Unpaid on a Major Project: Should You Suspend Works or Terminate in QLD?
- John Merlo
- 1 day ago
- 17 min read
Key Takeaways
A statutory suspension requires strict notice: Under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) BIF Act, suspending construction work for non-payment requires providing the principal with at least two business days' written notice before tools are downed.
Premature termination risks repudiation: Terminating a contract for an alleged material breach without rigorously following the specific contractual show cause procedure can legally constitute a repudiation, potentially exposing your company to damages.
Using other project funds can trigger personal liability: Propping up a delayed, unpaid project by redirecting funds from healthier projects may give rise to reasonable grounds to suspect insolvency, exposing directors to personal liability.
Contracting out of statutory rights is prohibited: Contractual clauses that attempt to override or exclude your rights to suspend work or claim payment under the BIF Act are legally ineffective.
You are sitting at your desk reviewing the aged receivables report, and the reality is hard to miss: the principal's multi-million-dollar progress payment is now weeks overdue on your largest site. Your sub-trades are demanding their money by Friday, the next progress claim won’t cover the growing gap, and your financial controller has flagged that the company's cash reserves are dropping fast. In this exact moment, the temptation is to either padlock the site gates immediately or instruct your team to tear up the contract and walk away. But acting on that frustration without executing the precise statutory and contractual mechanisms can instantly flip the liability onto your own company, turning an unpaid debt into a devastating claim against your business.
Immediate Triage: Mapping Your Options When the Principal Stops Paying
With a sudden hole in your cash flow and sub-trades threatening to walk by Friday, the priority is to stop your company bleeding cash without inadvertently breaching your own contractual obligations. This section maps out your immediate operational and legal pathways to force payment or safely pause construction.
Separating Statutory Payment Rights from Contractual Default Mechanisms
A builder facing an unpaid invoice must first separate the legal mechanisms available to them, as confusing these pathways often leads to unlawful termination.
The statutory right to suspend construction work under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) operates entirely independently of a builder's contractual rights to claim delay damages or terminate a contract in Queensland.
Your contract dictates how and when you can terminate the agreement for a default, whereas the statute provides a protective procedural mechanism to halt work for non-payment. Attempting to use a contractual termination clause when you only have grounds for a statutory suspension can expose your business to significant damages.
Assessing the Immediate Cash Flow Damage to Your Operations
When a major progress claim goes unpaid, the immediate damage to your operations requires rapid, factual assessment. Take these procedural steps on the day you realise the payment is seriously late:
Check your trust account balances to understand exactly what funds are legally quarantined for this project versus what is available for operational cash flow.
Map all subcontractor liabilities directly tied to the missed payment to identify who will be immediately impacted and require communication.
Review the head contract to identify the exact notice deadlines for dispute resolution, extensions of time, or default.
Confirm whether your own deadlines to issue payment schedules to subcontractors are still open, so your firm does not miss any statutory response windows on claims tied to the same project.
Overriding Contractual Set-Off Rights with the BIF Act
Principals often mistakenly withhold payment for alleged minor breaches, relying on standard contractual set-off rights to justify keeping their money. However, issuing a compliant payment claim under the BIF Act serves as a statutory trigger that shifts the legal burden back onto the principal.
In practice, the most common error principals make is treating the contract and the BIF Act as if they operate on the same plane. A principal's superintendent will fire off an email saying, "we're withholding $400,000 against the defective tiling and the late practical completion claim," treat that email as a set-off, and assume the matter is closed. It is not. If the principal has not responded to your payment claim with a payment schedule that complies with the Act—issued within the statutory window, identifying the scheduled amount, and stating the reasons for withholding—those alleged set-offs generally do not survive contact with an adjudicator. The scheduled amount becomes the amount the principal can run, and reasons not raised in a compliant schedule are typically shut out of the adjudication entirely.
The tactical reality is that principals routinely conflate a genuine payment schedule with ordinary project correspondence. A string of emails complaining about workmanship, or a superintendent's certificate assessing a lower amount, will often fail to meet the requirements of a valid schedule. Where that happens, the principal can find itself liable for the full claimed amount as a debt, regardless of the underlying merit of its quality complaints. The disputes about defects and delay do not disappear—but they get pushed into a separate proceeding the principal has to commence and prove, rather than being used as a shield to sit on your money. The first thing worth checking when payment is withheld is therefore not the strength of the principal's complaints, but whether it issued anything that actually qualifies as a payment schedule at all.
