Security of Payment and Getting Paid in Construction

About this course.

Getting paid is hard in construction because the industry runs on credit through a long chain of businesses, work is carried out and paid for progressively over months, and money must flow down from the client through the head contractor to subcontractors and suppliers — so a blockage or failure anywhere up the chain starves everyone below it. Contractors typically fund labour, materials and plant before they are paid, exposing them to cash-flow strain and to the insolvency of those above them. "Security of payment" refers to legislation in every state and territory designed to make payment more reliable: it gives those who do construction work a statutory right to progress payments and a fast process to recover money owed, so they are not forced to wait, absorb losses, or fund lengthy court cases.

To understand the problem, picture how a construction project is paid for. A client or principal engages a head contractor to deliver the project. The head contractor engages subcontractors — for concreting, framing, plumbing, electrical, plastering and so on — and those subcontractors in turn may engage their own sub-subcontractors, and everyone buys materials from suppliers. This is the contracting chain, and money is meant to flow down it: the client pays the head contractor, who pays the subcontractors, who pay their trades and suppliers. The work, however, flows up the chain: the trades do the work that the subcontractor is responsible for, which forms part of what the head contractor delivers to the client. This structure means that most businesses in construction are simultaneously owed money by those above them and owe money to those below them.