Throughout Australia, legislation exists to help contractors and sub-contractors protect their revenue streams and cash flow. Generally this is referred to as “Security of Payment” or SOPA legislation. In this article we’re going to give you a run down on how the Victorian SOPA regime works.
In Victoria, the relevant legislation is called the Building and Construction Industry Security of Payment Act 2002 (Vic) (‘BCISPA’).
For other States, you can find our Queensland SOPA guide here, and our NSW SOPA guide here.
HOW DOES VICTORIAN SECURITY OF PAYMENT WORK?
Much the same as the other SOPA legislation throughout Australia, the main purpose of BCISPA is to provide for entitlements to progress payments for persons who carry out construction work or who supply related goods and services under construction contracts.
The typical basic process is:
- The claimant submits a valid payment claim;
- The person liable to pay the claimant (the respondent) responds with a payment schedule;
- If there is disagreement or non-payment, the matter proceeds to adjudication by an independent adjudicator.
While the basic process is similar to that in other states, the Victorian BCISPA is unique in that, compared to other states’ SOPA legislation, BCISPA substantially limits what can be claimed and subsequently included in determining the amount of a progress payment a person is entitled to. As you’d expect, the way BCISPA does this is not straight forward either.
As such, to assist potential claimants navigate BCISPA, we have prepared the below checklist which will help determine whether a claimant can make a claim under BCISPA in the first place.
Security of Payment Checklist – Victoria
Victorian SOPA Checklist
| Question | Description | Y/N? | Answer |
|---|---|---|---|
| THRESHOLD ENTITLEMENT - CONSTRUCTION WORK OR RELATED GOODS AND SERVICES IN VICTORIA | |||
| Have you undertaken to carry out construction work or supply related goods and services in Victoria under a construction contract? | Construction work, and related goods and services are very broadly defined under BCISPA, and includes everything you would expect, for example, the construction or alteration of buildings, structures, roads, railways etc. Construction contract means a contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods and services, for another party. Some construction contracts won’t apply under BCISPA such as those part of a loan agreement, a contract of guarantee, or a contract of insurance under some circumstances. Most domestic building contracts won’t apply either. | ☐Yes ☐No | If you answered ‘Yes’, BCISPA will likely apply and you may have a right to make a payment claim under the Act, on and from each reference date. However your claim must not include any ‘excluded amounts’ (see below). |
| EXCLUDED AMOUNTS | |||
| In your payment claim, are you claiming for damages? | This may be damages for breach of the contract or any other claim for damages arising under or in connection with the contract. | ☐Yes ☐No | If you answered ‘Yes’ you will not be able to claim for the amount claimed for damages. An adjudicator will not be able to award you an amount in respect of your claim for damages, as this would be an excluded amount. |
| In your payment claim, are you claiming for an amount in relation to a claim arising at law other than under the contract? | For example, this could be an amount for misleading and deceptive conduct under the Australian Consumer Law or for an amount arising from equity such as quantum meruit. | ☐Yes ☐No | If you answered ‘Yes’ you will not be able to claim for the amount claimed in relation to a claim arising at law other than under the contract, as this would be an excluded amount. |
| In your payment claim, are you claiming for an amount for compensation due to the happening of an event? | These may be amounts claimed relating to: (a) latent conditions; (b) time-related costs (delay or disruption costs); or (c) changes in regulatory requirements. | ☐Yes ☐No | If you answered ‘Yes’, you are claiming an excluded amount and cannot claim for this under BCISPA, unless it is a claimable variation (see below). |
| Are you claiming for an amount relating to a variation of the construction contract | A variation in relation to a construction contract means a change in the scope of the construction work to be carried out, or the related goods and services to be supplied, under the contract. | ☐Yes ☐No | If you answered ‘Yes’ you will only be able to claim for the variation if it is a ‘claimable variation’ (see below). |
| CLAIMABLE VARIATIONS | |||
| In your payment claim, are you claiming for a variation to which the parties agree on all aspects of the variation? | A disagreement between the parties (if any) in relation to the variation may be in respect of: (a) whether the doing of the work alleged to be a variation actually constituted a variation to the contract; (b) whether you are entitled to payment of the variation; (c) the value of the variation; (d) the method of valuing the variation; or (e) the time for payment for the variation. If a disagreement regarding any of (a) to (e) above applies, for ease, we’ll call it a ‘disputed variation’ here on in. | ☐Yes ☐No | If you answered ‘Yes’, indicating that the parties agree on all aspects of the variation, then this is a claimable variation which you can claim under BCISPA. If you answered ‘No’, because you are claiming for a disputed variation, then you might not be able to claim depending on how you answer the below. |
