2024 forecast: Significant changes to the Victorian security of payment regime

By Lachlan Ingram and Madeline Kelly

The Victorian Government’s Environment and Planning Standing Committee (Committee) has 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

If the recommendations are accepted, Victoria will be brought into line with other Australian jurisdictions.

Amongst the most significant changes are the recommendations to remove the unique Victorian concepts of ‘excluded amounts’ and ‘non-claimable contract variations’ and prevent respondents from submitting new reasons for withholding payment during the adjudication process.

The recommendations are modelled predominantly on the new WA legislation and the existing NSW legislation. Further consideration will be given to establishing a project trust account system, similar to the one in place in Queensland, and to extend the regime to the small residential space like NSW and Tasmania. 

Recommendations to strengthen the right to claim payment

Several recommendations concern the effectiveness of the right to claim payment under Victorian law and propose major amendments to the SOP Act. These include:

  • 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 day’ to further exclude the period between 22 December and 10 January, seeing the end of the much-feared ‘SOP Christmas present’ (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), which has been the subject of doubt following developments in Victorian case law over a number of years.

Recommendations to improve the right to adjudication

The Committee made numerous recommendations to amend certain provisions of the SOP Act which deal with the adjudication process. These 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 an 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)
  • requiring adjudicators and authorised nominating authorities to complete continuing professional development as a condition of their eligibility to serve (Recommendation 21 and 22)
  • extending the protection of adjudicators from civil liability to authorised nominating authorities (Recommendation 23)
  • clarifying the law so that adjudication fees may be included in an adjudication certificate to ensure that the contractor does not bear the costs of the respondent’s adjudication fees (Recommendation 25)
  • providing that an adjudication certificate may be filed as a judgment for a debt in court to enforce compliance (Recommendation 26).

Recommendations to review relevant schemes and materials operating in the construction sector

The Committee made some more general recommendations to further consider and address the vulnerability of construction businesses experiencing insolvency. These include:

  • reviewing the application of a cascading deemed statutory trust scheme to the Victorian construction sector to protect subcontractor payments (Recommendation 27)
  • if the above model is deemed inappropriate, then considering the introduction of a retention trust scheme (Recommendation 28).

The Committee also made other general recommendations to review and re-consider, including:

  • reviewing material that informs public construction procurement to promote collaborative procurement, contracting, fair risk allocation, and best practice payment behaviours (Recommendation 1)
  • considering expanding the operation of the SOP Act to residential construction contracts (Recommendation 10)
  • reviewing the impact of a general adjudication review mechanism currently implemented in WA for possible application in Victoria (Recommendation 18)
  • providing ongoing funding to and tasking the Victorian Building Authority with providing continuing education to the construction sector with respect to security of payment law in conjunction with relevant key industry bodies (Recommendation 11-13)
  • subject to the Committee’s recommendations being accepted, the SOP Act and corresponding regulations should be reviewed three years after implementation (Recommendation 14).

Is change likely?

Given the breadth of the recommendations, the consistent calls for change to the Victorian regime following this inquiry and the 2017 Murray Review of security of payment regimes across Australia, the recent spate of construction business insolvencies and the government’s significant legislative action in the industry in recent years, it seems likely that at least of some of the above recommendations will be enacted in 2024. 

Even if only key recommendations 2, 3 and 15 were implemented, that would still be a very significant development in the security of payment landscape in Victoria, and one which would be positive for the construction industry generally.

Source: https://www.holdingredlich.com

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