Victoria’s security of payment legislation could soon see extensive reform the state government has indicated, in its response to a parliamentary inquiry into refusals to pay construction industry sub-contractors for completed works.
The 2023 inquiry resulted in Victoria’s Environment and Planning Committee recommending several proposed changes to the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOPA).
In its recently published response (26-page / 407KB PDF) to the inquiry, the Victorian state government stated it is largely supportive of the 28 recommendations to SOPA, with eight recommendations of note “supported in full”.
Despite having the country’s second largest population, Victoria has one of the least-used security of payment regimes in Australia. According to Tom Heading, a construction law expert at Pinsent Masons, a major reason SOPA is rarely used in Victoria is because, unlike other jurisdictions, claimants in Victoria cannot claim security of payment delay costs and certain disputed variations.
Signalling a major change - and bringing the legislation in line with other jurisdictions - the state government has stated it supports ‘in full’ a move to abolish ‘excluded’ amounts, which covers delay costs and certain disputed variations.
“This change will significantly expand the scope of security of payment in Victoria,” Heading said.
“One need only look at the high levels of security of payment activity in Queensland and New South Wales to see the impact excluded amounts have had on the volume of adjudications in Victoria.”
In a move that is likely to be welcomed by the construction industry, the government has also said it fully supports the Environment and Planning Committee’s recommendation to remove the concept of reference dates.
“A large range of issues, including whether claimants can bank reference dates and whether claimants can include work performed after the reference date in payment claims, have long proven problematic for security of payment participants and have been the subject of judicial attention,” Heading said
The government also supports removing 22 December to 10 January as business days – to ensure the short timeframes provided for submitting material under SOPA can be paused during the traditional holiday period – and allowing notice-based time bar clauses to be declared void in situations where compliance would not be considered reasonably possible.
According to Heading, allowing notice-based time bar clauses to be declared void in certain situations is a significant change modelled on recent legislative amendments in WA.
“Some would argue that adjudicators already seek to side-step time bars, but this change will make security of payment a much more attractive option for those claiming parties that have not strictly followed notice requirements in the contract,” he said. “There have not yet been any cases in WA considering the effect of this equivalent provision.”
The Victorian government also stated its support for allowing the prohibition of unfair construction contract clauses and creating minimum payment terms of 25 business days after a payment claim is served.
“Currently, there is no restriction on payment terms in Victoria, and often we see 45 business day payment terms - sometimes even 45 business days from the end of the month - in which the claim is made,” Heading said.
“Queensland has had minimum payment terms for decades. NSW has also had minimum payment terms for several years, and WA adopted minimum payment terms as part of its recent reforms.”
The government also supports recommendations to extend the time for serving a payment claim to six months after works are performed, instead of three months after the reference date. This change is expected to give more options to claimants in the event of a payment dispute and may improve their negotiation position at the end of a project, as security of payment risk remains ‘on the table’ for longer, Heading said.
Consistent with other jurisdictions, the government also supports prohibiting the existing provision to include reasons in an adjudication response that were not contained in a payment schedule.
“Currently in Victoria, a respondent can include reasons in an adjudication response which are not contained in the payment schedule. This has allowed respondents to take a reasonably relaxed approach to preparing payment schedules as they will not be ‘shut out’ of raising further arguments in the adjudication response,” Heading said.
“This change will bring greater focus to the ten-business day period respondents usually have to prepare payment schedules.”
Should the proposed changes go ahead, it will be the first time Victoria’s SOPA has been updated in almost 20 years.
According to Heading, it is hoped that the new regime will apply to all construction contracts and not just those entered into after the legislation passes.
The government has not yet indicated when draft legislation will be published.
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