Legally Qualify a Statutory Declaration for Disputed Subcontractor Payments

You’re at the finish line of a major project stage. The progress payment claim, worth hundreds of thousands or even millions, is ready to submit. But there’s a problem. A single subcontractor, perhaps a plasterer disputing a back-charge for defect rectification or a plumber claiming unapproved variations, is refusing to accept your payment schedule.

This creates a dangerous legal paradox for you, the head contractor. Your contract with the principal requires you to submit a statutory declaration—a sworn statement that all subcontractors have been paid what they are due—before you can get paid. If you sign it as is, you could be committing perjury. If you don’t sign it, your cash flow grinds to a halt, threatening the viability of your entire operation.

This high-stakes dilemma is a common source of stress in the construction industry, governed by complex payment processes under Queensland's Building Industry Fairness (Security of Payment) Act 2017.

The good news is there is a legal, truthful, and strategic way out of this bind without risking your licence or your liberty.

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Key Takeaways

• The Problem: Signing a standard statutory declaration stating all subcontractors have been paid when a dispute exists can be perjury, carrying severe penalties.

• The Solution: You can legally qualify, or "carve out," the declaration to truthfully state the facts of the dispute, allowing your payment claim to proceed.

• The Risk: An incorrect or unclear qualification can be rejected by the principal or land you in legal trouble. Precision is critical.

• The Next Step: Qualifying a declaration is the first step; it often leads to formal dispute resolution through the QBCC or QCAT, requiring expert legal guidance.

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The Head Contractor's Million-Dollar Dilemma

For any head contractor engaging subcontractors in Queensland, the statutory declaration is a critical document tied to every payment claim.

This legal instrument is designed to ensure money flows down the contractual chain, but it becomes a trap when a legitimate subcontractor dispute arises.

You might be withholding payment for valid reasons—defective work, delays, or unapproved variations—but the standard wording of the declaration doesn't allow for nuance. It demands a simple "yes" or "no" answer to the question: "Has everyone been paid?" This puts you in an impossible position.

Do you make a false declaration to secure vital cash flow, hoping to resolve the subcontractor issue later? Or do you hold off, refuse to sign, and risk defaulting on your own financial obligations? This is not just an administrative hurdle; it's a significant legal and commercial risk that requires a precise and lawful strategy to navigate.

Understanding the Statutory Declaration Trap

Before you can solve the problem, you must appreciate the legal gravity of the document in your hands.

 A misunderstanding of its purpose and power can lead to career-ending consequences.

A statutory declaration is not just another piece of project paperwork; it's a sworn oath with significant legal weight.

What is a Statutory Declaration in Construction?

In the context of Queensland's construction industry, a statutory declaration is a formal, legally binding statement made under oath. It serves as the head contractor's solemn promise to the principal that all subcontractors, suppliers, and workers who have performed work or supplied materials for that claim period have been paid all amounts due and payable to them. Its primary function is to act as a security measure for the principal.

It provides them with confidence that by paying you, they are not exposing themselves to future claims from unpaid subcontractors down the line.

This mechanism is a cornerstone of the regulatory framework enforced by the Queensland Building and Construction Commission (QBCC) and is integral to the operation of the BIF Act.

The Legal Weight of Your Signature

Warning: Your signature on a statutory declaration is not a mere formality or a box-ticking exercise. It is a sworn legal statement, and knowingly making a false declaration is a criminal offence with consequences equivalent to perjury.

The penalties for making a false declaration are severe and are outlined in legislation like the Queensland Building and Construction Commission Act 1991. If a disgruntled subcontractor proves you signed a declaration stating they were paid when they weren't, you could face:

• Hefty Fines: Significant financial penalties can be imposed on both you personally and your company.

• Licence Suspension or Cancellation: The QBCC can take disciplinary action, stripping you of your ability to operate.

• Imprisonment: In the most serious cases, a term of imprisonment is a real possibility.

  
  

Signing a knowingly false stat dec is a gamble that can cost you your business and your freedom.

Why a "White Lie" Can Lead to Financial Ruin

Let's consider a hypothetical but common scenario. "Dave," a head contractor in Brisbane, is managing a large commercial project. He needs a $1 million progress payment from the principal to maintain cash flow and pay his other trades. However, he has a legitimate dispute with his plastering subcontractor over $50,000 worth of work that requires extensive rectification. The pressure is immense. Believing he can sort out the plasterer later, Dave signs the standard statutory declaration, gets his $1 million, and breathes a sigh of relief.

