Subcontractor Costs

Subcontractor Costs - Cost Plus Payment Claim Best Practices | Contracts Administrator

Subcontractor Costs in Cost Plus Payment Claims

📅 Updated: August 2025 ⏱️ 8 min read 📋 Cost Plus Payment Claim Best Practices

⚠️ Compliance Warning

Failing to properly document and declare subcontractor costs can lead to payment disputes, disallowed claims, and even criminal penalties for head contractors under the Security of Payment Act.

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1. Field Name and Definition

What are Subcontractor Costs?

Subcontractor costs refer to the breakdown of any work performed by subcontractors on a construction project, including their invoices, scope of work, and amounts payable. In a Cost Plus Payment Claim, these costs represent amounts that the main contractor has paid or is liable to pay to engage other specialist contractors to perform specific aspects of the construction work.

Why This Field Appears on a Cost Plus Payment Claim

In Cost Plus contracts, the client agrees to pay the contractor for all direct costs incurred in completing the project, plus an agreed percentage markup (builder's margin). Subcontractor costs form a significant component of these direct costs. Under the Building and Construction Industry Security of Payment Act 1999 (NSW), contractors have the right to claim these costs as part of their progress payment claims.

3. Practical Guidance

Step-by-Step Instructions for Completing This Field

  1. Gather all subcontractor documentation, including original quotes, invoices, proof of payment, variation orders, and completion certificates.
  2. Verify that all subcontractor costs relate to the claim period covered by your current payment claim.
  3. Organise subcontractor costs by trade or work type (e.g., electrical, plumbing, roofing) for clarity.
  4. For each subcontractor entry, include: Subcontractor's name and ABN, invoice number and date, a brief description of work performed, and a breakdown of the amount claimed (excl. GST, GST, and Total).
  5. Ensure all claimed costs are substantiated by attaching copies of invoices and relevant supporting documentation.
  6. If you are a head contractor, complete the supporting statement declaring that all subcontractors have been paid amounts due.

Where to Find This Information

  • Your accounting or project management system
  • Subcontractor contracts and agreements
  • Invoice register or accounts payable records
  • Site diaries or progress reports documenting subcontractor attendance
  • Email correspondence confirming variations or additional works

4. Common Mistakes and How to Avoid Them

Insufficient description of subcontractor work

Avoid by: Providing detailed descriptions that clearly identify the construction work performed, including locations, quantities, and specific tasks.

Including costs from outside the claim period

Avoid by: Carefully checking invoice dates and ensuring they align with the current claim period.

Missing or incomplete supporting documentation

Avoid by: Attaching all relevant invoices, quotes, and proof of payment.

Claiming for work not yet performed

Avoid by: Only including costs for work that has been completed or for materials that have been delivered to site.

Failing to complete the subcontractor supporting statement (for head contractors)

Avoid by: Implementing a checklist system to ensure all required forms are completed before submission.

Best Practices to Ensure Accuracy

  • Maintain a dedicated file for each subcontractor with all relevant documentation.
  • Implement a verification process before including costs in a payment claim.
  • Use accounting software that can generate reports filtered by date ranges.
  • Reconcile subcontractor invoices with site attendance records.
  • Have a second person review the claim before submission.

5. Risks of Not Including This Information

Inaccurate or incomplete subcontractor cost details expose you to significant legal, financial, and dispute-related risks that can jeopardise your payment and project relationships.

Risk Type Impact
Legal Risks Non-compliance with Section 13 of the Act, potentially rendering the payment claim invalid. For head contractors, potential criminal penalties for false declarations.
Financial Risks Delayed payment or rejection of valid costs, leading to cash flow problems and additional administrative costs to resubmit or defend claims.
Dispute Risks Increased likelihood of payment disputes, need for formal adjudication, and strained relationships with clients and subcontractors.
Strategic Disadvantages A weakened position in adjudication if documentation is incomplete. Reduced credibility and difficulty proving entitlement without proper records.
Long-term Implications Damage to business reputation for professionalism and potential difficulties with future contract negotiations or defending variation claims.

6. Examples

Example 1: Properly Completed Subcontractor Costs Section

Project: Commercial Office Fit-out, Sydney CBD
Payment Claim #3, Reference Date: 15 July 2025

Subcontractor Invoice No. Date Description of Work Amount (excl. GST) GST Total Amount
ABC Electrical Pty Ltd INV-1234 05/07/2025 Electrical rough-in, Level 2 (100% complete) $28,500.00 $2,850.00 $31,350.00
XYZ Plumbing Services INV-5678 08/07/2025 Bathroom plumbing installation (75% complete) $17,250.00 $1,725.00 $18,975.00
Best Ceilings & Partitions INV-9876 10/07/2025 Partition walls installation, Level 2 (60% complete) $22,400.00 $2,240.00 $24,640.00
TOTAL SUBCONTRACTOR COSTS $68,150.00 $6,815.00 $74,965.00

Supporting documents attached: Copies of all invoices, daily site records confirming subcontractor attendance, and work progress photographs.

Example 2: Variation to Subcontractor Scope

Project: Residential Renovation, North Sydney
Payment Claim #2, Reference Date: 30 July 2025

Subcontractor Invoice No. Date Description of Work Amount (excl. GST) GST Total Amount
Smith Carpentry INV-442 20/07/2025 Kitchen cabinetry installation $12,800.00 $1,280.00 $14,080.00
Smith Carpentry VO-01 25/07/2025 Variation: Additional pantry shelving as per client request dated 18/07/2025 $2,200.00 $220.00 $2,420.00
Ace Tiling INV-785 28/07/2025 Bathroom and kitchen tiling $9,500.00 $950.00 $10,450.00
TOTAL SUBCONTRACTOR COSTS $24,500.00 $2,450.00 $26,950.00

Supporting documents attached: Original subcontractor quotes, variation approval from client, invoices, and progress photographs.

8. Frequently Asked Questions

Q: Do I need to attach all subcontractor invoices to my payment claim?
A: Yes, you should attach all relevant subcontractor invoices to substantiate your claim. Invoices provide clear evidence of the costs incurred and work performed. Without these supporting documents, the client may have legitimate grounds to dispute or reject the claim.
Q: What if I haven't paid my subcontractors yet? Can I still claim these costs?
A: Yes, you can claim for subcontractor costs that you have incurred but not yet paid, provided the work has been completed during the claim period. However, if you are a head contractor, you must be careful with the supporting statement that declares subcontractors have been paid all amounts that have "become due and payable". If payment to your subcontractor is not yet due according to your contract terms with them, you can still make this declaration truthfully.
Q: How detailed should the description of subcontractor work be?
A: The description should be sufficiently detailed for the client to understand what work has been performed, where it was performed, and the extent of completion. The description should provide enough information for a reasonable person to understand what is being claimed. Include the specific trade, location of work, and percentage of completion.
Q: Can I include a markup on subcontractor costs beyond the agreed builder's margin?
A: In a standard Cost Plus contract, the builder's margin typically covers all overhead and profit, including administration of subcontractors. Adding an additional markup specifically for subcontractor management would generally not be permissible unless explicitly allowed in your contract.
Q: What happens if a subcontractor submits an invoice after I've already lodged my payment claim?
A: If a subcontractor invoice is received after you've submitted your payment claim, you will need to include these costs in your next payment claim. Maintain clear records of which subcontractor costs have been claimed in each payment claim to avoid duplication or omission.

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