*Please note that this article provides general information only and will not be applicable in all circumstances, nor should it be relied upon as legal advice. Should you wish to obtain legal advice, we recommend that you get in touch with us.

This journal entry is part 1 of a 4 part series: A Guide to the Building and Construction Industry Security of Payment Act.

What is the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOPA)?

The Building and Construction Industry Security of Payment Act 2002 (Vic) (SOPA) is a legislative instrument with the intended purpose of creating a process in which parties to construction contracts and those that provide related services are given the ability to claim ‘progress payments’ quickly and inexpensively without the costly interference of Courts.

If there is a dispute over a ‘progress payment’, the SOPA imposes a procedure that endeavours to have the dispute dealt with expeditiously so that contractors can be compensated for the works they have completed without unnecessary delay.

The SOPA can be an incredibly powerful tool for trades and building suppliers alike. In this four part series, we will provide a concise guide as to how the SOPA operates and how it could benefit you.

What are the benefits?

The SOPA has three clear benefits:

it allows contractors to maintain cash flow across multiple projects by legislating for ‘progress payments’, which allows contractors to claim payment for stages of works completed in under their agreement;
it ensures that any dispute over payment for works completed proceeds in an expeditious manner, by imposing time limits on the party liable to pay the contractor to either pay, or dispute the claim; and
it provides a cost-effective dispute resolution process that can simplify any necessary court proceedings.

The three benefits outlined above will be explained in further detail throughout this article and in further articles within the series.

What are the objectives of SOPA?

The main objective of SOPA is to provide a procedure for contractors where they can receive staged payments from a party liable to pay them for works completed, rather than in one lump sum when the project is at an end.

Ancillary objectives arise where a progress payment is disputed by the other party, and they include:

ensuring a disputed progress claim is responded to quickly;
providing a cost-efficient process that allows a third party to adjudicate the dispute; and
simplifying necessary court proceedings.

Progress Payments

What are they?

Under the SOPA, contractors can be entitled to ‘progress payments’ for works completed. Progress payments are made in relation to construction work or related services supplied under a construction contract and can be either:

a. a final payment;

b. a single one-off payment; or

c. a payment that is based on an event or date.

What is the entitlement to progress payments?

The entitlement to progress payments is governed by the contract that the parties have entered into for the provision of the construction works or related services.

If the contract is silent on when progress payments are due, then progress payments can be claimed by the contractor 20 business days after the first date of work or supply. This will reoccur every 20 business days until the contractor has performed all their obligations under the contract.

What criteria must be met for the SOPA to apply?

The SOPA applies to any “construction contract”, whether the contract is written or oral, or partly written and partly oral. For a contract to be considered a “construction contract”, it needs to meet the following criteria:

a. be a “contract or other arrangement”:

i. where one party undertakes to carry out “construction work”; or

ii. where one party “supplies related goods and services” for another party.

Contract or other arrangement

“Contract or other arrangement” has a very broad application and incorporates any arrangement for construction work, including if a party supplies related goods or services for construction work. The arrangement does not need to be legally enforceable to apply.

Construction work

Construction work includes, but isn’t limited to: residential and non-residential building, civil engineering, demolition works, electrical and plumbing.

Related goods and services

Related goods

“Related goods” to be supplied under a construction contract include:

materials and components to form part of any building, structure or work arising from construction work; and
plant or materials (whether supplied by sale, hire or otherwise) for use in connection with the carrying out of construction work.

Some practical examples of related goods include the supply of building materials, hire of plant and equipment and mechanical air conditioning.

Related services

The SOPA applies to the following related services:

the provision of labour to carry out construction work;
architectural, design, surveying or quantity surveying services in relation to construction work; and
building, engineering, interior or exterior decoration or landscape advisory or technical services in relation to construction work.

Some practical examples of related services include landscaping, maintenance; and professional services (e.g. architecture, design or surveying).

If you carry out any of the works described above, then you could meet the criteria of having a “construction contract” under the SOPA.

Exclusions to SOPA

There are three main exclusions of the SOPA:

mining work exclusions;
jurisdictional exclusions; and
domestic building contract exclusions.

Mining work exclusions

Mining work is excluded from being construction work under the SOPA, and includes work that is, or is related to, the following:

the drilling for, or extraction of, oil or natural gas; and
the extraction (whether by underground or surface working) of minerals, including tunnelling or boring, or constructing underground works, for that purpose.

Jurisdictional exclusions

SOPA excludes:

construction work carried out outside Victoria; and
related goods and services supplied in respect of construction work carried out outside of Victoria.

Jurisdictional issues become particularly difficult for interstate operations as other equivalent state legislation may govern the construction works or supply of related goods and services.

Domestic building contract exclusions

The SOPA contains two exclusions relating to the Domestic Building Contracts Act 1995 (Vic) (DBCA):

contracts between a building owner and a builder; and
work relating to a residence as identified in section 6 of the DBCA.

In the next article within this series, we will outline the process of issuing and responding to Payment Claims.

How we can help

Looking for advice regarding The Building and Construction Industry Security of Payment Act 2002 (Vic) (SOPA)? Get in touch to book a complimentary meeting to discuss how we can help you.

Author, Jack Rennex and Riley Bouveng.

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