Security of Payment

Security of Payment

Every day, individuals and organizations engage in contracts for building and construction projects, and occasionally, disputes arise, particularly in the realm of payment. To address these challenges, the Building and Construction Industry Security of Payment Act 2002, commonly known as the Security of Payment Act (‘SOP Act’), plays a pivotal role in ensuring that parties involved in construction work receive due payments for their services and related goods.

Objective and purpose:

At its core, the SOP Act aims to provide a swift and cost-effective avenue for recovering payments under construction contracts, eliminating the need for protracted legal processes. Oversight of the act is carried out by the Victorian Building Authority (VBA), while the actual adjudication process is facilitated by Authorised Nominating Authorities (ANAs) appointed by the VBA.

The SOP Act applies to various contracts involving building work, related goods, and services in Victoria. It encompasses both oral and written contracts, effective for those entered on or after March 30, 2007.

Addressing Payment Disputes:

In response to common practices where parties responsible for payments create disputes or prolong payment processes, the SOP Act seeks to curb such actions. It ensures that parties involved in construction work promptly receive all due progress payments, including final payments and retention monies.

Covered Work under the SOP Act:

The SOP Act extends to a range of construction activities, including residential and non-residential building, civil engineering, demolition, electrical work, professional services, hire of plant and equipment, landscaping, maintenance, mechanical air conditioning, plumbing, and the supply of building materials.

Exclusion of Domestic Building Contracts:

While the SOP Act does not cover domestic building contracts between builders/suppliers and homeowners, it applies to contracts between a homeowner’s building contractor and subcontractors or suppliers. Disputes related to domestic building contracts can be addressed through Consumer Affairs Victoria.

Navigating Adjudication:

The Act introduces a dispute resolution process known as adjudication, allowing claimants to assert owed funds under a construction contract and promptly secure payment based on an independent adjudicator’s assessment. Adjudicate Today, appointed by the government, plays a crucial role in nominating adjudicators and providing essential training programs.

The adjudication process is designed to be streamlined and rapid, with adjudicators required to make determinations within 10 business days. If a respondent’s reasons for non-payment are deemed insufficient, they are generally held liable for the progress claim and interest. In cases of non-compliance with adjudication determinations, claimants may obtain an adjudication certificate for lodgement as a judgment debt.

Initiating a Claim:

To kickstart a claim under the Act, a Payment Claim must be made against a party to a construction contract, whether verbal or written, related to construction work or the supply of goods and services in Victoria. Adhering strictly to the outlined time frames in the Act is crucial for the success of an adjudication application.

Respondent’s Obligations:

Upon receiving a payment claim, the respondent must either pay in full or, if disputing the amount, provide a payment schedule within 10 business days. Failure to do so renders the respondent liable to pay the full claimed amount.

Claimant’s Options in Case of Dispute:

If a dispute arises, the claimant can pursue adjudication by lodging an application with an Authorized Nominating Authority (ANA). The ANA appoints an adjudicator to determine the payment dispute.

Court Resolution and Other Options:

Claimants can choose to go to court for dispute resolution instead of adjudication. Alternatively, if the respondent does not respond or pay, the claimant has options such as exercising a lien or suspending work, as detailed on the VBA website.

Consequences for Non-payment by Registered Building Practitioners:

Registered Building Practitioners failing to pay an adjudicated amount may face registration and disciplinary consequences under the SOP Act.

Condensed Overview of the Security of Payment Process:

1. Making a Claim:
2. Claim under the Building and Construction Industry Security of Payment Act within three months of the reference date.
3. Specify the work, amount claimed, and adhere to contract-defined reference dates or statutory ones.
4. Schedule for Payment:
5. Respondent has 10 business days to create a payment schedule.
6. Schedule must identify the claim, state the amount willing to pay, explain discrepancies, and identify excluded amounts.
7. If unsatisfied, claimant can proceed to adjudication.
8. Adjudication Process:
9. Adjudicator, not a judge, determines disputed or unpaid progress payments.
10. Application to the adjudicator is made within 10 days of the payment schedule’s expected service.
11. Adjudication determinations usually within 10 business days.
12. Adjudicated amount must be paid by the respondent; failure leads to potential work suspension, adjudication certificate application, and debt recovery proceedings.
13. Differentiation from Other States:
14. Victoria’s SOP Act 2002 is one of the state-specific acts.
15. While Australia lacks federal legislation, each state has its own laws, with slight variations in details and implementation times.
16. All acts aim to resolve payment disputes through arbitration, with differences in specific provisions.

The diagram below provides a concise overview of the states and the respective timeframes involved in making claims under Victoria’s SOP Act.

Initial – Claimant serves a payment claim

Day 10 – Payment schedule served by respondent

Day 20 – Adjudication application

Day 25 – Adjudication response

Day 35 – Adjudicator’s determination

Day 40 – Payment of amount

Day 45 – Registration of judgement

Onwards from day 45 – Enforcement proceedings if necessary

Support and Resources:

Our website offers comprehensive information and user-friendly flowcharts detailing the necessary steps for preparing and responding to payment claims. Our highly trained staff is readily available to address queries and offer guidance on complying with the Act.

In navigating the intricacies of payment disputes in construction, the SOP Act emerges as an indispensable tool, fostering fairness, efficiency, and promptness within Victoria’s building and construction industry.