Victorian Government to enact major changes to the Security of Payment regime

Last year, the Victorian Government’s Environment and Planning Standing Committee (Committee) made significant recommendations to amend the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act) following its inquiry into non-payment of subcontractors. The recommendations focused on payment practices, strengthening the right to claim payment, improving adjudication of disputes, and addressing insolvency issues.

The Government has now responded to the Committee’s report, stating it will support 16 of the Committee’s recommendations in full, with the remainder either supported in part or in principle.

Among the recommendations supported in full, key changes to the SOP Act will include:

• removing the ‘excluded amounts’ regime altogether
• replacing ‘reference dates’ with an entitlement to one payment claim per month, or at termination of the contract
• preventing respondents from submitting new reasons for withholding payment during the adjudication process
• amending the definition of ‘business days’, effectively removing the dreaded ‘SOP Christmas present’
• the new ability to strike down ‘unfair time bars’.

What does this mean for the construction sector?

With only a few Parliament sitting days remaining this year, the amended regime will likely not come into effect until sometime in 2025.

The changes seek to increase the types of claims that can be made and to simplify the adjudication process, which will bring Victoria in line with other Australian jurisdictions. It is expected that the number of SOP claims made in Victoria will increase once the changes come into effect. 

Construction industry participants should review their processes for making and receiving progress claims. The tight timeframes under the SOP Act remain in place, and with a wider application than previously applied and a simpler process overall, respondents face the possibility of a harsh and unexpected outcome if they are not prepared. 

The ability of claimants to claim variations and delay costs combined with the new power of an adjudicator to strike down an unfair time bar is a particularly notable set of changes. It is anticipated that this will lead to some significant shifts in dynamics during the monthly progress claims assessment.

Recommendations supported in full

Strengthening the right to claim payment

In its inquiry, the Committee identified key issues impacting the effectiveness of the SOP Act, including claimable versus non-claimable contract variations, unfair contractual clauses, and short time limits for claiming payment. In response, the Government has supported the recommendations to strengthen the right to claim payment in full, including:

• abolishing the concepts of ‘excluded amounts’ and ‘non-claimable contract variations’ from how progress payments are calculated (Recommendation 2)
• removing the concept of ‘reference dates’ and replacing them with an entitlement to one payment claim per month and express provision for making a payment claim on or following the termination of a contract (Recommendation 3)
• amending the definition of ‘business days’ to exclude Saturdays and Sundays, Victorian public holidays, and the period between 22 December and 10 January (Recommendation 4)
• inserting a provision that states notice-based time bar clauses can be declared ‘unfair’ by an adjudicator, court, or arbitrator if compliance with the clause is not reasonably possible or would be unreasonably onerous (Recommendation 5)
• inserting a provision prohibiting unfair construction contractual clauses and nullifying their effect (Recommendation 6)
• extending the time limit on claiming payment to six months after the construction work has been completed, or later if provided under the contract (Recommendation 7)
• preventing the imposition of protracted payment terms by providing an upper limit of 25 business days when a payment becomes due and payable under a contract (Recommendation 8)
• expressly providing entitlement to claim retention money (Recommendation 9).

Improving the adjudication of payment disputes

The Committee’s report highlighted deficiencies in the adjudication process under the current SOP Act. Notable issues included the current right of respondents to raise new reasons for withholding payment during adjudication that were not outlined in their payment schedule and outdated provisions concerning document service. The Committee also addressed concerns about adjudicators' skills, qualifications, and fee sharing arrangements.

The Government generally accepted the recommendations to improve the right to adjudication, supporting a number of recommendations in full, and others in principal or in part. Those supported in full include:

• preventing respondents from submitting new reasons for withholding payment during the adjudication process (Recommendation 15)
• providing respondents additional time to produce a payment schedule in response to ‘last chance’ adjudication notice (Recommendation 16)
• amending the timeframe for an adjudication determination so that it is due 10 days after an adjudication response is provided or otherwise due and allowing the claimant and respondent to negotiate an extension (Recommendation 17)
• removing the adjudication review mechanism as it only allows for reviewing determinations involving excluded amounts (Recommendation 19)
• modernising the process for serving notices to include service by electronic lockbox and accompanying email (Recommendation 20)
• providing that an adjudication certificate may be filed as a judgment for a debt in court to enforce compliance (Recommendation 26).

Other general recommendations

The Government supported two general recommendations in full as follows:

• providing ongoing funding to the Victorian Building Authority (VBA) and tasking it with delivering continuing education to the construction sector on security of payment law in conjunction with relevant key industry bodies (Recommendation 11)
• directing the VBA to update the Authorised Nominating Authorities (ANAs) Conditions of Authorisation issued under section 43 of the SOP Act (Recommendation 24).

Recommendations supported in part or in principle

While the Government supported 16 out of the 28 recommendations in full, 12 recommendations were supported in part or in principle. These included training and professional development for adjudicators, further consideration of the introduction of a trust scheme to the Victorian regime and further funding for the VBA.

The following table sets out the Government’s response to the recommendations they support either in part or in principle.

The Government’s response can be found here. If you would like to learn more or have any questions about how these changes may impact your business, get in touch with our team below.

Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Lachlan Ingram

Alexandra Toutzoglou

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