That relief is short-lived. The angry plasterer, feeling ignored, lodges a monies-owed complaint with the QBCC, providing emails and photos that prove the dispute and non-payment. The QBCC launches an investigation. They subpoena the payment claim and the signed statutory declaration. The moment they compare the two, Dave's "white lie" is exposed as a false declaration. The consequences are catastrophic: a QBCC prosecution, a massive fine, a black mark against his licence, and the complete destruction of his professional reputation. The $50,000 dispute has spiralled into a financial and legal disaster that threatens his entire company.

This story illustrates the critical danger of treating the declaration as a simple administrative step rather than the serious legal document it is.

The 'Disputed Funds Carve-Out': Your Legal Solution

Knowing the risks, the question becomes: how do you get paid without committing perjury? The answer lies not in deception, but in absolute, documented honesty.

The law allows you to qualify the statutory declaration to reflect the truth of your situation.

This strategy, often called a "carve-out," is your legal and ethical pathway through the dilemma. It allows you to swear to the truth, satisfy the principal's requirements, and unlock the undisputed portion of your payment claim.

Defining the Carve-Out Strategy

The carve-out strategy is the legally sound method of altering the standard wording of a statutory declaration to make it factually accurate.

Instead of making a blanket statement that everyone has been paid, you alter the text to declare that all subcontractors and suppliers have been paid except for a specific, named subcontractor, with whom there is a legitimate, good-faith dispute over a defined amount of money.

This is not about hiding the problem; it's about formally and transparently disclosing it. By doing so, you are fulfilling your legal obligation to be truthful while still progressing your payment claim.

This approach transforms the statutory declaration from a potential legal trap into a tool for precise communication and risk management. However, the wording must be concise and the basis for the dispute must be solid, which is why it is always recommended to have the qualification reviewed by a building and construction lawyer before submission.

Crafting the Precise Wording for Your Declaration

The effectiveness of a carve-out hinges on its clarity and precision.

A vague or poorly worded qualification can be rejected by the principal or, worse, be misinterpreted as deceptive. The goal is to create a clear carve-out clause that leaves no room for ambiguity.

The process involves three key steps:

1. Identify the Specifics: Clearly identify the subcontractor's full legal name, the exact dollar amount of the disputed amount, and the core reason for the dispute (e.g., defective works, unapproved variations, contra-charges).

2. Draft the Clause: Qualify the standard declaration text. While the exact wording can vary, a legally sound clause will look something like this:

Example Wording:"I, [Your Name], of [Your Company], do solemnly and sincerely declare that all workmen, subcontractors, and suppliers who have been engaged on the project have been paid in full all amounts which have become due and payable to them in respect of the work, with the sole exception of:

An amount of $25,000.00 claimed by [Subcontractor's Full Legal Name Pty Ltd], which is being withheld in good faith due to a dispute concerning the rectification of defective works identified in the Site Instruction dated [Date] and the associated contra-charges."

1. Attach Supporting Evidence (Optional but Recommended): While not always required, attaching key documents that substantiate your claim—such as the relevant defect notice, correspondence, or photos—can strengthen your position and demonstrate to the principal that the dispute is genuine and well-documented. This proactive step can pre-empt questions and smooth the payment process.

The Difference Between a Dispute and Simple Non-Payment

This is the most critical distinction to understand. A carve-out is a legally defensible tool only when you have a genuine, good-faith dispute. It is not a shield for poor cash flow or a mechanism to arbitrarily withhold funds.

A genuine dispute is backed by evidence. It could be a formal defect notice you've issued, a series of emails debating the value of a variation, or clear contractual grounds for setting off costs. You must be able to prove that you have a legitimate reason for not paying the full amount claimed by the subcontractor.

Attempting to use a carve-out to mask simple non-payment is fraudulent. If you declare a "dispute" that doesn't exist simply because you don't have the funds to pay the subcontractor, you are still making a false declaration. The QBCC and the courts can see through this tactic. An investigation would quickly reveal the absence of any real conflict or documentation, and you would be in the same perilous legal position as if you had signed the standard declaration without any qualification. The carve-out must be a truthful subcontractor statement of fact, not a convenient fiction.

What Happens After You Submit a Qualified Declaration?

Submitting a qualified statutory declaration is a significant step, but it's not the end of the process. It moves the issue from a private disagreement between you and a subcontractor into a formal matter involving the principal. How the principal reacts and how you manage the subsequent steps are crucial to getting paid and resolving the underlying dispute efficiently. Your approach to contract administration and your willingness to seek timely legal advice will be key.

