E-Alert: Release of subcontractor retention monies cannot be dependent upon events under the head contract

The High Court of Australia has confirmed that the release of a subcontractor's retention monies cannot be conditional or dependent upon events or obligations under the head contract.

Such clauses are likely to fall foul of the prohibition of 'pay when paid' provisions included in security of payment regimes across Australia.

What are 'pay when paid' provisions

A 'pay when paid' provision in a construction contract is generally a clause that makes the liability of one party to pay the other conditional or dependent upon the first party being paid by a third party.

An example is a clause in a subcontract that says that the head contractor does not have to pay the subcontractor for its works until the head contractor has been paid for those works by the owner.