In nearly all disputes that proceed to adjudication under BCIPA a principal will attempt to use a set-off clause in the construction contract to reduce or eliminate entirely, the amount claimed by a subcontractor pursuant to a payment claim.
The most common set-off made by principals are damages for alleged defective work or liquidated damages for delay.
Whenever possible subcontractors should closely scrutinise any set-off clause in a construction contract prior to signing the contract.
It is possible to limit the operation of a set-off clause in a construction contract. This in turn will limit the circumstances in which a principal can try and apply a set-off under the construction contract to defeat a claim for payment by a subcontractor.
Subcontractors are often met with the risk of losing their security provided under a construction contract where a principal asserts a right to have recourse to the security, on the basis that the principal is owed money by the subcontractor.
Unfortunately, time and time again subcontractors are exposed to such claims because of poorly drafted construction contracts that fail to adequately protect a subcontractor’s interests.
There are mechanisms available to substantially limit the circumstances in which a principal can have recourse to your security without giving a subcontractor time to take steps to stop a principal having recourse to the security. These mechanisms include:-
- A provision in the construction contract which provides that a principal can only have recourse to security for a debt due and owing under the construction contract by a subcontractor as opposed to damages;
- A provision in the construction contract which provides that the principal must give at least 7 days written notice to the subcontractor of its intention to have recourse to the security before doing so;
- Section 67J of the Queensland Building Construction & Commission Act 1991 requires a principal to comply with the notice requirements of this section. A failure to do so will disentitle a party to have recourse to the security under a construction contract.
If you are in dispute with a contractor/principal under a construction contract in relation to security and require legal assistance, or you need advice prior to entering into a construction contract, please contact Justin Mathews of our office on 07 5574 0111 or via email at firstname.lastname@example.org.