What is the Security of Payment Act 2002 (VIC) (“SOPA”)?
Cash flow is an important consideration for any business but particularly so, for businesses in an industry heavily reliant on one another down the contracting chain.
SOPA is a legislative regime designed specifically to assist companies in the building and construction industry in Victoria to secure payment quickly.
Who is covered under the SOPA?
SOPA applies to commercial construction contracts including "construction work" and "construction related goods and services" within Victoria entered on or after 30 March 2007.
It does not apply to domestic building contracts, being a contract between a building owner and a builder, however, can include work as between a builder and sub-contractor working on a domestic building project.
How can SOPA be applied during the current COVID-19 pandemic?
There is great uncertainty in the building and construction industry as a result of the COVID-19 pandemic. We have seen both the State and Federal governments attempt to boost building and development, including by providing grants for housing construction.
However, with the movement of people being restricted in greater Melbourne once again, there is the potential for site shutdowns leading to delays, extensions of time, the risk of late payments and deferred cost claims. SOPA provides an avenue available for contractors to be able to obtain fast payment and retain cash flow during this difficult time.
Under the legislation, contractors can serve payment claims upon the other party that owe them money for construction work, or goods or services provided under a construction contract. However, there must be strict adherence to timeframes within which either the payment of a claimed amount can be made or disputed. The amount can be disputed by providing a ‘payment schedule’ or ‘notice of dispute’.
In Victoria, the timeframe for submission of a payment schedule or notice of dispute is as may be specified under the contract or 10 business days after the payment claim is served, whichever is earlier.
Failure to comply with this timeframe will result in liability for the entire amount of the claim which the contractor can then recover as a debt in court. Alternatively, the matter will proceed to adjudication.
The benefits of application under SOPA include both the imposition of strict timeframes for the payment of amounts claimed and also a speedy dispute resolution process if the parties do not agree that the contractor is entitled to the amount claimed. Ordinarily, a contractor would need to go through costly and slow litigation to enforce their rights.
SOPA also provides for a statutory right to suspend works if the amount due to be paid is not (subject to relevant steps in the Act being taken) and under SOPA a lien may be created over unfixed plant and materials as security for any unpaid amounts.
In an industry where cash flow is so important, SOPA was designed to provide for a quick and effective process to keep cash moving. Particularly, in this current climate, this can mean the difference between businesses being able to continue to trade.
At Burke & Associates Lawyers, we, together with our partners, provide experienced business, commercial and dispute resolution advice. For more information, please contact Rosy Roberts, Associate or Meghan Warren, Principal on email@example.com, firstname.lastname@example.org and respectively, or by contacting our office on + 61 3 9822 8588.