Adjudications could rise with proposed Victoria security of payment reform

Melbourne-based Tom Heading of Pinsent Masons was commenting after a committee in the parliament of Victoria recommended that the Building and Construction Industry Security of Payment Act 2002 Vic (SOP Act) be updated to better help subcontractors obtain timely payment for work undertaken.

The Environment and Planning Standing Committee set out 28 recommendations for reform to the SOP Act (216-page / 2.5MB PDF) at the end of a parliamentary inquiry it carried out which examined the extent to which employers and contractors refuse to pay their subcontractors for completed works.

The report highlighted features of the security of payment legislation in Victoria that differ from similar legislation elsewhere in Australia – including provisions that it said prevent subcontractors from being able to claim payment in “scenarios that are common in the construction industry, such as [for] additional costs associated with project delays”. It recommended that the concept of so-called non-claimable variations and excluded amounts be abolished.

Heading, who advises contractors on security of payment matters throughout Australia, said: “In other Australian jurisdictions, the vast majority of construction disputes start in adjudication – this is not necessarily the case currently in Victoria. This is due in large part to unique exclusions contained in the Victorian regime called ‘excluded amounts’. These are categories of claims or entitlements that are carved out of the SOP Act and cannot be in payment claims or payment schedules, such as delay costs and some disputed variations.”

In its report, the committee said that abolishing the concepts of non-claimable variations and excluded amounts would “better align Victorian security of payment law with that in other Australian jurisdictions and ensure that subcontractors are able to make claims that more accurately reflect the amount they are owed”.

Other changes to the SOP Act it proposed include amendments that make clear that retention money – a payment that is withheld as a performance or quality guarantee – can be claimed in an adjudication. The committee said, though, that the legislation should no longer provide scope for new reasons to be raised in an adjudication response that were not in the payment schedule.

The committee also recommended that the concept of ‘reference dates’ that provide for one payment claim per month only be abolished too, in a move that would bring Victoria’s SOP Act into line with similar recent changes in New South Wales.

The committee further recommended changes to require payment to be made within 25 business days.

The committee also proposed an extension of the end of year shut down provided for under the SOP Act by recommending that no business days be said to occur in the period between 22 December and 10 January.

The committee also proposed reforms impacting the use of notice-based time bar clauses. It said an adjudicator, court, arbitrator, or other expert appointed to resolve a dispute between the parties under the SOP regime, should be able to declare the use of those clauses as ‘unfair’ if compliance with those clauses would “not be reasonably possible; or be unreasonably onerous; or serve no commercial purpose”.

Heading said: “These proposed changes are a positive step in the right direction. There is no good reason why Australia should have eight different, and in the case of Victoria quite different, security of payment regimes. This is a source of frustration for many of our contractor clients operating throughout Australia. They have a hard enough job delivering much needed infrastructure and energy projects in challenging market conditions, let alone having to stay across complex regulatory issues including multiple security of payment regimes across Australia. Any step towards greater harmonisation is welcome.”

He added, if the changes are enacted, the number of adjudications in Victoria would significantly rise, and that the report should serve as a prompt to construction companies to get payment schedules right first time, due to the limited scope there may be in future to provide reasons for assessment at the time of adjudication.