| Does the contract contain a method for resolving disputes? | This will usually be included in a clause in your contract such as one which requires the parties to confer or proceed to mediation to resolve disputes. | ☐Yes ☐No | If you answered ‘No’, then you can claim for the disputed variation, and an adjudicator can award you an amount in respect of it. If you answered ‘Yes’, then you might still be able to claim under BCISPA depending on how you answer the below. |
| Are you exceeding 10% of the consideration under the contract at the time the contract was entered, with the amount claimed (in aggregate) for disputed variations under the contract. | The consideration under the contract is the value or amount to be paid under the contract (eg the contract sum). For example, a building contractor enters into a construction contract. The consideration (contract sum) under the contract at the time the contract is entered into is $3 million. The contractor has already made a number of claims for disputed variations under the contract, and a new disputed variation claim brings the total amount of claims for disputed variations under the contract to $350 000. This amount exceeds 10% of the contract sum. | ☐Yes ☐No | If you answered ‘No’, and the consideration under the contract is $5 million or less, then you can claim for the disputed variation/s. If you answered ‘No’ and the consideration under the contract is more than $5 million, then the variation is not a claimable variation and is an excluded amount and cannot be claimed under BCISPA. If you answered ‘Yes’, but the consideration under the contract is $150,000 or less then you can claim for the disputed variation/s. If you answered ‘Yes’ and the consideration under the contract is more than $150,000, then the variation is not a claimable variation and is an excluded amount and cannot be claimed under BCISPA. |
Assuming you have met the requirements outlined above and have removed any excluded amounts from your claim, then you should be good to go to claim under BCISPA.
A summary of the process under BCISPA is set out below.
Making a payment claim
The process starts with a payment claim. To make a payment claim, you have to tick off each of the following requirements:
- There needs to be an available reference date. A reference date is the date on which a claim for a progress payment can be made. You’ll usually find this in the contract. If it’s not in the contract, then BCISPA will provide for it. For example, if the payment claim is not for a single or one-off payment, or a final payment, then reference dates will arise 20 business days after the work was first carried out and then every 20 business days after the last reference date.
- Once a reference date arises, a claimant can make a payment claim for up to 3 months following the reference date.
- The payment claim needs to identify the construction work or related goods and services claimed.
- The claimed amount must be indicated.
- The payment claim must state that it has been made under BCISPA.
- There is presently no prescribed form for a payment claim (as at August 2020), although that could change in the future so it’s always worth double checking.
The payment claim should be given to the person who, under the construction contract concerned, is or may be liable to make the payment (the respondent). This is typically the principal or head contractor.
The payment schedule
In response to a payment claim, a respondent should provide a payment schedule. The payment schedule sets out what the respondent believes is owing and what they propose to pay.
To submit a valid payment schedule in response to a payment claim, the schedule must:
- identify which payment claim the schedule relates to;
- indicate the amount of the payment that the respondent proposes to make (the scheduled amount); and
- identify any alleged excluded amounts (if any) claimed by the claimant.
If applicable, the payment schedule should also contain detailed reasons as to why the respondent is proposing to pay an amount less than the payment claim.
Timing of a payment schedule
The timing of a payment schedule is important to ensure that it is valid under BCISPA.
The payment schedule must be provided to the claimant by the earlier of 10 business days after the payment claim is served or within the time required by the relevant contract.
Consequences of failing to provide a payment schedule or not paying in accordance with a payment schedule
If the respondent does not provide a payment schedule, they will become liable to pay the claimed amount on the due date for payment. Also, should the matter proceed to adjudication, the respondent will be unable to submit an adjudication response.
If the respondent provides a payment schedule, but does not pay the claimant in accordance with the payment schedule, they will become liable to pay the scheduled amount on the due date for payment.
If the respondent then fails to pay the amounts due on or before the due date for payment, the claimant may:
- recover the unpaid amount in court as a debt due to the claimant; or
- make an adjudication application.
Beyond that, the claimant may serve notice on the respondent of the claimant’s intention to suspend the work under the contract. However that is a significant step and should only be taken on advice.
Adjudication application
An adjudication application can be made by a claimant if:
- the respondent’s payment schedule stipulates an amount which is less than the claimed amount; or
- the respondent does not pay the amount stipulated in the payment schedule; or
- where no payment schedule was given, the respondent failed to pay the claimed amount by the due date.
