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3 Things Developers Need to Know About the Security of Payments Act (2002)

The Building and Construction Industry Security of Payment Act 2002 (SOP) is Victoria-specific legislation that aims to reduce the incidence of debt in the construction industry. It does this by outlining contractors’ specific rights and protections and describing a legally enforceable method for recovering progress payments.

If you’re a property developer and owe payment(s) to a contractor(s), the SOP can affect you in terms of your project’s completion and the overall cost of compensating the contractors, as well as any lawyers involved. While the best course of action would be to pay contractors the owed amount on time, the team at Boutique Lawyers understands that difficult circumstances can arise. This blog explores 3 important stipulations in the SOP and their potential effects on developers.

1. Payment schedules

Once you receive a payment claim from a contractor chasing payment, you have 10 business days to respond with a payment schedule. On this payment schedule, you must identify the following:

  • The payment claim the schedule relates to
  • The amount you intend to pay the contractor, including your reasons for any variation from the original amount described in the payment claim
  • Any amounts deemed to be ‘excluded amounts’ in accordance with the SOP. This includes any amounts that:
  • are not ‘claimable variations’
  • relate to latent conditions, time-related costs and changes in regulatory requirements
  • are for damages that stemmed from breach of contract
  • relate to a claim arising from law(s) outside of the construction contract

The contractor has the right to halt any remaining work on your project and/or pursue an adjudication if:

  • The contractor is unhappy with the amount you have agreed to pay, or;
  • You provide a payment schedule but do not pay any or all of the scheduled amount by the due date, or;
  • You fail to provide a payment schedule at all and/or do not pay any or all of the claimed amount

2. Adjudication

If you do not send a payment schedule with all the relevant details, you forfeit your chance to exclude amounts and owe the full amount of the payment claim. The contractor has the right to enforce this in court. On top of this, you may not be allowed to participate in any adjudication process if one should occur.

During an adjudication, there is no hearing. A contractor can complete the entire process via paperwork between themselves and a dispute adjudicator nominated by the Authorised Nominating Authority (ANA). Within 10-15 business days, the adjudicator will have decided how much the developer should pay and when. From this point, there is almost no appeal after the adjudicator’s determination, and the contractor can enforce the ruling in a court of law. The adjudicator can then charge their costs to both the contractor and the developer, though the adjudicator can choose how to distribute their fees.

3. Court orders

If you fail to pay the contractor after the adjudication process, the contractor can ask the ANA for an adjudication certificate. In conjunction with an affidavit stating the amount owed is still outstanding, they can use this certificate to enforce a determination in the Magistrates, County, or Supreme Courts (depending on the amount owed).

After a court order has been issued, if you are still withholding payment, the dispute will be escalated with the Victorian Building Authority and is likely to involve full-scale legal action. At this point, both the contractor and developer should seek a lawyer’s counsel.

If you or someone you know needs legal advice on the Security of Payment Act or any other construction law matters, contact the professionals at Boutique Lawyers. We’re the top property law firm Melbourne has to offer and are dedicated to giving our clients peace of mind. Visit us at our CBD office on Collins Street, call 1300 556 140, or contact us online today.

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