Construction payment disputes: What are your options when payment is withheld?

Unpaid progress claims can bring construction projects to a standstill. For contractors and subcontractors, delayed payment can create immediate cash flow pressures. For principals and head contractors, disputes over defective work, variations and delays can raise difficult questions about whether payment can lawfully be withheld.

When a payment dispute arises, the options extend beyond issuing a letter of demand or commencing litigation. Depending on the circumstances, parties may have rights under their construction contract, Security of Payment legislation or both. Each remedy carries different requirements, deadlines and risks.

Understanding those options early can make the difference between recovering payment efficiently and becoming embroiled in costly proceedings.

What is actually in dispute?

Before deciding how to proceed, it is important to establish why payment has been withheld. Common disputes concern the value of completed work, unauthorised variations, defective workmanship, delays, set-offs or disagreements about the contractual scope of work.

There is also an important distinction between a genuinely disputed claim and a debt that is simply overdue. The former may require an assessment of competing contractual entitlements, while the latter may be suitable for more direct recovery action.

The nature of the dispute will influence which remedies are available, what evidence is required and whether pursuing the claim is commercially worthwhile.

Start with the construction contract

The construction contract is the starting point for assessing the parties’ rights and obligations. Particular attention should be given to payment provisions, variations, extensions of time, defects, set-offs, suspension, termination and dispute resolution procedures.

Payment claims, payment schedules, invoices, variation requests, site instructions and correspondence will also be relevant. Together, these documents help establish whether payment is due, whether there is a contractual basis for withholding it and what steps should follow.

Does the contract require dispute resolution?

Many construction contracts require parties to follow a prescribed process before commencing proceedings. This may involve a notice of dispute, referral to a superintendent, mediation, expert determination or arbitration.

Negotiation may also offer a practical solution, particularly where the parties have competing claims or an ongoing commercial relationship. However, contractual dispute resolution procedures do not necessarily suspend statutory deadlines. Parties should therefore assess their Security of Payment rights before committing to a lengthy negotiation process.

Security of payment: rights beyond the contract

Security of Payment legislation provides statutory mechanisms for recovering payment for construction work and related goods and services. Each Australian state and territory has legislation designed to promote timely payment and resolve construction payment disputes.¹

These statutory rights operate separately from ordinary contractual remedies. In some circumstances, a contractor may obtain a statutory payment entitlement even though the parties continue to dispute their ultimate contractual rights.

The legislation is principally concerned with maintaining cash flow within the construction industry, rather than finally determining every contractual dispute. However, the requirements differ between jurisdictions, particularly concerning payment claims, payment schedules, adjudication and enforcement.

Victoria’s Security of Payment laws underwent significant reforms on 15 April 2026, affecting payment entitlements and statutory procedures. Read our article on what the changes mean for contractors and principals.

Adjudication: a faster alternative to litigation

Adjudication provides a statutory process for resolving eligible construction payment disputes without ordinary court proceedings. It can be particularly effective where an unpaid progress claim is affecting cash flow and the claimant needs a prompt determination of the amount payable.

However, adjudication is highly procedural. Strict requirements may apply to payment claims, payment schedules, adjudication applications and responses. Missing a deadline or failing to comply with statutory requirements can compromise a claim or defence.

An adjudication determination also does not necessarily resolve the parties’ ultimate contractual rights. Broader disputes involving defects, delays, termination or damages may still require arbitration or litigation.

Disputing a payment claim? Respond promptly

For principals and head contractors, receiving a payment claim may trigger strict statutory obligations, even where the amount is genuinely disputed.

Depending on the jurisdiction, failing to provide a valid payment schedule within the prescribed timeframe may expose the respondent to liability for an amount it would otherwise have contested. The respondent may also be prevented from raising particular defences or cross-claims in statutory recovery proceedings.

The reasons given for withholding payment can be equally important. In some jurisdictions, a respondent cannot introduce new reasons in an adjudication response that were omitted from its payment schedule.

Accordingly, payment claims should be reviewed immediately to identify the applicable legislation, the grounds for disputing payment and the deadline for responding.

Recovering unpaid claims through the courts

In certain circumstances, Security of Payment legislation permits an unpaid amount to be recovered as a statutory debt without first obtaining an adjudication determination.