Executing a Lawful Work Suspension Under the BIF Act
While downing tools will stop the immediate financial bleeding on the project, doing so incorrectly can instantly place your building company in breach of its obligations. Before you instruct your site manager to lock the gates, you must strictly follow the statutory framework that protects your right to suspend work. This section details the precise procedural requirements to ensure your suspension is legally unassailable and protects your commercial position.
The Two-Business-Day Statutory Notice Requirement (s 98)
The procedural mechanism for stopping work is strictly defined by the BIF Act. Before taking any action on-site, a contractor must issue a written notice of their intention to suspend works to the respondent.
A contractor can legally down tools only if at least two business days have passed since they served a written notice of intention to suspend, with the right to suspend then arising under section 98 of the BIF Act.
Section 98 of the Building Industry Fairness (Security of Payment) Act 2017 (Qld) provides that a claimant may suspend carrying out construction work under a construction contract if at least two business days have passed since the claimant gave notice of intention to do so to the respondent under s 78 or section 92 of the Act. This statutory trigger must be executed flawlessly; an immediate walk-off without this notice is unlawful.
The Prohibition on Contracting Out of Statutory Payment Protections (s 200)
Warning: Aggressive principals may point to specific clauses in the head contract that claim to forbid you from suspending work or demand that you continue construction despite a payment dispute. The effectiveness of these contractual clauses is nullified by the BIF Act; contractual provisions that attempt to override, exclude, or limit a contractor's rights under the Act are legally ineffective. Section 200 expressly states that the provisions of the Act have effect despite any provision to the contrary in any contract, arrangement, or agreement. The practical upshot is simple: a clause that purports to take away your right to suspend or to claim payment under the Act is not worth the paper it is written on, and you do not have to comply with it.
Protecting Your Demobilisation Costs During the Suspension
While the BIF Act protects your right to suspend work, recovering the costs associated with demobilising and remobilising the site is often far more complex. The statute protects the act of stopping work from being treated as a breach, but your ability to claim the financial losses incurred during the downtime generally depends on specific contractual provisions.
Because recovering these costs turns on how your contract is drafted, directors facing a protracted shutdown should get legal advice early. As a starting point, look for a clause that expressly entitles you to the costs of suspension and remobilisation. If the contract is silent on the point, recovery becomes considerably harder. Whether a principal is likely to be liable for these costs can depend heavily on how the specific suspension clauses in your contract interact with the statutory framework.
The Repudiation Trap: Why Terminating for a Material Breach is Dangerous
Suspension buys you time. Termination ends the relationship altogether, and that is where the real danger sits. Frustration with a persistently non-paying principal often tempts directors to simply rip up the contract and walk away from a toxic site. However, moving straight to termination without executing the contract's strict dispute resolution machinery carries massive legal risk and can leave your business liable for the very losses you were trying to escape. This section explains how a hasty, emotionally driven termination can flip the liability onto your own company, turning you into the party at fault.
Defining a Genuine Material Breach of the Construction Contract
A material breach of a construction contract is generally defined as a failure to perform an essential term—or a sufficiently serious breach of an intermediate term—that deprives the innocent party of the agreement's core benefit. In plain terms, it is a failure serious enough to defeat the whole point of the deal. Not all payment delays automatically justify termination at common law.
The contract itself often explicitly defines what constitutes a "substantial" or "material breach" warranting termination, and courts will look to these definitions when assessing the validity of your actions. A minor delay in payment often serves only as an evidence factor supporting a claim for damages, rather than providing immediate grounds to terminate the agreement. Before declaring a breach to be material and downing tools permanently, having an independent litigation team review the contractual definitions and common law repudiation principles can clarify whether the principal's default actually meets this high legal threshold.
Strict Compliance with Contractual Show Cause Notice Procedures
Standard form agreements, such as those from the HIA or Master Builders, contain highly specific procedural steps that a party must follow before ending the agreement. Terminating a contract for an alleged material breach without rigorously executing these drafted show cause notice procedures can invalidate the termination entirely.
