Subbie payment terms: what to agree, what the law requires

TL;DR

Payment terms are not a handshake. Subbies have a statutory right to chase unpaid progress claims through adjudication under the Security of Payment Acts: the process is fast, cheap for the claimant, and the builder cannot raise defences in adjudication that weren’t in the payment schedule. The three things that keep builders out of trouble: agree claim frequency and cut-off dates in writing before work starts; serve a written payment schedule within 10 business days of every progress claim received (even if you’re disputing the amount); and document retention clearly, with a release trigger tied to a real event. A dispute over $8,000 that reaches adjudication costs more in management time than the money is worth.

What to agree in writing before work starts

Verbal arrangements on payment terms are almost always the source of disputes. Before any subbie starts on site, the subcontract (or at minimum the signed quote) should nail down:

Term	What to specify
Claim frequency	Weekly, fortnightly, or milestone-based (e.g. rough-in complete, frame inspection passed)
Cut-off date	The day of the month or milestone event on which a claim can first be served
Payment period	How many business days from receipt of a valid claim until payment is due
Retention	The percentage held (if any), and the release trigger (typically practical completion and/or end of the defects liability period)
Variation mechanism	Written authority before the work, pricing basis, how extras are claimed
Format of claim	Written (required under the Security of Payment Acts), what to attach (as-built sketches, photos, delivery dockets)

The HIA Project Trade Contract and HIA Period Trade Contract Conditions cover these items in standard form (HIA membership required) (verified 2026-05-10). The MBA offers equivalent documents. Either form is a better starting point than a bare signed quote for any engagement above a few thousand dollars.

Claim structures

Two main patterns in residential subcontracting:

Milestone-based claims. Payment on completion of a defined stage: rough-in, frame inspection pass, lockup, fit-off, practical completion. Ties cash to verified progress and avoids paying for work you haven’t been able to inspect. Works well for trade-complete scopes (full electrical rough-in, full tiling) where stages are cleanly defined.

Periodic claims. Weekly or fortnightly, common for longer-run trades on larger jobs. Claims must reflect the value of work actually completed. Under a periodic arrangement, agree on what documentation the subbie attaches (time sheets, daily diaries, photos) before it becomes a dispute at invoice time.

On any arrangement: agree the cut-off date in advance. A fortnightly cycle where claims can be submitted any time creates an unpredictable cashflow hole. Fix a cut-off (“claims served by 5pm Friday are processed that cycle; claims served after that wait for the next”) in the contract.

Statutory payment windows (NSW)

Regardless of what the contract says, the Building and Construction Industry Security of Payment Act 1999 (NSW) sets minimum standards that apply to all construction contracts in NSW. Contract terms cannot make the builder’s payment obligations longer than these statutory defaults; they can only shorten them.

Serving a valid progress claim

A progress claim under the Act must be in writing, identify the work or services claimed, state the amount claimed (including GST), and include the statutory endorsement: “This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999” (verified 2026-05-10, NSW Government, Making a payment claim).

Claims can only be served on or after a reference date: either the date set in the contract for making claims, or the last day of each calendar month if the contract does not specify one. Only one claim per reference date (verified 2026-05-10, NSW Government, Making a payment claim).

Payment schedule: the builder’s response

When you receive a progress claim, you must serve a payment schedule within 10 business days of receiving it (verified 2026-05-10, NSW Government, Responding to a payment claim). The schedule must:

Identify the payment claim it relates to
State the scheduled amount you propose to pay (can be nil)
Give reasons for any amount withheld

If you do not serve a payment schedule in time, the full claimed amount becomes immediately due and payable. You also lose the right to raise a defence based on the construction contract or a cross-claim if the subbie goes to court or adjudication. This is the most expensive mistake a builder can make under the Act.

Reasons for withholding not included in the payment schedule cannot be raised later in adjudication. If you have a defect claim or a set-off, it must go in the schedule. Do not hold it back.

Payment due dates

After a valid payment claim, the following statutory due dates apply (contracts can set shorter periods, not longer):

Claimant type	Default due date (NSW)
Head contractor (claiming from principal/owner)	15 business days after the claim
Subcontractor on non-residential or investment work	20 business days after the claim
Subcontractor on owner-occupier residential work	10 business days after the claim

(verified 2026-05-10, NSW Government, Making a payment claim)

Owner-occupier residential contracts have been covered by the Act since 1 March 2021 (verified 2026-05-10, NSW Government, Changes to Security of Payment laws).