Adjudication applications are made to an authorised nominating authority (‘ANA’) under BCISPA. A list of ANAs can be found here:
https://www.vba.vic.gov.au/building/security-of-payment/authorised-nominating-authorities
The claimant will be free to choose the ANA to which they will lodge their adjudication application, unless the relevant construction contract specifies 3 or more ANAs which may be used. In that circumstance, the claimant must choose one of those ANAs specified in the contract.
What to include in an adjudication application
An adjudication application must:
- be in writing;
- identify the relevant payment claim, and payment schedule (if any) to which it relates;
- contain the application fee (if any) determined by the chosen ANA;
- include relevant submissions; and
- be provided in full to the respondent.
When to lodge an adjudication application
To lodge an adjudication application, the requirements below must be satisfied:
- If the adjudication application relates to a payment claim where the payment schedule is less than the claimed amount, the application must be made within 10 business days after the payment schedule is received by the claimant.
- If the respondent has not paid the claimant according to the payment schedule by the due date for payment, the claimant’s adjudication application must be lodged within 10 business days after the due date of payment.
- If a payment schedule is not given by the respondent, the claimant must first notify the respondent within 10 businesses days after the due date for payment, of its intention to make an adjudication application. The respondent then has 2 business days to give a payment schedule. The claimant then has 5 business days after the 2 business days period has expired to lodge their adjudication application.
If the claimant fails to make their adjudication application in time, the claimant will lose out on its entitlement to proceed to adjudication in respect of that payment claim.
Adjudication response
If it provided a payment schedule, a respondent may lodge an adjudication response to respond to the claimant’s adjudication application.
What to include in an adjudication response
To submit a valid adjudication response:
- it must be in writing;
- it must identify adjudication application to which it relates;
- the address and name of any relevant principal of the respondent, or anyone who has a financial or contractual interest in the matters involved in the adjudication application, must be identified;
- it must identify any amount of the payment claim that the respondent alleges is an excluded amount; and
- relevant submissions may be included in the response.
Unlike in some other States’ SOPA legislation, the respondent may include new reasons for withholding payment that were not included in the payment schedule. However, in such circumstances, the claimant will have a right to lodge a response to those reasons within 2 business days after receiving notice of the new reasons by the adjudicator.
When to lodge an adjudication response
The timing of an adjudication response is important.
- The respondent must lodge an adjudication response within the later of 5 business days after a copy of the claimant’s adjudication application is received, or 2 business days after receiving a notice of an adjudicator’s acceptance of the claimant’s adjudication application.
- A copy of the adjudication response must be served on the claimant.
Adjudication determination
An adjudicator determines the amount of the progress payment (if any) to be paid by the respondent to the claimant, the amount of interest payable, and the date upon which the amount is payable.
The adjudication application has to be determined within 10 business days after the adjudicator’s acceptance of the adjudication application. The claimant may agree to give the adjudicator more time than this, which is sometimes requested on more complex adjudications.
The adjudicator’s determination must be in writing and include the reasons for the determination and the basis on which any amount or due date has been decided.
The adjudicator must not take into account any part of the claimed amount that is an “excluded amount”.
To the extent the respondent believes the adjudicator took into account an excluded amount, or the claimant believes the adjudicator incorrectly considered an amount to be an excluded amount, BCISPA provides an express right for the decision to be reviewed.
Enforcing an adjudication determination
If an adjudicator determines that a respondent is required to pay an adjudicated amount, the respondent must pay that amount to the claimant within 5 business days after the date on which a copy of the adjudication determination is given to the respondent, unless the adjudicator determines a later date.
If the respondent fails to pay the adjudicated amount in time, the claimant may request the ANA provide an adjudication certificate, which will allow the claimant to recover the unpaid amount as a debt due in court.
Once the sum is considered a “debt due” to the claimant by a court judgment, the claimant also has the option to try and recover directly from the respondent’s relevant principal instead, by serving a “notice of claim” on the principal. This operates to assign to the claimant the benefit of the principal’s obligation (if any) to pay money owed under a contract to the respondent. This option may be useful if the claimant is having difficulties recovering directly from the respondent, and the respondent still has amounts owing to it from the principal.
Conclusion
While BCISPA may significantly restrict certain amounts from being claimed (excluded amounts), when the Act does apply, it is still a powerful and efficient tool to recover and be paid for construction work or related goods and services carried out. If you need a hand navigating BCISPA, feel free to get in touch.