For example, statutory debt recovery may be available where a respondent fails to provide a payment schedule or fails to pay the scheduled amount by the due date. Depending on the legislation, the respondent may be restricted from raising contractual defences or cross-claims in those proceedings.

These mechanisms can offer a more direct route to recovery than ordinary contractual litigation. However, specific statutory conditions, notices and timeframes must be satisfied before proceedings are commenced.

What if an adjudicated amount remains unpaid?

A favourable adjudication determination does not guarantee payment. If the respondent fails to pay, the successful claimant may be entitled to enforce the determination through the courts.

Depending on the jurisdiction, this may involve obtaining an adjudication certificate and filing or registering it as a judgment. Once judgment is obtained, the creditor can consider the available enforcement procedures, having regard to the debtor’s financial position and identifiable assets.

Statutory demands and winding-up proceedings

Where the debtor is a company, a statutory demand under section 459E of the Corporations Act 2001 (Cth) may be available if the debt is due and payable, meets the statutory minimum and satisfies the applicable requirements.

Failure to comply with a valid demand within the prescribed period may give rise to a presumption of insolvency, potentially supporting an application to wind up the company.

However, statutory demands are not suitable for every unpaid debt. A company may seek to have a demand set aside where there is a genuine dispute or an offsetting claim, and an unsuccessful creditor may face adverse costs consequences.

For further information, see our article on statutory demands and genuine disputes.

When is litigation the better option?

Security of Payment remedies will not resolve every construction dispute. Litigation may be necessary where statutory rights are unavailable, relevant deadlines have expired or the parties require a final determination of their contractual rights.

This may include disputes involving substantial defects, variations, delays, liquidated damages, termination or competing claims for damages.

Before commencing proceedings, parties should assess the strength of the evidence, prospects of success, legal costs and likelihood of recovering any judgment debt. A strong claim may still be commercially unattractive if the costs are disproportionate or the debtor lacks sufficient assets.

Can work be suspended for non-payment?

Contractors and subcontractors may have contractual or statutory rights to suspend work where payment has not been made. However, non-payment does not automatically justify suspension.

Suspension rights are generally subject to conditions, including prescribed notices and timeframes. Suspending work without a valid entitlement may constitute a breach of contract and expose the suspending party to damages for delay or disruption.

Before suspending work, the contractual and statutory requirements should be carefully assessed.

Which remedy should you pursue?

The appropriate remedy depends on the nature of the dispute, the amount involved, the contract and the applicable legislation. The following table provides a general guide.

More than one remedy may be available, but the fastest option is not necessarily the most effective. Adjudication may provide prompt payment relief without resolving a broader contractual dispute, while litigation may offer finality at a substantially greater cost.

The objective is to pursue a remedy that is legally available, proportionate to the dispute and commercially worthwhile.

Protecting your position

Construction payment disputes are often won or lost well before proceedings commence. A missed payment schedule, an ineffective notice or an unjustified suspension can significantly affect the parties’ rights, regardless of the merits of the underlying dispute.

Early advice can help identify the available remedies, preserve statutory and contractual rights and avoid unnecessary costs.

How Dark Legal can assist

Dark Legal advises and represents contractors, subcontractors, principals and other construction industry participants in payment disputes across Australia. We assist with unpaid progress claims, payment schedules, adjudications, contractual disputes, construction litigation and the enforcement of adjudication determinations and judgments.

Whether you are seeking payment or disputing a claim, contact Dark Legal to discuss your rights and the most effective strategy for resolving the dispute.

¹ The relevant legislation includes the Building Industry Fairness (Security of Payment) Act 2017 (Qld); Building and Construction Industry Security of Payment Act 1999 (NSW); Building and Construction Industry Security of Payment Act 2002 (Vic); Construction Contracts (Security of Payments) Act 2004 (NT); Building and Construction Industry Security of Payment Act 2009 (SA); Building and Construction Industry (Security of Payment) Act 2021 (WA); Building and Construction Industry Security of Payment Act 2009 (Tas); and Building and Construction Industry (Security of Payment) Act 2009 (ACT). ↩