Failing to strictly observe a construction contract's mandatory show cause process before terminating can legally constitute a repudiation by the builder under Queensland law.
The pattern that turns a winning position into a losing one is depressingly familiar: a builder who is genuinely owed money, who is genuinely in the right on the underlying debt, loses the dispute on procedure because the show cause machinery was treated as an optional formality. Standard form contracts from the HIA and Master Builders set out a defined sequence—a notice to show cause that specifies the alleged default, gives a reasonable period to remedy it, and warns of the consequence of failing to do so, before any notice of termination can issue. Skip a step, compress the timeframe, point to a default in the termination notice that was never raised in the show cause notice, or have the wrong person sign it, and the termination is exposed.
Where it goes wrong most often is the builder who, after months of fighting for payment, sends a single letter that says in effect "you haven't paid, we're terminating, we're off site." That letter does the principal's work for it. It hands the principal the argument that the builder, not the principal, was the party that walked away from the contract without justification—and a wrongful purported termination is itself capable of being characterised as a repudiation. The frustrating part is that the builder is frequently right on the money but wrong on the mechanism, and the mechanism is what the tribunal looks at first. Before any termination notice is drafted, the contract's specific clause should be read line by line and the sequence followed to the letter, even when the principal's conduct feels egregious enough to justify walking immediately. The stronger the temptation to skip the show cause step, the more important it usually is to take it.
The Financial Consequences of Committing Wrongful Termination
If a court or tribunal determines that your hasty departure from the site was actually a repudiation, the financial fallout can be devastating. If you wrongfully terminate the building contract, your company can become liable for the principal's subsequent losses.
This exposure often includes the principal's additional costs to engage a replacement builder to complete the project, which can far exceed your original contract value. Worse still, a repudiation finding can saddle your company with extensive delay damages and wipe out the very progress claims you were fighting to recover in the first place. Each step in the termination process must be carefully managed, as a single procedural misstep is likely to compound your financial liability.
Floating the Company: Your Personal Insolvent Trading Exposure
When a multi-million-dollar progress claim remains unpaid, the sudden cash vacuum threatens not just the troubled project, but the entire business operation. The immediate temptation is to redirect funds from your profitable, healthy projects to keep the delayed site moving, but this cross-subsidisation can make you, as a director, personally liable for the company's debts. This section assesses how a severe cash flow disruption caused by a principal's breach interacts with your duty to prevent insolvent trading.
When Using Other Project Funds Triggers Reasonable Grounds to Suspect Insolvency
Under section 588G of the Corporations Act, a director has a personal, statutory duty to prevent the company from incurring debts when they know, or a reasonable person in their position would know, that the company is insolvent or will become insolvent by incurring that debt. Redirecting cash from other profitable projects to float a stalled, unpaid site can itself be the "reasonable grounds to suspect insolvency" a court looks for.
While an isolated, short-term payment delay from a principal can occasionally be managed, systemic cross-subsidisation that strips cash from healthy projects may indicate structural insolvency rather than a mere temporary cash flow hiccup. If a liquidator is later appointed, they are likely to scrutinise the exact date you began using unrelated project funds to cover operational shortfalls, and this action can expose you personally to the debts incurred after that point.
Assessing the Balance Sheet Reality of the Stalled Project
When a director is trying to prove the company is solvent, the instinct is to point to the large unpaid progress claim sitting on the balance sheet as an asset. However, relying on heavily disputed construction claims as liquid assets may not be sufficient to prove cash flow solvency under Queensland law.
There is a critical legal and practical distinction between liquid cash that can pay your subcontractors today and a disputed asset tied up in litigation or adjudication. As outlined in ASIC Regulatory Guide 217, regulators expect directors to take an objective view of their financial position, and relying entirely on disputed debts to demonstrate solvency often fails to satisfy the cash flow test for insolvency.
When a liquidator reconstructs the company's position after the fact, a disputed progress claim rarely survives on the balance sheet at face value. The standard approach is to discount the claim heavily—often to a fraction of its booked value, and sometimes to nil where the principal had issued a competing claim or the matter was bogged in adjudication—on the basis that a contested receivable is not realisable cash and cannot be treated as if it were.
