If you’re working as a sub-contractor, it is important to protect yourself and know your rights. Just like any other business, there are many things that can get in the way of you being able to do what you really love – whether it’s managing contracts, resolving a dispute with the head contractor, or not being paid on time (or at all!). 

Taking the time to ensure you have proper processes in place can help protect you from dealing with these problems down the track.

In this article, we take you through some key steps you can take to help make sure you’re prepared for problems you may face as a sub-contractor.

Do Your Research

Before signing any agreement or entering into a working relationship, one of the best things you can do is to do some background research. By learning about the head contractor for the job you’re looking to work on, you can protect your interests and minimise the risk of being swept up into unreliable businesses.

What Questions Should You Ask?

Some key details you could ask the head contractor for include:

  • Their Australian Company Number (ACN) – they will only have an ACN if they are a registered company;
  • Their registered business name and Australian Business Number (ABN); and
  • Any licences they may have, and if appropriate, the licence number.

Generally, if the head contractor is running a legitimate business, they are unlikely to have any qualms about sharing this kind of information or answering other related questions you might have.

How Do You Verify Information Given To You?

Once the head contractor has shared details about their business with you, it’s a good idea to verify this information. You can do this by checking ASIC’s registers here.

ASIC’s registers can help you to:

  • Check and confirm if the company and/or business name is registered by searching the Organisations & Business Names Index;
  • Find out who holds the business name and identify other officeholder;
  • Determine whether the head contractor and/or their company has entered an enforceable undertaking; and
  • Make sure that the head contractor and/or their company is not banned or disqualified from managing companies.

It’s important to remember that merely verifying the information given to you by the head contractor about their business does not automatically mean that they are safe to work with.

How Can This Information Help You?

Getting your hands on information about a head contractor is one thing; knowing how to use it to help you assess and evaluate the potential risks involved with working with them is another.

We have compiled a non-exhaustive list below which can help guide you to interpret and draw clues about the business using the information you have. 

Business Name

Looking at how long a company has been operating under its current business name can help to give you an idea about the company’s stability.

Company Status 

As a rule of thumb, it’s always safest to work with a registered company.

If a company is under external administration (“EXAD”), it may indicate that the company is facing some financial trouble and you should be cautious if you choose to deal with it.

If a company is deregistered, it cannot legally operate.

Company Directors And Officers

Similarly to the company’s business name, looking at how long a director or office holder has been with the company can help you to assess its stability. If there are frequent changes to company management, it could indicate internal operational problems, as well as inconsistent management policies.

Additionally, exercise caution if the person you are dealing with seems to have managerial power in the company, but isn’t listed as a director with ASIC. It is a good idea to make further inquiries to confirm their authority and to ensure they have not been disqualified as a director or become bankrupt.

You may wish to search the “banned and disqualified” register on ASIC to check that a director has not been disqualified from managing a company. If your search returns nil results, it means that the director has not been disqualified. Importantly, this register does not include individuals who have been disqualified from management after being convicted of fraud, or due to being an undischarged bankrupt (i.e. currently bankrupt and has continuing liability to repay debt).

ASIC also administers an “enforceable undertakings” register, which lists undertakings that have been given to ASIC by a director or the company itself. These undertakings are enforceable in a court and are accepted by ASIC as an alternative to other forms of civil and administrative action resulting from a breach of the Corporations Act 2001 (Cth) or other legislation administered by ASIC.

You can also conduct a personal name search of the company’s director(s) or office holders to determine if the director(s) and/or office holders are involved with other businesses. This can give you a better idea of the person’s business background and help you to produce a more informed opinion about the person and company you’re looking to deal with. For example, if a director has been involved with a company that is now insolvent, it may signal to you to proceed with caution.

Members

An ASIC search of a private company can also provide you with information about who the company’s members are, giving you a better insight into the people behind the business. (Public companies are not required to provide member details to ASIC). 

Taking a look at the share capital may also give you an idea of how confident they are in the business and how much they are willing to risk by backing it.

Did you know you can sign up for free Company Alerts to keep up to date on any documents that have been lodged for a company? This way, you’ll be able to find out if there are any changes to the internal administration of any company you’re dealing with, as well as if they have been placed under external administration, if they have applied to deregister the company, and keep track of any financial documents they lodge.

Have A Written Contract In Place

As a sub-contractor, contracts are your best friend when working relationships turn sour. In the context of a head contractor and sub-contractor relationship, this contract is known as a Sub-Contractor Agreement. It is always best to make sure you have a written and signed contract in place with the head contractor before you start work. This way, you will always have something to fall back on in the event of any disagreement, dispute or other undesirable situations.

