Subcontractor Agreement Review: Pay When Paid, Payment Terms and Retention by State (Australia, 2026)

Prepared by Claim Done from each state and territory’s security of payment legislation and the official pages listed under Sources. Last checked 8 November 2026. The NSW Act could not be read from the official site on that date, so NSW points rest on Building Commission NSW pages and are given without section numbers.

Subcontract payment rules at a glance, by state

Is a pay-when-paid clause legal in Australia?

No. A clause that makes your payment depend on the head contractor being paid by the owner or principal has no effect in all eight jurisdictions. Building Commission NSW says the NSW Act “prohibits ‘pay when paid’ provisions in construction contracts”. Victoria (s 13(1)), Queensland (BIF Act s 74(1)), WA (s 14(2)), SA (s 12(1)), Tasmania (s 16(2)), the ACT (s 14(1)) and the NT (s 12) all say such a provision has no effect.

The definitions are wide. In Victoria and SA they also catch clauses that tie your due date to “the operation of another contract” (in WA, the release of retention or a bond tied to another contract), such as certification under the head contract. WA’s definition also covers making the release of retention or a performance bond depend on another contract. In Queensland, a contract with a pay-when-paid clause is treated as silent on the due date, so the 10 business day default applies (BIF Act s 73(4)(a)).

How long can a head contractor take to pay a subcontractor?

It depends on where the work is done, because the security of payment law follows the work site. The table above gives each state’s limit. Points to note:

• NSW: Building Commission NSW says “A contract may specify earlier payment due dates than those stated above, but not later.”
• Victoria: a later term “has no effect” (s 12(1B)), and since the 2025 amendments commenced on 15 April 2026 this applies to contracts made before that date too (s 54(1)).
• Queensland: days from 22 December to 10 January do not count toward the 25 business days (QBCC Act s 67U(2)), so December claims are paid later than a calendar count suggests.
• SA and Tasmania: no statutory cap. A “45 days end of month” term is legal there, but it is a cash-flow cost worth negotiating, and for a small business on a standard form it can be tested under the unfair terms law.

What happens if they do not answer your payment claim?

In most states the head contractor must answer a payment claim with a payment schedule, giving reasons for paying less. If it does not, it becomes liable for the whole claim.

Adjudication deadlines are short (often 10 or 20 business days), and missing them loses the fast route. The review lists the windows for your state.

Retention money: how much can they hold, and when must it be released?

• Queensland has the clearest limits. Before practical completion, retention plus other security is capped at “not more than 5% of the contract price for the subcontract” (QBCC Act s 67L(1)), with each deduction capped at 10% of the payment (s 67M(2)). After practical completion the cap is 2.5%, for defects only (s 67N). If the contract gives no release date, retention must be released 12 months after practical completion (s 67NA(2)). You can swap cash retention for a bond or approved security (s 67T(2)).
• Victoria: retention and bonds are “performance security”. You can serve a claim for release from 20 business days after the defects liability period ends, and a clause pushing that date out has no effect (ss 17B, 17D). The head contractor must give at least 5 business days’ written notice before calling on it (s 17H).
• WA: retention on a contract over $20,000 made from 1 February 2024 is held on trust by law and is not available to the head contractor’s other creditors (s 71; Regs r 11). At least 5 business days’ notice is needed before recourse to security (s 57).
• NSW: head contractors must hold retention in a trust account only on projects valued over $20 million, with a ledger to the subcontractor at least every 3 months. Below that, cash retention has no statutory trust protection.
• NT: retention is held on trust only where the contract has no written retention provision (s 24; Sch 1). A written clause saying retention is the head contractor’s own money removes that.
• SA, Tasmania and the ACT: no retention trust in the Act. Cash retention is at risk if the head contractor fails, so ask for a lower percentage, a bond instead, or firm release dates.

