This article was written by Sally Crosswell

Sally Crosswell has a Bachelor of Laws (Hons), a Bachelor of Communication and a Master of International and Community Development. She also completed a Graduate Diploma of Legal Practice at the College of Law. A former journalist, Sally has a keen interest in human rights law.

Security Of Payment Act (Vic)


The Building and Construction Industry Security of Payment Act 2002 provides a debt-recovery process for workers in the construction industry. In the industry, the Act is commonly called the “Security of Payment Act”, where security of payment refers to a service provider’s right to receive payment as it falls due under a contract. 

The object of this Act is to reduce the incidence of insolvency in the construction industry, by providing contractors with specific rights and protections, and a statutory mechanism for recovering progress payments. The Act applies to most construction contracts, written or oral, for building work or the supply of related goods and services in Victoria.

“Construction work” involves “the construction, alteration, repair, restoration, maintenance, extension, demolition or dismantling” of buildings and infrastructure.

All states and territories have security of payment legislation.

Main protections

The main protections for contractors in Victoria under the Security of Payment Act include:

  • minimum interest rates on late payments;
  • a right to exercise a lien over unfixed plant or materials for an unpaid amount;
  • a prohibition on “pay when paid” provisions;
  • a statutory mechanism to make regular payment claims, and maximum periods for principals to respond to them;
  • default payment terms;
  • a right to suspend work following non-payment;
  • a prohibition on contracts that remove the Act.

Payment claims

Under section 14 of the Security of Payment Act, a payment claim for construction work or for related goods and services, can be served on the person liable to make the payment. A payment claim must:

  • be in a prescribed form; and
  • contain any prescribed information; and 
  • identify the construction work or related goods and services to which the payment relates; and
  • state the amount claimed; and
  • state that it is made under the Act.

For a progress payment or final payment, a claim must be made within 3 months of the work being done or the supply of related goods and services, or the period specified in the contract, whichever is later.

The Victorian Building Authority (VBA) monitors the operation of the Act but is not involved in payment disputes.

Payment schedules

Under section 15 of the Security of Payment Act, a person who receives a payment claim can respond by supplying a payment schedule to the claimant. The payment schedule must:

  • identify the payment claim;
  • state the amount the claimant will be paid; 
  • identify any amount of the claim the respondent alleges is an excluded amount;
  • be in a prescribed form and contain any prescribed information;
  • provide reasons the amount may be less than the amount claimed.

The schedule must be provided within 10 business days of receiving a payment claim or earlier if stated in the contract. If a schedule is not provided, the respondent becomes liable to pay the claimed amount on the payment due date. The contractor can then make a court claim to recover the debt, apply for adjudication, or suspend work or the supply of related goods and services.

Adjudication

Under section 18 of the Security of Payment Act, a claimant can apply for adjudication of a payment claim if:

  • the respondent fails to provide a payment schedule; or
  • the respondent provides a payment schedule but the amount is less than the claimed amount; or
  • the respondent fails to pay the whole or any part of the scheduled amount.

If a payment schedule has not been provided

Before applying for adjudication, the claimant must have notified the respondent that they intend to apply for adjudication and given the respondent 2 business days to provide a payment schedule after notification. An application must be made within 5 business days after those 2 business days.

If a payment schedule has been provided

An application must be made within 10 business days of the claimant receiving the payment schedule, or within 10 days of the payment due date.

An adjudicator is chosen from a list of Authorised Nominating Authorities compiled by the VBA. Under section 22 of the Security of Payment Act, an adjudicator can:

  • request further information from either party and a response to the information from the other party;
  • set deadlines for the supply of further information and comment;
  • call an informal conference of the parties;
  • inspect any matter related to the claim.

An adjudicator determines the amount of the payment, if any, the date the amount became or becomes payable, and the rate of interest payable on the amount. The determination must include the reasons for the decision and the basis on which any amount or date has been decided. The determination must be made within 10 business days and must be supplied to the claimant and respondent as soon as practicable. Parties to an adjudication bear their own costs initially, but a successful party will normally be allowed to recover costs from the other party.

If the respondent does not pay the “adjudicated amount”:

  • the respondent will be liable for interest;
  • the contractor can give notice of an intention to suspend work, then suspend work after three business days if still unpaid; and
  • the contractor can apply for an “adjudication certificate” which they can file in a court as an enforceable judgement for a debt.

An adjudication determination can be appealed in extremely limited circumstances. It can be set aside only when some form of jurisdictional error is proved, such as when a claimant had no right to make an application or failed to consider the contract terms, or where the parties were not afforded procedural fairness.

Insolvency

The Security of Payment Act also provides an avenue for payment if a debtor is insolvent. It allows a subcontractor to redirect payments made by a principal to a head contractor so the subcontractor receive them instead. For this to happen, a court must have issued a debt certificate, and the subcontractor must issue a notice of claim on the principal to trigger the obligation.

For advice or representation in any legal matter, please call Armstrong Legal.

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