Both head contractors (or “principals”) and sub-contractors should be astutely aware of their rights and obligations under the Building and Construction Industry Security of Payment Act 2002 (the SOP Act) – which governs payment claims made under a construction contract. Failing to comply with a deadline, such as the time for responding to a Payment Claim, can have significant consequences.
What the SOP Act aims to achieve
The SOP Act provides protection to contractors and suppliers under a construction contract in relation to receiving payment from a principal (in most cases, the head builder or developer).
The legislation was introduced for the purpose of negating common practice of delayed payments by principals, which could, in many circumstances, have significant consequences for contractors who had undertaken works pursuant to a construction contract without payment.
Who does the SOP Act apply to
The SOP Act applies to a person/s who have undertaken to carry out construction work under a construction contract or have supplied related goods or serves under the construction contract.[1]
The SOP Act does not apply to domestic building contracts as between owner and builder but does apply to sub-contractors/supplier engaged by a domestic builder to undertake works in pursuance of a domestic building contract.
How the SOP Act applies to payments
Contractors (or claimants) are able to submit to a principal what is known as a Payment Claim, pursuant to the Act, which obliges the principal to formally respond. If the principal fails to do so, the Payment Claim is deemed accepted and the principal is obligated to make payment within strict time limits （the earlier of 10 business days or as otherwise required by any applicable contract）.
If the principal disputes the claim or part thereof, they are required to serve what is known as a Payment Schedule, which is required to outline any variance in what the Payment Claim stated and what the principal considers is payable.
Adjudication
If there is a dispute in relation to the quantum of a claim, the claimant can apply for an adjudication. Adjudication is a fast and inexpensive mechanism to obtain a binding decision regarding a Payment Claim. If an adjudicator makes a decision and payment is not made by a principal, the claimant has the option to register the judgement with a Court and commence recovery proceedings. Principals should be aware that if they fail to issue a Payment Schedule within the confines of the time provided for by the Act or contract, they have likely lost the opportunity to make such submissions to the adjudicator.
In practice, this has the consequence of a Payment Claim, if not responded to, being registered as an enforceable judgement with little opportunity for rebuttable by a principal.
Conclusion
If you need legal assistance in relation to a Payment Claim, your obligations under a construction contract, the adjudication process or a construction dispute generally, please contact our litigation team early to understand how they can assist.
[1] Building and Construction Industry Security of Payment Act 2002 (VIC) s9
How can I learn more?
Rachael McKendrick.
Principal.
- Disputes & Estate Litigation
- 03 9890 3321
- Email Address: r.mckendrick@robinsongill.com.au
Rachael is a disputes lawyer with a focus on helping building and construction disputes, debt recovery, contractual disputes and wills disputes.
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