Electrical contractors are a major part of the Australian construction sector. Subbies across all fields account for approximately $227 billion of the more than $568 billion the industry generates annually. With this much money on the table, it’s important to be aware of the fact that construction is one of the top sectors for insolvency due to inadequate cash flow management.
In New South Wales, for example, the average payment delay for subbies is 83 days from job completion. Your working capital is important. Money earned that you cannot access turns you into an involuntary lender for builders. This makes the time during contract and electrical tender negotiations crucial, a vital moment to protect your financial interests.
How do you choose the best payment process?
Your main payment process options are progress and milestone billing. Your choice here will dictate your cash flow stability throughout the project:
- Progress billing
Often the preferred option for electrical contractors; payments are based on the percentage of work completed over regular intervals (monthly or bi-weekly). Payments are aligned with actual work progress, creating a more predictable income stream that accounts for labour and material costs.
- Milestone billing
This option ties payments to specific project achievements and comes with a higher cash flow risk. Payments are larger, but they are released only after major phases conclude. This means that delays in upstream work can postpone your payment even when the electrical scope is finished.
How do you stay protected during tender/contract negotiations?
There are a few regulations required for modern electrical contracts that you should be aware of to keep yourself safe during negotiations:
- Contracts must clearly define payment frequency and reference dates.
- Security of Payment legislation imposes a minimum monthly payment frequency; however, contractors should push for shorter claim periods to accelerate cash flow.
- The expanded Unfair Contract Terms (UCT) Regime prohibits unfair terms within standard form contracts qualifying as ‘small business contracts,’
- If a standard-form tender contains unjust provisions (e.g. excessive penalties for minor non-compliance, or clauses allowing builders disproportionate set-off rights for unrelated debts) the terms may be declared void.
When do electricians get paid?
All Australian states have Security of Payment (SOP) legislation, which serves as cash flow protection for electrical contractors. This framework establishes clear timelines and mechanisms for payment recovery.
One of SOP legislation’s most important protections is the establishment of maximum payment periods. Any contract that attempts to impose longer payment timeframes is automatically void (and replaced by the statutory deadline). The specific requirements for payments from the date of the claim, per state, are as follows:
- New South Wales: Residential subcontractors must receive payment within 10 business days; commercial subcontractors within 20 business days.
- Queensland: Subcontractors must be paid within 25 business days.
- Western Australia: The statutory maximum is 25 business days for payments to subcontractors from all contractors.
- Victoria: Payment periods capped at 20 business days for all parties, with the implied due date set at 10 business days if the contract is void.
Important note: These deadlines represent business days, typically excluding weekends and public holidays.
Can a payment schedule be issued?
Yes, once a valid payment claim has been served, the respondent can pay the full amount or issue a detailed Payment Schedule within the contractually specified period or statutory deadline (whichever is earlier). Failure to issue a payment schedule makes the recipient liable for the full claimed amount.
If payment isn’t received by the statutory due date, electrical contractors can apply for rapid adjudication with an independent adjudicator, who will provide a decision within weeks. You also have the right to suspend work after serving the pre-required notice.
There will also be a 5% to 10% holdback on each progress payment to secure against defects during the Defects Liability Period (DLP), which can extend for 6 months to 1 year after practical completion.
How do you protect your retention money?
A great way to protect your retention money during electrical tender negotiations is to opt to replace cash retentions with a Bank Guarantee or Insurance Bond. If the builder holds $40,000 of your cash as retention, that’s $40,000 you can’t use to pay your workers, buy materials, or cover bills. A bank guarantee, however, means your money stays in your account while the builder still gets their security (they can claim against the guarantee if there are genuine defects). This strategy keeps your cash flow intact.
If a cash retention can’t be avoided, it is important to be somewhat meticulous about claiming it back. Mark your calendar with the exact date your DLP ends, as some contracts require you to submit a formal claim for retention release within days of the DLP expiring. If you miss the deadline, you can lose your funds.
Retention Trust Accounts can be used to keep the funds separate and safe, protecting contractors in the event of the builder going bankrupt. Funds in these accounts are protected and can not be claimed by other creditors.
Where Can Subcontractors Find Specialist Electrical Opportunities?
E1 is Australia’s top hub where subcontractors can find specialised electrical tender opportunities. You’ll get verified access to thousands of live tenders and the ability to send quotes straight to the country’s top builders. Find your next big project with an E1 electrical tender today.
Alexander
Green
General Manager - Subcontractors
