Security of Payment Act

The Building and Construction Industry Security of Payment Act 2002 VIC (SOP Act) is legislation that is intended to provide a more efficient process for any person who carries out construction work (or supplies related goods and services) under a construction contract to be paid for their work. The following applies to Victoria only (as the legislation differs from State to State).

FAQs for Building Owners / Developers / Principals

1. I have received a payment claim. How long do I have to respond?

   If you are served with a valid payment claim, you may respond with a payment schedule (certifying the amounts due and payable) within the time specified in the construction contract or within 10 business days after the payment claim is served (whichever is earlier) (s 15 of the SOP Act).

2. What are the requirements of a payment schedule?

   You may reply to a valid payment claim by issuing a payment schedule, the requirements of which are set out in the SOP Act including under s 15. Some of those requirements include:

   • a) identify the payment claim to which the payment schedule relates;

   • b) indicate the scheduled amount, being the amount of payment that you propose to make;

   • c) identify any amount of the claim that you allege to be an excluded amount;

   • d) must be in the relevant prescribed form; and

   • e) must contain the prescribed information (if any).

   If you are alleging the scheduled amount should be less than the claimed amount, you must include reasons why. If you allege that the claimed amount should be less but fail to provide appropriate reasons, the Contractor can apply for an adjudication of the amount. It is therefore important to ensure the reasons you put forward for reducing the claimed amount are made properly in the first instance.

3. What happens if I do not respond to a payment claim?

   If you do not respond to the payment claim, you become liable to pay the claimed amount on the due date (s 15(4) of the SOP Act). It is therefore imperative that you act quickly.

   The person who made the payment claim against you may:

   • a) recover the amount as a debt in the appropriate court of competent jurisdiction; and

   • b) under s 16 of the SOP Act, serve notice of their intention to suspend carrying out construction work (or supplying related goods and services) under the construction contract.

4. How long do I have to pay?

   If you are served with a payment claim, you have the period specified in the construction contract to make payment or, if the contract does not state the due date, the payment claim must be paid within 10 business days after the payment claim is made (s 12 of the SOP Act).

FAQs for Builders

1. I have not been paid for the work I have done and I want to make a payment claim under the SOP Act. How do I do this?
   

   If you have undertaken construction work (or supplied related goods and services) under a construction contract, you are entitled to a progress payment.

   You must first determine whether there is a valid construction contract that meets the definition of the SOP Act and whether the work you have undertaken is construction work or a supply of related goods and services that is covered by the Act (s 2 of the SOP Act).

   You may only issue a payment claim by reference to a valid ‘reference date’ (being a date fixed by the construction contact or the SOP Act). Generally, in some circumstances, the payment claim must be served within 3 months after the reference date or the period specified in the construction contract (whichever is later).

   If you are unsure whether the work you have carried out is covered by the Act, please contact us. We can also help you determine the relevant reference dates.

2. What constitutes a valid payment claim?

   As outlined in s 14 of the SOP Act, a payment claim must:

   • a) be in the relevant prescribed form (if any);

   • b) contain the prescribed information (if any);

   • c) identify the construction work or related goods and services to which the progress payment relates;

   • d) indicate the amount of the progress payment that the claimant claims to be due; and

   • e) state that it is made under the SOP Act.

   It is important to note that the claimed amount must not include any excluded amount (as outlined in s 10B of the SOP Act) (please also see below). Payment claims must also be served within the correct timeframe as outlined in s 14 of the SOP Act (please see above).

   In order to determine whether your payment claim is valid, please contact us for further assistance.

3. What are some examples of “excluded amounts”?

   In Victoria, neither the Principal nor the Contractor can claim for “excluded amounts” under SOP Act. For Principals, this would include claims for liquidated damages as they must pay the full value of work performed (on an interim basis). For Contractors, this would include ‘non-claimable variations’ and delay and disruptions costs (or other time-related costs).

   If a Principal applies liquidated damages in a payment schedule, then the Contractor can recover them in an adjudication based on the relevant payment claim.

4. I issued a payment claim but I have not received any response. What should I do?
   

   If you are served a valid payment claim under the SOP Act, the person you are claiming from has the period specified in the construction contract or 10 business days (whichever is earlier) to respond to your payment claim with a valid payment schedule (s 12 of the SOP Act).

   If you do not receive a valid payment schedule within the specified timeframe, you may become entitled to bring an adjudication application for the claimed amount. Please contact us if you require assistance with this.

5. When is adjudication available to me?

   You may apply for adjudication of payment claim if:

   • a) the Principal provides payment schedule but the scheduled amount is less than the claimed amount (s 18(1)(a)(i) of the SOP Act);

   • b) the Principal fails to pay the entire or part of the scheduled amount by the due date (s 18(1)(a)(ii) of the SOP Act); or

   • c) the Principal fails to provide a valid payment schedule and fails to pay the entire or part of the claimed amount by due date (section 18(1)(b) of the SOP Act).

If you have any questions relating to construction law, please do not hesitate to contact Glenn Chiang, +61 413 523 696 or email info@alignlaw.com.au or Lydia Sia, +61 455 507 068 or email info@alignlaw.com.au .