The director who genuinely believed the company was solvent because of a multi-million-dollar claim on the books frequently discovers that the solvency analysis is run on the cash flow test, which asks what could actually be paid to creditors as debts fell due, not what might eventually be recovered after a fight. It is also worth remembering that liquidators apply hindsight selectively but pointedly: they will fix on the date the dispute became apparent and ask whether a reasonable director should have stopped treating the claim as a bankable asset from that point forward, which is usually earlier than the director would like to concede.
Exploring Safe Harbour Protections and Voluntary Administration Timing
If the principal's breach has pushed your company into a genuine liquidity crisis, relying on hope is not a legal strategy. Directors must actively assess formal procedural mechanisms to protect themselves from personal liability.
Engaging a commercial lawyer to explore the section 588GA safe harbour defence can protect a director who is developing one or more courses of action reasonably likely to lead to a better outcome for the company. Alternatively, if the cash flow gap cannot be bridged, a timely decision to appoint a voluntary administrator may serve as a crucial defence against an insolvent trading claim, shielding your personal assets while the company's future is determined.
Formalising Your Claim: Statutory Deadlines and the Dual-Track Warranties
If the dispute escalates beyond a temporary suspension of works and requires formal debt recovery or litigation, strict statutory time limits will dictate your next moves. Missing these critical deadlines is a procedural failure that can legally extinguish your right to claim the unpaid money entirely. This section maps the mandatory warning notices and limitation periods governing your dispute so you can protect your commercial rights.
Issuing the Mandatory Warning Notice Within 30 Business Days of the Due Date (s 99)
Before you can file a claim in court to recover a debt based on an unpaid payment claim under the BIF Act, you must satisfy a strict procedural prerequisite. Section 99 of the BIF Act mandates that a claimant must issue a specific warning notice before commencing court proceedings to recover a debt for an unpaid payment claim.
Where you intend to commence proceedings in a court, the warning notice must be given to the respondent no later than 30 business days after the due date for the progress payment. A shorter window applies if you are heading to the Queensland Civil and Administrative Tribunal (QCAT) rather than a court: in that case, the notice must be given no later than 20 business days after the due date for payment. In either pathway, the claimant must then wait until at least five business days have passed after giving the warning notice before commencing the proceedings. Failing to issue this notice under s 99 of the BIF Act within the relevant statutory window typically prevents you from relying on the expedited debt recovery provisions of the Act.
Calculating the Six-Year Limitation Deadline for Simple Contract Breaches (s 10)
Beyond the immediate Security of Payment mechanisms, general breach of contract claims are governed by strict overarching time limits. In Queensland, a party generally has six years from the date a breach of a standard construction contract occurs to commence legal proceedings.
This deadline is established by section 10(1)(a) of the Limitation of Actions Act 1974 (Qld), which states that an action founded on simple contract shall not be brought after the expiration of 6 years from the date on which the cause of action arose. The clock starts ticking on the exact date the breach occurred—such as the day the principal failed to make the required payment—not the date you finally decided to take legal action.
Navigating the Overlap Between General Breaches and Statutory Warranties (s 19)
It is important to keep the scope of each regime in view. The BIF Act payment and suspension mechanisms discussed throughout this guide apply to commercial head contracts and subcontracts. By contrast, the Schedule 1B statutory warranties below are confined to regulated residential building contracts. A purely commercial principal–head contractor dispute will therefore usually engage the general six-year contractual limitation period rather than the residential statutory warranty timeline, though many builders carry exposure on both fronts across different projects and must track each accordingly.
A separate statutory warranty regime operates under the Queensland Building and Construction Commission Act 1991 (Qld). Under Part 3 of Schedule 1B of the QBCC Act, specific statutory warranties are automatically implied into every regulated residential building contract in Queensland (broadly, a domestic building contract for work valued above the regulated amount of $3,300). These statutory warranties—covering issues like materials being fit for purpose and work being performed with reasonable care and skill—operate as a separate exposure channel that cannot be excluded by the written terms of your contract. The period within which proceedings for a breach of these warranties must be started (the "warranty period") is 6 years for a breach resulting in a structural defect and 1 year in any other case.