Subcontract red flags to check before you sign

1. Pay when paid, pay if paid, or payment “subject to certification” under the head contract.
2. Payment terms longer than your state’s cap.
3. Retention with no release date, or callable without notice.
4. Back-charges: a right to deduct “costs” or “contra charges” at any time.
5. Liquidated damages passed down from the head contract, not tied to your own delay.
6. Short notice-based time bars on variations and extensions of time.
7. Clauses limiting your security of payment rights or making you pay the costs of using them.
8. One-way rights to terminate, vary rates or scope, or decide breach or value.

Back-charges, set-off and liquidated damages

Deduction clauses are common, but the security of payment rules limit them:

• NSW: “You cannot raise any defence, set off, cross-claim, or other reasons for not paying that you did not include in the payment schedule” (Building Commission NSW, guidance to respondents).
• Queensland: retention or security can be used for an amount owed only after written notice, given within 28 days after the head contractor became, or should have become, aware of the right (QBCC Act s 67J), except where work was taken out of your hands or the contract terminated.
• Victoria and WA: a short payment schedule must give reasons for withholding (Vic s 15(3); WA s 25(3)).

For liquidated damages, the review quotes the daily rate, the cap and the trigger, and checks that the extension of time clause gives you a fair way to avoid them. In Victoria and WA a notice-based time bar can be declared unfair if complying “is not reasonably possible” or “would be unreasonably onerous” (Vic s 13A; WA s 16), but you carry the onus, and in Victoria you are presumed to have read the contract.

Unfair contract terms if you are a small business

A subcontract is a contract for services, so it is a “small business contract” if either party employs fewer than 100 people or had turnover under $10 million (Australian Consumer Law s 23(4)). If it is the head contractor’s standard form, an unfair term is void, and since 9 November 2023 proposing or relying on one is a contravention. For a company, the maximum penalty for conduct from 28 March 2026 is the greatest of $100,000,000, 3 times the benefit or 30% of adjusted turnover (s 224).

The law’s examples include one-way termination, penalties, variation and decisions on breach, and limits on your right to sue (s 25). The head contractor must prove such a term is reasonably necessary (s 24(4)). Only a court decides whether a term is unfair.

Licences, insurance and labour-only subcontracts

• Queensland licence: working without the right QBCC licence means no payment beyond your costs of materials and labour, with nothing for your own labour or profit (QBCC Act s 42(3)-(4)).
• Labour-only individuals: if you are an individual paid mainly for your own labour, you can be an employee for superannuation purposes even with an ABN. The review flags sham-contracting and super risk.

What our review checks

Upload the subcontract, choose the state where the work is done, and get a plain-English report written for the subcontractor, usually about 5 minutes after you pay. It applies only that state’s rules, and:

• puts payment terms, security of payment rights, retention and back-charges at the top
• compares the payment term with your state’s cap and the claim and schedule timing
• flags pay-when-paid, pay-if-paid and “subject to certification” wording
• checks the retention percentage, release dates and when it can be called on, against your state’s rules
• quotes every set-off, back-charge and liquidated damages clause, with the rate and cap
• flags time bars, clauses that limit your security of payment rights, and one-way terms that may be unfair
• lists the insurance and licence requirements and any labour-only risk
• gives you the specific changes to ask the head contractor for

The report explains what the subcontract says and what your state’s law provides. It is not legal advice, and it does not call a liquidated damages figure a “penalty”. You decide what to sign.

Get your subcontract reviewed – $49

Questions people ask

Is a pay-when-paid clause enforceable in Australia?

No. Every state and territory’s security of payment law gives a pay-when-paid provision no effect, and NSW prohibits it. In Victoria, WA and SA the rule also covers clauses that make payment or the due date depend on another contract, such as the head contract.

How many days does a builder have to pay a subcontractor?

It depends on the state where the work is done. The latest due date is 20 business days in NSW (10 for residential work) and Victoria, 25 business days in Queensland and WA, 15 business days in the ACT and 30 working days in the NT. SA and Tasmania have no cap, only a default if the contract is silent.

How much retention can a head contractor hold?

Only Queensland sets a cap: 5% of the subcontract price before practical completion, no more than 10% of any one payment, and 2.5% after practical completion for defects only (QBCC Act ss 67L-67N). Elsewhere the contract sets the amount, so negotiate it before you sign.