The Principal's Likely Reaction and Your Next Move

After you submit your payment claim with the qualified declaration, the ball is in the principal's (or their superintendent's) court.

Their reaction will typically fall into one of two categories:

1. Acceptance and Partial Payment: An experienced and commercially savvy principal will understand that disputes happen. If your carve-out is clear, precise, and appears to be made in good faith, they will likely accept the declaration. They will then process your payment claim, paying the full amount less the specific sum you have carved out as being in dispute. This is the ideal outcome, as it maintains your cash flow for the undisputed portion of the works.

2. Rejection or Request for Information: A more cautious or adversarial principal might question the qualification. They may request more information about the dispute, seek evidence to support your position, or even initially reject the declaration outright. This is often a tactic to delay payment.

Your best move is to be proactive. Before you even submit the claim, it is wise to communicate with the principal or superintendent.

A brief, professional phone call or email explaining that you have a documented dispute with a subcontractor and that your statutory declaration will reflect this can manage expectations and demonstrate transparency. This prevents them from being surprised and shows that you are managing the issue responsibly, not trying to hide something.

Can the Principal Withhold the Entire Payment?

A common fear for head contractors is that by declaring a dispute with one subcontractor, the principal will use it as an excuse for payment withholding on the entire claim. This is generally not permissible under Queensland law.

The Building Industry Fairness (Security of Payment) Act 2017 governs this process. If a principal intends to pay less than the amount you've claimed, they must issue a formal "payment schedule" within the prescribed timeframe.

 This document must detail every amount they intend to withhold and provide a clear reason for each deduction. They cannot simply withhold your entire multi-million dollar claim because of a $25,000 dispute you've declared. They are typically only entitled to withhold the amount that is directly and reasonably related to the dispute at hand.

Understanding your payment rights under the BIF Act is crucial, as it empowers you to challenge an improper withholding of funds.

When to Engage Your Lawyer Immediately

The moment a principal or superintendent rejects your validly qualified declaration or threatens to withhold the entire payment claim, the situation has escalated beyond simple contract administration.

This is a red flag indicating a potentially serious conflict, and it is the precise moment you should stop communicating directly and engage legal counsel.

Arguing the point yourself can lead to you making admissions or concessions that could damage your legal position later.

An expert construction dispute lawyer will immediately take control of the communication, formalising it in writing and asserting your contractual and statutory rights.

 They can issue a letter of demand, challenge an invalid payment schedule, or prepare to escalate the matter to adjudication or the Queensland Civil and Administrative Tribunal (QCAT). This decisive action not only protects your immediate cash flow but also signals to the principal that you are serious about enforcing your rights and will not be bullied into accepting an unfair outcome.

Escalating the Dispute: Navigating QBCC and QCAT

Qualifying a statutory declaration is often the first step, not the last. It allows you to get paid for undisputed work but does not resolve the underlying conflict with the subcontractor. That conflict will now likely move into a formal dispute resolution process. In Queensland, this typically involves one of three main avenues: the QBCC, QCAT, or the adjudication and litigation pathways. Understanding each is vital to preparing for the next stage of the fight.

The QBCC's Role in Subcontractor Complaints

The Queensland Building and Construction Commission (QBCC) acts as the industry's primary regulator. Once a subcontractor realises they are not being paid, one of their first ports of call is often to lodge a QBCC complaint for monies owed. This triggers a formal process where the QBCC will investigate the claim.

As the head contractor, you will be required to provide a response and submit evidence justifying your reason for withholding payment. This is where your meticulous record-keeping on the dispute becomes invaluable.

The QBCC has significant powers; they can:

• Issue a formal Direction to Pay the disputed amount if they find the subcontractor's claim is valid.

• Impose fines for non-compliance.

• Take disciplinary action against your licence, including accumulating demerit points that can lead to suspension.

Facing a QBCC investigation can be daunting, and a negative finding can have serious repercussions for your business. It is the first formal forum where your dispute will be tested, and engaging a specialist QBCC lawyer at this stage can be critical to presenting your case effectively and protecting your licence.

Understanding the QCAT Pathway for Building Disputes

For many domestic building disputes, the next step in the escalation ladder is the Queensland Civil and Administrative Tribunal (QCAT). However, there is a critical procedural prerequisite that contractors must understand before proceeding to QCAT.

The QBCC Endorsement Requirement

Under Section 77(2) of the Queensland Building and Construction Commission Act 1991 (Qld), QCAT cannot accept applications relating to domestic building work disputes unless they have first been endorsed by the QBCC.