  • Read Thoroughly: It is important to note here that, as with any contract you sign, you should take your time to read it in whole before signing it. Once you sign a Sub-Contractor Agreement, you will be bound by its terms and conditions, regardless of whether or not you have read and understood them.
  • Negotiations: You can use the process of negotiating the Sub-Contractor Agreement as an opportunity to set up ways to protect yourself. For example, to ensure you get paid for the performance of your side of the contract, you might consider asking the head contractor for personal guarantees, or register a security on the Personal Properties Securities Register (PPSR) (more on this later!). 
  • Dispute Resolution Procedure: We highly recommend that the Sub-Contractor Agreement includes a dispute resolution clause that clearly outlines what happens in the event of a disagreement, late payment, or termination of the contract. For example, it is a good idea to establish procedures for late payment, including the time frame for when payment claims can be made, and whether (and how) payment plans can be implemented.
  • Make Your Own Calculations: Before agreeing to a price offered by the head contractor, it’s a good idea to carry out your own estimate of the time, cost, and materials involved in performing the job, to make sure you are not being underpaid. If you provide services that are charged on a time basis, you should record a time sheet that includes a description of the work performed. Depending on the project, you could even ask the head contractor for a deposit as a sign of good will to cover your costs.
  • Payment Terms: The Sub-Contractor Agreement should include payment terms that clearly state what goods and/or services are to be provided, as well as the basis for calculating price. Set out the terms and conditions of payment in your Sub-Contractor Agreement, and don’t include new or different terms and conditions on invoices you issue.
  • Variations To Contract: Understandably, changes may be made to a project as things progress. In these cases, it is important for you to request that variations to the contract are done in writing, and that they contain relevant details about the changes (such as changes to work, price, or delivery date). Having these changes written as a variation to the contract will enable you to rely and enact dispute resolution clauses if necessary.

Dealing With Disputes

The best way to avoid disputes is to have a written agreement in place to make sure everyone is on the same page from the beginning and knows what to do if something goes wrong. This can go a long way in helping to minimise misunderstandings about what you can expect from each other – whether it be in relation to liability, obligations, or responsibilities. At the end of the day, the Sub-Contractor Agreement can be relied upon if the other party doesn’t honour their side of the deal.

But even if you take all the necessary precautions, there might still be some situations in which disputes can’t be resolved using the dispute resolution clauses and processes outlined in the Sub-Contractor Agreement. In these cases, it is highly recommended that you attempt to communicate with the head contractor and attempt to settle the dispute amicably through alternative dispute resolution (ADR) processes. These are often quicker and cheaper than going to court, and are less likely to cause irreparable damage to your business relationships.

Some alternatives to court:

  • Facilitation involves an independent third party who works with you and the head contractor to clarify what you both perceive to be the disputed issue, help both sides to understand their rights and obligations, and identify some potential options to resolve the issue.
  • Mediation involves a mediator, who can help you and the head contractor to reach an agreement for how to resolve the dispute. The mediator leaves control of the outcome to the parties.
  • Conciliation is similar to mediation, however the conciliator can step in to offer non-binding settlement proposals.
  • Arbitration, the most formal type of ADR, generally involves a tribunal that can make binding decisions.

Taking a matter to court should always be a last resort. Not only is it an expensive process, but it is also very time-intensive and may prevent you from continuing your work at full capacity. Talking to a lawyer can help you get the lay of the land and understand what options are available to you, as well as consider whether the costs involved with commencing an action in court is worth it. 

How To Make Sure You Get Paid

One of the most important steps you can take to ensure you get paid on time is to issue a correct invoice from the get go – even small errors can cause a delay payment! If your Sub-Contractor Agreement sets out a timeframe for invoicing, you should stick to it and send out your invoices accordingly. Where there is no date specified in the Sub-Contractor Agreement, it’s common practice to issue invoices on the last day of the month.

What Does Your Invoice Need to Include?

Knowing what type of invoice you need to issue is integral to making sure you meet your tax obligations. 

If your business is not registered for goods and services tax (GST), you will issue a ‘regular invoice’ that doesn’t include tax component.

However, if your business is registered for GST, you will need to provide a tax invoice that includes the GST amount for each item. To be valid, these tax invoices will need to include the following elements:

  1. It must clearly state that the document intends to be a tax invoice.
  2. Your identity.
  3. Your ABN or ACN.
  4. The date the invoice is issued.
  5. A description of the goods and/or services provided – this includes the quantity and price.
  6. The GST amount payable (if any).
  7. The proportion of GST for each item – either by displaying the GST amount for each item, or by stating clearly that the total price includes GST.

In situations where the taxable sale amount is more than $1000.00, you will also need to include the buyer’s identity or ABN on the tax invoice.

Read more about issuing tax invoices here.

What Can You Do If You Haven’t Been Paid?