When does retention money have to be released?

When the contract says, subject to state rules. In Queensland, if the contract is silent, 12 months after practical completion. In Victoria you can claim release from 20 business days after the defects liability period ends, and payment is due no later than 20 business days after the claim.

Is my retention money held in trust?

Only in some cases. WA holds retention on trust by law on contracts over $20,000 made from 1 February 2024. NSW requires a trust account only on projects valued over $20 million, Queensland only on project trust jobs, and the NT only if the contract says nothing about retention. SA, Tasmania and the ACT have no retention trust in their Acts.

Can a head contractor deduct back-charges from my payment?

Only if the contract allows it, and the security of payment rules control how. In NSW any set-off must be in the payment schedule or it cannot be raised later. In Queensland, using retention or security for an amount owed needs written notice within 28 days.

Can a subcontract stop me making a security of payment claim?

No. The Acts override clauses that exclude, restrict or deter use of the security of payment process; Victoria, SA and Tasmania make such a clause void. WA also gives no effect to a clause requiring negotiation before you claim (Regs r 5(2)), and makes void a clause making you pay the other side’s costs of using the Act (s 111(2)).

Are liquidated damages in a subcontract a penalty?

That is a question for a court on the facts, and our review does not decide it. What the review does is quote the rate, the cap and the trigger, check they are tied to your own delay, and flag a one-way penalty as a term that may be unfair if you are a small business on a standard form.

Do unfair contract terms laws protect subcontractors?

Yes, if either party employs fewer than 100 people or had turnover under $10 million and the subcontract is the head contractor’s standard form. Unfair terms are void, and proposing or relying on one is a contravention with company penalties of up to $100 million for conduct from 28 March 2026.

Is the subcontract review legal advice?

No. It is a plain-English report that explains what your subcontract says and what your state’s security of payment law provides. It is not legal advice, and Claim Done is not a law firm.

Related guides

• How to make a security of payment claim in every state
• Retention money not released? How subcontractors can recover it
• Should I sign this contractor agreement?
• Unfair contract terms for small business

Claim Done is not a law firm and does not give legal advice; this page is general information about Australian law as at 8 November 2026. Whether a contract term is valid is for an adjudicator, tribunal or court to decide.

Sources (checked 8 November 2026)

• Building Commission NSW: security of payment (about, making a payment claim, responding to a payment claim, retention money, frequently asked questions, changes to laws)
• Revenue NSW: Subcontractor’s Statement (OPT 011), June 2026
• Building and Construction Industry Security of Payment Act 2002 (Vic), Version 015 (ss 4, 7, 9, 10A, 10B, 12-15, 17B, 17D, 17H, 18, 48, 54)
• Building Industry Fairness (Security of Payment) Act 2017 (Qld) (ss 12, 14, 32, 73, 74, 76, 77, 79)
• Queensland Building and Construction Commission Act 1991 (Qld) (ss 42, 67G, 67I, 67J, 67L-67P, 67T, 67U, 67W)
• QBCC: request payment
• Building and Construction Industry (Security of Payment) Act 2021 (WA) (ss 14-16, 20, 25, 28, 57, 58, 70, 71, 111)
• Building and Construction Industry (Security of Payment) Regulations 2022 (WA) (rr 5, 11, 12)
• Building and Construction Industry Security of Payment Act 2009 (SA) (ss 11, 12, 14, 17, 33)
• Building and Construction Industry Security of Payment Act 2009 (Tas) (ss 11, 15, 16, 19, 21)
• Building and Construction Industry (Security of Payment) Act 2009 (ACT), Republication 14 (ss 13, 14, 16, 42)
• Construction Contracts (Security of Payments) Act 2004 (NT) (ss 4, 10, 12, 13, 20, 24, 28; Sch 1)
• Competition and Consumer Act 2010 (Cth), Schedule 2 (Australian Consumer Law), Compilation No. 167 (ss 23-27, 224, 310)