This means that before you can file a QCAT application for a domestic building dispute, you must:

1. Lodge a dispute resolution request with the QBCC

2. Participate in the QBCC's dispute resolution process (typically conciliation)

3. Obtain the QBCC's endorsement that the matter is suitable to proceed to QCAT

This endorsement requirement ensures that parties have genuinely attempted to resolve their dispute through the QBCC's less formal processes before escalating to tribunal proceedings. The QBCC will typically endorse a matter for QCAT if conciliation has been unsuccessful or if the dispute is not suitable for resolution through the QBCC's processes.

QCAT's Jurisdiction and Application Types

If the dispute cannot be resolved through the QBCC and you receive the necessary endorsement, either party may file a QCAT application. QCAT is a tribunal, less formal and costly than a traditional court, designed to resolve disputes efficiently. It is important to note that QCAT has specific monetary jurisdictions and different types of applications available.

For building disputes, there is a particular application type with an associated monetary limit. The Minor Civil Disputes jurisdiction handles claims up to $25,000, while the Building Disputes List can hear matters involving domestic building work disputes with higher values. Contractors should verify the current monetary thresholds and ensure they file the appropriate application type for their specific dispute before proceeding.

The QCAT Process

The process involves mediation and, if that fails, a formal hearing before a tribunal member who will make a legally binding decision. QCAT can make a wide range of orders, including ordering one party to pay money to the other, ordering that defective work be rectified, or terminating a contract. While it is designed to be more accessible, it is still a legal proceeding. You will need to present a strong, evidence-based case, follow procedural rules, and make persuasive legal arguments.

Navigating this process without legal representation can be risky, as a misstep can lead to an unfavourable outcome. For a detailed overview, it's helpful to review our guide on Everything You Need to Know About QCAT.

Adjudication vs. Litigation vs. Contractual Dispute Resolution: Choosing the Right Battlefield

For commercial contracts or disputes that fall outside QCAT's jurisdiction, you have two primary options: adjudication and litigation. Choosing the right battlefield is a critical strategic decision.

• Adjudication: This is a rapid dispute resolution process under the BIF Act. It's often described as "pay now, argue later." An independent adjudicator makes a quick, interim decision (usually within weeks) to get cash flowing on a project. It is not a final determination of rights but is a powerful tool to enforce a payment claim or resist an invalid one.

• Litigation: This is the traditional court process. It is a much longer, more thorough, and more expensive process that results in a final, binding judgment. Litigation involves detailed evidence, pre-trial procedures, and a formal hearing before a judge. It is used for complex disputes where a final determination of all contractual rights and liabilities is required.

Beyond adjudication and litigation, contractors must be aware that their construction contracts may stipulate other dispute resolution mechanisms such as expert determination or arbitration.

It is critical to follow the precise terms of your contract regarding dispute resolution procedures. However, adjudication under the Building Industry Fairness (Security of Payment) Act 2017 is a legislative dispute resolution mechanism that operates alongside—and independently of—contractual dispute resolution provisions. This means you may pursue statutory adjudication even while the contract provides for alternative dispute resolution methods.

In some cases, you might pursue both pathways simultaneously or sequentially, though careful legal advice should be sought to navigate the interaction between contractual and statutory rights.

The choice between these pathways depends on the nature of the dispute, the amount of money involved, and your commercial objectives. Do you need cash flow now (adjudication), or do you need a final resolution of a complex contractual issue (litigation)?

This is a strategic decision best made with the guidance of construction litigation experts who can assess the strengths of your case and advise on the most effective path forward.

Proactive Strategies to Avoid Future Declaration Crises

While knowing how to legally qualify a statutory declaration is a crucial skill, the ultimate goal is to avoid needing to do it in the first place. Most declaration crises are symptoms of underlying issues in contract administration and project management.

By implementing robust systems and proactive dispute avoidance strategies, you can significantly reduce the likelihood of payment disputes escalating to this critical point.

Ironclad Contract Administration and Record Keeping

The strongest argument in any construction dispute is not what was said, but what was written down. Most statutory declaration problems originate from poor paperwork and a lack of clear, contemporaneous evidence.

Your best defence against an unsubstantiated claim from a subcontractor—and the foundation for a defensible carve-out if needed—is meticulous record keeping.

This includes:

• Written Communication: Avoid verbal agreements. Confirm all significant instructions, conversations, and agreements in writing via email or formal site instruction.

• Variation Registers: Maintain a detailed log of all requested and approved variations, including dates, costs, and sign-offs. This prevents disputes over what was or wasn't an approved change.

