Subcontract Cap in Construction: How It Works
A subcontract cap in construction is the ceiling on what a sub can be paid: contract value plus approved variations. Learn how it protects your money.
Definition
A subcontract cap in construction is the most a subcontractor can be paid on a job. It equals your contract value plus any approved variations. Nothing more.
Invoices that would push your paid-to-date above the cap are not paid out. The amount stays in the project account until an approved variation lifts the cap. That something is an approved variation, not an inflated invoice.
Why it matters
On a paper-and-email job, scope creeps past what was agreed, nobody signs off, and you only find out when the money does not arrive or when you get chased to hand some back. The cap is your protection against both. It also means you cannot accidentally be overpaid and pursued later. The hard part is the flip side: if your real costs run past the cap, you are not paid for the overrun until the extra scope and its price are agreed in writing. Know your cap before you start, and watch it as the job runs.
How it works in practice
Your cap is set the day the contract is signed. It is your agreed contract value. Every invoice you raise adds to your paid-to-date. The cap is the line that paid-to-date cannot cross.
When you do extra work, that extra has to become an approved variation first. Both the builder and the owner sign off. Once approved, the variation lifts your cap by exactly that amount. No approval, no lift.
Invoices above the cap are not rejected and lost. The portion over the cap is withheld in the project account. The work is recorded on the ledger, but the funds are not released to your bank until an approved variation makes room. This stops over-invoicing and stops a sub being paid for work nobody agreed to.
Two other things sit alongside the cap. Materials the builder pays on your behalf are set off against your payable pool, so they reduce what is left to draw. And retention-style withheld amounts release after completion, once defects are resolved.
Common misconceptions
A bigger invoice gets you paid more
It does not. Anything above the cap is withheld in the account, not paid. The only way to get paid more is an approved variation that lifts the cap.
An approved variation creates spare headroom
No. A variation lifts the cap by the exact value of the approved extra work. It does not create slack to draw against for anything else.
The builder can quietly raise your cap
They cannot. Variations need dual approval, builder plus owner, before they change the contract sum. One party alone cannot move your cap.
Withheld means lost
It does not. Amounts above the cap stay in the project account, recorded on the ledger. They release when an approved variation makes room, or sit there until then.
BuildFair enforces the cap as contract value plus approved variations, with every posting recorded on a double-entry, hash-chained ledger. For the wider picture, see the How subcontractors get paid on Australian residential builds guide.