Before signing a subcontract, many subcontractors naturally focus on the scope of work and the price, but overlook the terms that control when, how, and if, they will be paid. Too often we see subcontractors come to us after a dispute has started, only to find the contract contains strict notice provisions, variation traps, or payment clauses that make recovery far more difficult.
At Baybridge, we guide you through the process of entering into building and construction contracts, ensuring your rights under the Building and Construction Industry Security of Payment Act 1999 (NSW) are not undermined before the project even begins, and that you understand how to fully execute the provisions of the contract and secure payments owed to you.
Before you sign the contract
Whilst subcontractors are afforded a range of statutory protections, the way a construction contract is drafted and negotiated can significantly affect how easily those rights can be enforced in practice. In some cases, the difference between a well-structured contract and a poorly negotiated one is the difference between a straightforward payment process and a lengthy dispute requiring adjudication or court proceedings to recover amounts that should have been paid in the ordinary course.
At Baybridge, we regularly review construction contracts prepared by head contractors that are heavily weighted in their favour. These contracts often impose additional procedural requirements on subcontractors that go beyond the statutory criteria for making a valid payment claim. For example, subcontractors may be required to upload claims to online platforms within short timeframes after work is performed, comply with strict notice provisions, or limit the value of claims that can be made in a particular payment period, even where further work has been carried out.
Provisions of this kind can have a direct impact on cash flow and may restrict a subcontractor’s ability to recover payment at the time the work is performed. Although statutory rights under the Building and Construction Industry Security of Payment Act 1999 (NSW) cannot be excluded, the contractual framework can make those rights more difficult and costly to enforce if the process is not followed carefully.
At Baybridge, we assist subcontractors by:
- Advising you on your statutory rights and protections
- Identifying variation clauses that may place onerous requirements on you which could limit recovery
- Negotiating provisions which place additional obligations or restraints on your right to payment
- Drafting clauses which are certain, defined, and commercially workable to avoid disputes over vague and ambiguous contractual procedures
Case Study
The recent decision in ViaSat Inc v Hansen Yuncken Pty Ltd [2024] NSWSC 1581 illustrates how poorly drafted contractual clauses can cause parties to fall into disputes about contractual procedure, just as much as (and indeed in this case) rather than, the substance of the work performed.
In this case, a dispute arose between the parties concerning the correct interpretation and procedural operation of Clause 6.8, which governed the process for requesting and granting Final Acceptance under the subcontract. In summary, the clause required:
- the subcontractor to submit a request for Final Acceptance,
- the head contractor to respond within 15 working days, and
- the head contractor to either approve the Final Acceptance certificate or provide written reasons for refusing it.
Despite appearing structured, the clause was not drafted with sufficient precision. In particular, the clause failed to:
- clearly state whether approval of operation manuals and as-constructed drawings was a strict condition precedent to Final Acceptance, or whether minor defects could be rectified after acceptance;
- clearly define the legal consequence if the head contractor failed to respond within the required time; and
- specify whether silence constituted rejection or deemed acceptance.
Because of these omissions, the parties adopted competing interpretations of the clause. The head contractor argued that Final Acceptance could not occur until all documentation had been fully approved, while the subcontractor argued that minor omissions could be addressed during the warranty period and did not prevent Final Acceptance. The contract did not resolve this ambiguity, and the dispute ultimately proceeded to arbitration and then to the Supreme Court.
If Clause 6.8 had been drafted with clear procedural steps, defined consequences for non-compliance, and an express statement as to whether document approval was a condition precedent, it is likely that the parties would not have engaged in a lengthy dispute over the operation of the clause. Instead, the uncertainty allowed each party to rely on a different interpretation, resulting in arbitration, delay, and significant legal costs.
This case demonstrates the importance of certain, defined, and commercially workable clauses in construction contracts.
At Baybridge, we have a trained eye for identifying vague, ambiguous, or commercially unworkable terms before they become a problem.
Through our extensive experience in back-end construction disputes, we have seen firsthand how poorly drafted contracts are interpreted in arbitration and/or alternative dispute resolution processes generally, adjudication, and court proceedings, and the costly consequences that follow when key clauses lack certainty or are otherwise impractical.
Our practical insight allows us to anticipate how a provision will operate in a dispute, not just how it reads on paper.
We offer a distinct advantage because our building and construction lawyers work across both front-end contracts drafting and back-end dispute resolution. This combined experience means contracts are prepared with a clear understanding of how they will be enforced if things go wrong, resulting in stronger drafting, reduced risk, and better outcomes for our clients overall.
This article was written by Sam Manikis, Special Counsel | Property & Commercial and Georgia Beddow, Law Graduate.