Although frustrating, it’s important to understand that there are many reasons why you may not have been paid on time. In the event that this happens, there are a number of things you can do:

  • Check your Sub-Contractor Agreement to see if it contains payment terms and conditions, as well as avenues for dispute resolution and debt recovery.
  • Follow up with the head contractor as soon as possible after payment becomes overdue. This could be a friendly phone call or email just to remind them about the invoice.
  • Depending on the terms of your Sub-Contractor Agreement, you may wish to consider options for dispute resolution (e.g. negotiation and conciliation) 
  • If payment hasn’t been made or the head contractor isn’t responding to your attempts to communicate, you may want to consider sending a letter of demand
  • If the head contractor doesn’t respond to your letter of demand, you may wish to use a debt collection agency
  • As a final resort, you may wish to consider taking them to court.

The options for debt recovery escalate, not only in seriousness but also in terms of time and money involved. It’s important to weigh up the advantages and disadvantages of recovering the money you are owed, with the costs involved in the process. You can read more about the options above here.

The Contractors Debt Act 1997 (NSW) also provides protection to sub-contractors by allowing for the recovery of debts owed for work performed or materials supplied in more serious cases. It is recommended you seek professional legal advice if you wish you go down this path.

Minimising Your Risk If The Head Contractor Goes Insolvent

The collapse of a business can have a devastating impact and could mean you might find it difficult when it comes to getting paid.

Register A Security Interest

Before you sign a Sub-Contractor Agreement, negotiate with the head contractor to register a security interest on the PPSR in your favour. By taking this step, you will have additional protection, rights, and priority over the property it’s registered over. This is extremely important if the head contractor becomes insolvent and is unable to pay you. 

Notably, the enforcement of your security interest is not automatic so you will need to take action to recover your property. You will need to notify the appointed insolvency practitioner of your claim and provide them with any supporting documents. Additionally you should ask them to take stock, and stop any sale of your goods. Once you have properly identified your property, you can organise to take back your property. The processes involved with taking possession can be legally complex and you may want to seek professional advice to ensure you are complying with the law. 

Find more specific information about how to enforce your security interest here.

Look Out For Warning Signs

Staying alert and aware of how another company is operating can be a good way to assess if they are in financial difficulty. This may help you recover your money before it’s too late!

Below are a few warning signs you could keep an eye out for:

  • Patterns of delay in paying you (or other sub-contractors)
  • High turnover of employees
  • Decreased progress on projects
  • Late delivery/performance of goods/services, or inability to do so in accordance with the agreed timeframes
  • Silence or decreased frequency of correspondence

Other Legislative Protections

Contractors are also protected by legislation such as the Fair Work Act 2009 (Cth) (FW Act) and the Independent Contractors Act 2006 (Cth) (IC Act). 

Under the FW Act, you are protected from:

  • Adverse action: this means that a head contractor cannot terminate a contract because you enquire or make a complaint about your workplace rights
  • Coercion: similarly, a head contractor cannot make threats to take action against you in an attempt to coerce you not to exercise your workplace rights
  • Abuses of freedom of association: for example, it’s unlawful to threaten adverse action against a person for being or not being a member of a union 
  • Sham contracting: this arises in circumstances where an employer attempts to disguise an employee relationship as one of a contractor as a way to avoid certain obligations to uphold and maintain employee entitlements. If you’re not sure whether you are an employee or contractor, check out this article.

In addition to this, the IC Act protects you from unfair contracts. In circumstances where a contract is harsh or unfair, you can apply to a court to have the contract changed (e.g. terms of the contract are added or removed), or to have either the whole contract, or part of it, set aside.

When working out if a contract is unfair, the court may look at things such as:

  • The terms of the contract themselves
  • Relative bargaining power held by parties at the time the contract was negotiated
  • Involvement of any undue pressure or influence, or use of unfair tactics
  • Whether the contract provides remuneration that would be less than that of an employee performing the same or similar work
  • Other matters they consider relevant

Need More Help?

Making sure that you are protected as a sub-contractor may seem like quite a daunting task, but it is worth it in the long run! If you spend some time establishing the processes now, you’ll be thanking yourself down the track if anything goes wrong.

A well-drafted Sub-Contractor Agreement is vital to protecting your business – not only can it help you get out of any sticky situations if you have a dispute with the head contractor, but it can also make sure you get paid!

If you’d like some help setting up systems of protection for you and your business – whether it be drafting an agreement, talking through a dispute you may be involved in, registering a security interest, or something else – we are here to help! Reach out to our team of friendly and experienced lawyers for a free, no-obligations chat at team@sprintlaw.com.au or 1800 730 617.

About Sprintlaw

Sprintlaw is a new type of law firm that operates completely online and on a fixed-fee basis. We’re on a mission to make quality legal services faster, simpler and more affordable for small business owners and entrepreneurs.

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