Licensing and insurance: a pre-condition to claiming

From 20 August 2024, a subcontractor carrying out residential building work under the Home Building Act 1989 (NSW) cannot make a payment claim under the Act if they do not hold a valid contractor licence, or if they were required to hold Home Building Compensation Fund (HBCF) insurance but did not take it out (verified 2026-05-10, Piper Alderman, NSW SoP Act Amendments). This amendment applies to contracts entered before 20 August 2024 as well. Check the subbie’s licence and HBCF insurance before work starts: an unlicensed or uninsured subbie loses their statutory payment rights, but that does not protect you from a messy dispute.

Retention: how to hold it correctly

Retention is a percentage of the contract price held back to provide security for the subbie’s performance obligations. In NSW construction, up to 5% of the total contract value is the typical maximum retention held by the head contractor (verified 2026-05-10, NSW Government, Retention money held by head contractors).

Key rules for residential subcontracts:

Agree the percentage in writing before any work starts. If the subcontract is silent on retention, the builder’s right to hold it is less clear.
Set the release trigger clearly. Retention tied to “completion” without defining completion invites a dispute. Tie it to a real event: practical completion, end of the defects liability period, or a specific date after practical completion.
Trust account requirement: For projects over $20 million, head contractors must hold retention in a trust account with an authorised deposit-taking institution (ADI) (verified 2026-05-10, NSW Government, Retention money held by head contractors). Below this threshold, no statutory trust requirement applies in NSW, but retention should still be kept identifiable in accounts.
On small residential sub-tier work, retention is often waived entirely. If you waive it, write that in the subcontract so there’s no dispute at the end.

Builder’s right to withhold payment

Builders often want to withhold payment for defective work, incomplete stages, or liquidated damages. The Security of Payment Act does not prevent withholding, but it imposes procedural requirements:

Serve a payment schedule in time. If you want to withhold any part of a progress claim, you must serve a payment schedule within 10 business days and include your reasons for withholding in that schedule.
Be specific. The schedule must explain how the withheld amount was calculated. “Work is defective” is not enough; “Defective tiling in bathroom 2, estimated cost of rectification $2,400” is.
Reasons are locked in at the schedule. If you fail to include a reason in the payment schedule, you cannot raise it in adjudication.
Concurrent claims are possible. You can withhold for a defect claim while also paying the undisputed portion. A “nil” schedule when a portion is clearly due exposes you to adverse findings in adjudication.

If a subbie goes to adjudication

If a subbie serves a valid progress claim and you either do not serve a payment schedule in time, or pay less than the scheduled amount, they can apply for adjudication through an Authorised Nominating Authority (ANA). The adjudicator’s determination typically issues within 10 business days of appointment and is enforceable as a court judgment (verified 2026-05-10, NSW Government, About Security of Payment).

The adjudicator can only consider reasons that were in your payment schedule. Any defence you held back, or any counter-claim for defects you did not schedule, cannot be raised. The adjudicated amount is payable within 5 business days. Failure to pay allows the subbie to register the determination as a judgment debt and enforce it against you.

The adjudication itself does not resolve the underlying dispute. Either party can take the matter to court after the determination, but the paying party must pay the adjudicated amount first.

What can go wrong

Pitfall	How it bites
No payment schedule served	Full claimed amount becomes immediately payable; no defence available in adjudication or court
Retention held past the release trigger	Subbie pursues it via adjudication; builder has no contractual argument if the trigger is passed
Milestone not defined clearly	Subbie claims “rough-in complete”; builder disputes it; no documented acceptance criteria means a costly argument
Payment terms longer than statutory defaults	Act voids the longer term; statutory defaults apply instead
Withholding reasons not in the schedule	Reasons locked out of adjudication; you pay the claim then have to sue separately for the defect cost
Retaining on an unlicensed subbie	No SoP rights for them, but a messy common-law dispute still lands on your desk
Verbal variation, no payment authority	Subbie claims extras at final account; no paper trail either way; builder pays or disputes

References

Building and Construction Industry Security of Payment Act 1999 (NSW) (verified 2026-05-10)
NSW Government, Making a payment claim under Security of Payment laws (verified 2026-05-10)
NSW Government, Responding to a payment claim under Security of Payment laws (verified 2026-05-10)
NSW Government, About Security of Payment for construction contractors (verified 2026-05-10)
NSW Government, Changes to Security of Payment laws (verified 2026-05-10)
NSW Government, Retention money held by head contractors (verified 2026-05-10)
Piper Alderman, NSW Security of Payment Act Amendments: Loophole closed for unlicensed residential builders (verified 2026-05-10)
HIA, NSW Building Contracts and Related Documents (verified 2026-05-10)