date is void under security of payment. It should be this. And they're having good success in actually enforcing those payment terms.
Because in many states and territories, as you can see from the summary, if the builder still refuses to change the clause in the contract, in many states it can backfire and they can end up with an earlier due date for payment and then end up with you having the ability to suspend work. you might have the ability to go and get interest on an overdue payment or even adjudicate if the builder still kicks up a stink and says they're not paying you at all. So
The best thing to be is educated about what your entitlements are under your builder's contract. And if you make a commercial decision to let it slide and take payment terms later, that is absolutely your commercial decision. And there's no judgments from me there. I know that business needs to be done, and the fastest way for you to fast-forward your demise would be to lose every job because you're pushing too hard.
What my message is, is if your builder is pulling the contract out from under you because you're asking for this, that could mean there are other issues, such as that the builder can't pay you on those terms. And just think of it as possibly a blessing in disguise that maybe you didn't, it wasn't that you lost the job, it was that you dodged a bullet.
MICHELLE CIRSON (17:36.489)
So race over to the show notes, download the summary sheet so that you've got that there for your resources. And if you're interested in finding out more about how to actually implement an accounts receivable escalation procedure in your business so that you get paid
On time, and if the builder can't pay, you know precisely what to do to escalate in the appropriate way so that you're not ruining relationships, then go and have a look at our Subbies toolbox membership. We have an end-to-end accounts receivable escalation procedure in there that our toolbox members are implementing on the daily and having fantastic success with. So that's it for this week's podcast. And on the next one, I'm going to be talking about potentially whether there is going to be reform around.
retentions in Australia so make sure you tune into that.