• Photo/Video Evidence: Regularly document site progress and, crucially, any defective work. Date-stamped photos are powerful, objective evidence.

• Clear Subcontractor Agreements: Ensure your subcontractor agreements are comprehensive and clearly outline processes for variations, extensions of time, and defect rectification.

Robust systems are not bureaucratic overhead; they are your primary risk management tool. They provide the undeniable proof needed to justify a payment dispute and protect you from false claims.

Managing Variations, Defects, Suspensions, and Set-Offs Proactively

Proactive contract management extends well beyond simply managing variations and defects.

Head contractors must also carefully manage:

·       Contract Suspensions: Understanding when and how you can lawfully suspend a subcontractor's work, and documenting the reasons and process meticulously.

·       "Take Out" Provisions: Exercising your contractual right to remove work from a subcontractor's scope and reassign it to others, ensuring you follow the precise contractual procedures and notice requirements.

·       Set-Off Rights: Properly exercising your right to set off amounts owed against amounts payable, particularly concerning contractor-caused delays and associated delay costs. This requires careful documentation of the delay event, causation, quantum of loss, and compliance with contractual notice provisions.

·       Delay Costs and Liquidated Damages: Tracking and substantiating delay costs caused by subcontractors, including the impact on the critical path, extensions of time, and the proper calculation and deduction of liquidated damages where applicable.

Each of these mechanisms has specific contractual and legal requirements that must be strictly followed to preserve your rights.

When in Doubt, Seek Expert Advice

The central message of this guide is that statutory declarations are serious legal documents with significant consequences. While the carve-out strategy is a powerful and necessary tool, its incorrect application can create more legal and financial problems than it solves.

If you are unsure about the wording, the legitimacy of your dispute, or the potential reaction from a principal, the most prudent course of action is to seek professional advice.

The cost of a brief consultation with an experienced construction lawyer like John Merlo from Merlo Law’s construction law practice is a minor investment compared to the catastrophic potential cost of a rejected multi-million dollar payment claim, a QBCC prosecution, or the loss of your builder's licence. Proactive legal advice is not a cost; it is an insurance policy against financial disaster.

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FAQs

What is the difference between a statutory declaration and a subcontractor's statement?

A statutory declaration is a formal, sworn legal document provided by the head contractor to the principal, attesting that all parties have been paid. A subcontractor's statement (or subbie's stat dec) is a similar document provided by a subcontractor to the head contractor, confirming they have paid their own workers and suppliers. Head contractors often require these from their subcontractors as part of their own due diligence before signing their declaration to the principal.

Can I use a carve-out for a dispute over project delays (liquidated damages)?

Yes. If your contract allows you to claim liquidated damages or set-offs for delays or other claims caused by a subcontractor and you have correctly issued the required notices, you can carve out the amount of those damages from their payment. The carve-out clause should clearly state that the amount is being withheld as liquidated damages in accordance with the relevant clauses of the subcontract.

Critical Warning: This course of action should never be taken without obtaining legal advice. Incorrectly withholding liquidated damages can expose you to significant legal risk, including adjudication or court proceedings, liability for the wrongfully withheld amounts plus interest, and potential damages claims. Legal advice will ensure you have properly established your entitlement, followed all contractual notice requirements, and documented the delay and causation adequately.

What happens if the principal ignores my qualified statutory declaration and just doesn't pay?

If the principal fails to pay and fails to issue a valid payment schedule within the time required by the BIF Act, you have a statutory right to the full amount of your claim. This is a serious breach, and you should immediately seek legal advice to commence recovery action, which could include adjudication, suspending work, or starting legal proceedings.

How much detail do I need to include in the carve-out clause?

The clause should be concise but precise. It must include the subcontractor's full legal name, the exact dollar amount in dispute, and a brief but clear reason for the dispute (e.g., "defective works," "unapproved variations," "contra-charges for site cleaning"). You don't need to write a lengthy legal submission, but it must be specific enough for a third party to understand the nature of the issue.

Is it better to pay the subcontractor under protest and then try to claim the money back?

This can be a risky commercial decision. While it allows you to sign a clean statutory declaration and get paid by the principal, it shifts the burden of proof onto you to recover the funds. It can be much harder to claw money back than it is to justify withholding it for a legitimate reason. This strategy should only be considered after careful consultation with a construction lawyer who can assess the likelihood of a successful recovery action.

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This guide is for informational purposes only and does not constitute legal advice. For advice tailored to your specific circumstances, please contact Merlo Law.

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