5 Things You Need to Know About the Security of Payment Act

Being paid on time is an essential part of running your business as a contractor. Positive cash flow allows for you to grow your business and more importantly react to challenges such as the restrictions that come out of the COVID-19 lockdowns.

Each state and territory has its own laws around security of payment which is about a contractor’s right to receive payments owed, on time as set out in terms and conditions that govern their work.

In this article, we focus on the Victorian legislation – the Building and Construction Industry Security of Payment Act 2002 (Vic) (the Vic SOP Act).

For information about the SOP Acts in other states please refer to the below links:

• ACT
• NSW
• QLD
• NT
• Tas
• SA
• WA

1. What kind of work does the Vic SOP Act cover?

The Act broadly covers most commercial construction contracts (other than owner occupier contracts) and includes:

• residential and non-residential building
• civil engineering
• demolition
• electrical
• professional services (e.g. architecture, design)
• hire of plant and equipment
• landscaping
• maintenance
• mechanical air conditioning
• plumbing
• supply of building material.

It is worth noting that the NSW SOP Act has been amended to now cover new owner occupier construction contracts.

2. What kind of payments does the SOP Act cover?

Contractors can make claims under the SOP Act for progress payments for work performed or supplies made.

a. Excluded Amounts

Victoria is different from the other states in that it does not permit claims for “excluded amounts”. Delay and disruption costs or other time related costs are considered excluded amounts.

For those that are the respondents to a payment claim, they cannot levy liquidated damages. If a respondent applies liquidated damages in a specific payment schedule, the claiming company can recover them in adjudication solely for that specific payment claim.

b. Retention Moneys

In addition to the above, a recent Supreme Court decision[1], followed by several Country Court decisions, confirms that in Victoria retention moneys do not fall within the definition of construction work under a construction contract and is therefore not covered by the Vic SOP Act. This is in contrast to the SOP Acts in other states/territories. Claims for cash retentions are expressly allowed in NSW, QLD, ACT, Tasmania and SA.

3. What protections does the SOP Act provide?

The main protections given to contractors in Victoria include, but is not limited to:

• The statutory right to make regular payment claims;
• Enforced periods of time for principals to respond to claims;
• The right to exercise a lien for unpaid amount over any unfixed equipment or materials;
• Minimum interest rates on late progress payments;
• Default payment terms (10 business days);
• The statutory right to suspend work following non-payment; and
• Prohibition on contracting out of the Act.

4. What are the steps involved in making a claim under the Vic SOP Act?

a. Issue a payment claim

As a contractor, once you have carried out the supply of work or provision of goods under a construction contract, you should issue a payment claim to the other party. A payment claim (i.e. an invoice) must specify the work, goods/services you supplied, the amount you are claiming and it is must state that the payment claim is made under the Building and Construction Industry Security of Payment Act 2002.

b. Other party disputes payment claim

If the payment claim is disputed by the other party, they must issue you with a payment schedule. The payment schedule must state how much the other party is willing to pay and the reasons why it is different to the amount in your payment claim. The other party must provide this payment schedule within 10 business days or as specified in your terms and conditions/contract (whichever is earlier) otherwise they are liable to pay the full amount.

c. Adjudication 

If the other party and you cannot agree on the amount, you can apply for adjudication through the Authorised Nominating Authority (ANA). ANA nominates an adjudicator to manage the dispute. The adjudicator has 10 business days (or up to 15 business days where you agree) to determine what amount the other party must pay and by when.[2]

Both parties to an adjudication bear their own costs. This means you cannot recover any costs you incur through the adjudication process.  

d. Courts

If you prefer to go straight to the courts and not apply for adjudication, you can do so. You will have to lodge a complaint with the Magistrates’ Court or a writ in the County Court or the Supreme Court (depending on the claim amount).

If you chose to go through adjudication and need to enforce the adjudicated amount, you can also go to court by filing the adjudication certificate with an affidavit that states the other party failed to pay. The Court can then issue a warrant or an order requiring payment.

5. What if the other party is insolvent?

Where the respondent to your payment claim is insolvent, an adjudication determination may not be useful unless you can enforce it against a third party.

The Vic SOP Act enables contractors to recover the adjudicated amount from the amounts payable to a head contractor from the principal. Meaning as a subcontractor you can have the payments that would typically be made by the principal to the head contractor to be redirected so that you receive the payment instead of the head contractor.[3]

For this to happen, a debt certificate has to be issued by a court and you must serve a notice of claim on the principal.

View our webinar on “The ABCs of the SOP Act” where we have a specialist discuss how you utilise the SOP Act in your practical day to day work : https://register.gotowebinar.com/register/7128438863579433999.

Learn how to follow the process of the Security of Payments Act here: https://constructivelegalsolutions.com.au/security-of-payments-act-sopa-following-the-process-and-getting-paid-now/

Learn how to recover debt without going to court: https://www.constructivelegalsolutions.com.au/how-do-i-recover-a-debt/

Learn about whether you need terms and conditions: https://www.constructivelegalsolutions.com.au/terms-and-conditions-do-i-need-them-2021-3/

If you have questions on any of the above and/or require assistance with recovering debt, you can get in touch with us via admin@constructivelegalsolutions.com.au or 1300 972 092 or via our Contact Us page. 

[1] Punton’s Shoes v Citi-Con [2020] VSC 514

[2] https://www.vba.vic.gov.au/plumbing/security-of-payment

[3] https://www.turtons.com/security-of-payment-act-vic-everything-you-need-to-know