Critically, where the breach becomes apparent within the last 6 months of the warranty period, proceedings may be commenced within a further 6 months after the period ends—meaning a structural defects claim can, in practice, surface as late as 6 years and 6 months out. This conditional extension should not be confused with the separate Queensland Home Warranty Scheme, under which an owner has 6 years and 6 months from the cover commencement day to become aware of a structural defect for insurance purposes.
The confusion in practice almost always runs in one direction: a builder fighting a payment dispute assumes that once the six-year contractual clock has run, the company's exposure is closed. It is not, and that assumption has caught out more than one director. The statutory warranty timeline operates on its own footing and can leave a window open for a defects claim after the general contractual limitation period has expired—so a builder who has won, or thinks it has parked, the payment fight can find a defects claim arriving from the other direction on a different clock. The two timelines do not start on the same day either: a breach-of-contract claim for non-payment runs from the date payment fell due, while a warranty claim for a structural defect runs by reference to its own statutory trigger, which can be a materially different date.
The tactical consequence is that a payment dispute and a defects dispute should never be treated as a single timeline, and a director who settles or abandons one without accounting for the other is exposed. The pattern worth watching for is the principal who, faced with a strong payment claim, reframes the matter as a defects case to manufacture a set-off or counterclaim—and who is sometimes still able to do so on the warranty track after the contractual track has closed. Mapping both clocks, from their correct respective start dates, at the outset of any dispute is the only reliable way to avoid being ambushed late.
Conclusion
When that multi-million-dollar progress payment fails to arrive, the pressure to react immediately is overwhelming. However, as this guide has demonstrated, acting on frustration by tearing up the contract or improperly pulling your team off the site can quickly shift the legal fault from the non-paying principal onto your building company. Whether you are dealing with the procedural demands of a statutory suspension under the BIF Act or navigating the dangerous repudiation traps hidden in your head contract, your response must be calculated and legally sound.
You now understand that suspending work requires a strict two-business-day written notice, that terminating for a material breach demands rigorous compliance with the contract's show cause procedures, and that using other project funds to float the delayed site can expose you personally to insolvent trading liability. The decisions you make in the first few days following a missed payment will largely dictate whether your business recovers the debt or faces a devastating damages claim.
If your company is currently facing a significant payment dispute on a major project, the decisions you make this week will shape the outcome. Take three steps now, before the critical deadlines expire:
Secure all correspondence with the principal, including every email, certificate, and payment schedule.
Review your contract's dispute resolution and termination clauses line by line, so you know exactly what procedure binds you.
Speak to a construction lawyer who can draft and serve your statutory notices on the right timeline.
The clock on your statutory notice periods is already running. Acting early is the single most reliable way to protect both the debt you are owed and your personal position as a director.
FAQs
Can I legally stop work if the principal refuses to pay a progress claim?
Yes, but you must follow strict statutory procedures. A contractor has a statutory right to suspend works for non-payment under the BIF Act if they provide at least two business days' written notice to the respondent. Stopping work without this notice may constitute a breach of your contract.
Does my contract allow the principal to stop me from suspending work?
No. Contractual clauses that attempt to override, exclude, or limit a contractor's rights under the BIF Act are legally ineffective. The Act prevails over any contrary provision in your contract regarding the right to suspend works.
What happens if I terminate the contract without issuing a show cause notice?
Failing to strictly observe a construction contract's mandatory show cause process before terminating can legally constitute a repudiation by the builder. If a court finds you repudiated the contract, you may be liable for the principal's costs to complete the project with another builder.
Is my company insolvent if we have a massive unpaid progress claim?
Relying on heavily disputed construction claims as liquid assets may not be sufficient to prove cash flow solvency under Queensland law. If you cannot pay your current debts as they fall due because those funds are tied up in a dispute, your company may be trading while insolvent.
Can I use funds from other projects to pay subcontractors on the delayed site?
Redirecting funds from healthy projects to float a stalled project can satisfy the element of having reasonable grounds to suspect insolvency under s 588G of the Corporations Act. This cross-subsidisation may expose the director to personal liability for debts incurred if the company is subsequently liquidated.
How long do I have to sue the principal for a breach of contract?
A party generally has six years from the date a breach of a standard contract occurs to commence legal proceedings in Queensland. This limitation period starts running from the exact date the cause of action arose, such as the day the payment was legally due and not paid.
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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