Security of Payment Act – what’s new for the Construction Industry?

In March 2024, amendments to the Building and Construction Industry (Security of Payment) Act 2009 (ACT) (‘SOPA’) came into effect and applies to construction contracts entered on and from 11 March 2024. The purpose of these changes was to set statutory timeframes for payments under a construction contract for national consistency. 

What’s changed?

1. Claimants no longer have to submit a payment claim in accordance with a “reference date”.

The amended SOPA no longer includes the concept of a “reference date”. This is in line with security of payment legislation in other jurisdictions, including New South Wales and Western Australia.

This means that a claimant is now entitled to make a payment claim on or after:

• the last day of the calendar month in which the construction work was first carried out, or the related goods and services were first supplied, under the contract and of each subsequent calendar month; or
• if the construction contract provides for a payment claim to be given before the last day of a calendar month—the day provided under the contract; or
• if the construction contract has been terminated—the day of termination.

2. Payment terms can be no longer than 15 Business Days.

A construction contract in the ACT can no longer include excessive payment terms.

Section 13 of the amended SOPA provides a maximum statutory timeframe of 15 Business Days for payment to be made to a contractor which is inclusive of the time allowed for the principal to assess the progress claim (that is, 10 Business days).

The maximum statutory timeframe applies to both head contractors and subcontractors in ACT. This is different from the NSW position which contains a longer duration for payment to subcontractors than head contractors.

Click here to see each State and Territory’s maximum statutory timeframes for payment under their relevant SOPA legislation.

Don’t delay enforcing a judgment debt!

McDonald v MAK Constructions and Building Services Pty Ltd [2024] NSWCA 63

The courts have confirmed that section 32 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘SOPA’) expressly preserves the rights of parties to a construction contract to bring a claim for damages notwithstanding the non-payment of an outstanding judgment debt. The courts will also look unfavourably on a builder’s failure to take expeditious steps to enforce a judgment debt.

Facts

A builder applied for adjudication of a disputed payment claim under the SOPA following the termination of its contract by the homeowner. The homeowner then commenced proceedings for the recovery of costs relating to rectifying defects and completing the building works.

The builder then obtained an adjudication certificate under the SOPA in the amount of $246,493.20, which was filed in the District Court as a judgment debt in February 2023. The builder subsequently sought a stay of the homeowner’s proceedings until the judgment debt was satisfied. The stay was granted by the primary judge on the basis that section 32 of the SOPA endorsed a right to bring a claim at common law only after a judgment debt is satisfied.

Six months after the proceedings were stayed, the builder took further steps to enforce the judgment debt by seeking a writ for levy of property. The homeowner also sought leave to appeal the primary judge’s decision to stay the proceedings.

Decision

The Court of Appeal overturned the primary judge’s decision and lifted the stay, finding that:

• the primary judge erred in granting the stay, misconstruing section 32(2) of the SOPA;
• section 32 of the SOPA expressly preserves the rights of parties to a construction contract to bring a claim for damages;
• there is no qualification in section 32(3) of the SOPA requiring a contractual claim to be brought only after payment of a judgment debt; and
• the homeowners claim did not prevent the builder from enforcing its judgment debt.

The Court also made note that the builder’s failure to take prompt and meaningful steps to enforce the judgment debt sits very uncomfortably with the legislative scheme of providing a speedy and effective means of ensuring cash flow to builders (while not prejudicing the common law rights of the parties).

An email with generalised objections to payment will not suffice as a payment schedule under the SOPA

Witron Australia Pty Ltd v Turnkey Innovative Engineering Pty Ltd [2023] NSWCA 305

A key reminder that for a document to be characterised as a payment schedule under the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘SOPA’), it must satisfy the requirements of sections 14(2) and (3) of the SOPA.

Facts

The Contractor, Turnkey, issued a progress claim to the Principal, Witron, for payment of base contract works and contract variation claims. The progress claim was identified as made under the SOPA by “very small typeface at the bottom of the page”. The Principal then issued the following email in response to the progress claim:

As discussed during our meeting on 18/4 with Cameron and Juergen, we will review your variations and your new pricing after we see real progress on the handing over of GCs. This approach is also in line with our meeting from last week in Redbank with our 2 CEOs.

Based on this you can claim progress for April based on the original contract price minus the 5 deducted GCs.

Please adjust your claim accordingly and resubmit for approval.

The Contractor commenced proceedings to determine whether the Principal’s email constituted a valid payment schedule under the SOPA. If the payment schedule was held to be invalid, the Principal would be liable to pay the amount identified in the progress claim to the Contractor.

The primary judge held that the email did not suffice to constitute a payment schedule under s 14 the SOPA for the following reasons:

1. the last sentence indicated that the Principal did not intend to make payment in response to the progress claim;
2. references to the Principal reviewing variations after seeing “real progress” and the “original contract price”, made clear that the reason for withholding payment was that parties had not agreed to new pricing of the base contract works;
3. it was insufficient for a purported payment schedule to not address the balance claimed; and
4. the email did not indicate reasons for the Principal withholding payment for the contract variation works.

The Principal appealed the primary judge’s decision.

Decision

The Principal’s appeal was dismissed by the Court of Appeal, which agreed with the primary judge’s decision. The court held that for a document to be characterised as a payment schedule pursuant to s 14(2) and (3) of the Act, the document must:

1. identify the payment claim to which it relates;
2. indicate the amount (if any) that the respondent proposes to make; and
3. indicate why the amount proposed is less than the amount claimed, ie, “the reasons for the amount claimed not being payable in whole or in part”.

The court also indicated that whilst the failure to address a distinct component of a progress claim may not be determinative, if viewed in context, the failure to provide reason(s) for rejecting a distinct part of a progress claim may be detrimental to characterising a document as a payment schedule under the SOPA, as it would not satisfy s 14(3) of the SOPA.

For questions related to changes to the Security of Payment Act contact a member of Addisons’ Construction team.

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