Security of Payment FAQ

The Building and Construction Industry Security of Payment Act 2002 (known as the SOP Act) helps ensure that any person who carries out construction work or supplies related goods and services under a construction contract gets paid.

It also helps ensure that once construction work is carried out, and goods and services have been supplied, the person who carried out the construction work or supplied related goods and services can have their performance security released to them.

The SOP Act is designed to provide a fast and inexpensive process to recover payments and performance securities due under a construction contract, without the need for lawyers to become involved.

The SOP Act applies to most contracts for building work or for the supply of related goods and services in Victoria. The contract may be oral, written or a combination of both.

Domestic building contracts between a builder or supplier and the home owner are not covered. These come under the Domestic Building Contracts Act 1995. However, contracts between a home owner’s building contractor and any subcontractor or supplier are covered.

The SOP Act applies to a broad range of building and construction work, including the following types of work:

• residential and non-residential building
• civil engineering
• demolition
• plumbing
• mechanical air conditioning
• electrical
• professional services (e.g. architecture, design, surveying)
• hire of plant and equipment
• landscaping
• maintenance
• supply of building material.

The latest date on which a payment claim can be served is the day before the date that is 6 months after practical completion or 6 months after the supply of all related goods and services, unless the construction contract provides a later date. This is an extension of the 3-month period allowed under the SOP Act prior to amendment.

A performance security claim can be served in accordance with the contract or 20 business days after the end of the relevant defects liability period (whichever is earlier).

The latest time a performance security claim can be served is the latest of the day (if any) determined under the contract or the last day of the month following the last month in which the last defects liability period under the contract ends.

No. Parties cannot contract out of the requirements of the SOP Act. While construction contracts will often provide requirements in relation to SOP claims, they cannot be inconsistent with the statutory entitlements provided under the SOP Act.

Examples of this include:

• preventing a claimant from making a claim because they have not complied with a notice requirement (time bar) if that notice requirement is unfair;
• requiring a claimant to serve a payment claim less frequently than once per month, or requiring that it be served later than it can be served under the SOP Act; and
• imposing due dates for payment for a progress payment or release of performance security that is later than 20 business days after a payment claim or performance security claim is served under the SOP Act.

The Security of Payment process commences with a payment claim or performance security claim.

A person who has carried out work or supplied goods or services under a construction contract in Victoria (the claimant) can claim progress payments by giving a ‘payment claim’ to the relevant contractor, purchaser or client (the respondent).

A payment claim specifies the work, goods or services supplied and the amount claimed and states that it is made under the Building and Construction Industry Security of Payment Act 2002.

Similarly, a person who claims to be entitled to the release of a performance security (the claimant) may serve a performance security claim for the release of the performance security on the person liable to release it (the respondent).

The respondent can pay or release in full or, if they dispute the amount that is due or should be released, give the claimant a ‘payment schedule’ or ‘performance security schedule’.

A payment schedule states how much the respondent is willing to pay and why it is different from the amount claimed. A performance security schedule states how much of the claimed performance security the respondent will release (if any) and when.

A respondent who fails to serve a payment schedule or performance security schedule within 10 business days or as required by the contract – whichever is earlier – is liable to pay or release the full amount claimed.

The SOP Act does not currently require you to use a particular form to make a claim.

However, the BPC’s website includes sample forms that provide additional information about the process, content requirements and the related timelines.

The sample forms can be adapted for your purposes and can be used to help you prepare and manage the processes under the SOP Act.

There are several sample forms available on the BPC’s website:

A respondent who receives a payment claim must pay the amount claimed in full by the due date for payment or give the claimant a payment schedule within 10 business days after being served with the claim (or sooner, if the contract sets a shorter deadline).

If you are the claimant, you can take action against a respondent if the respondent:

• neither provides a payment schedule nor pays the whole of the claimed amount on time, or
• provides a payment schedule and the amount proposed to be paid is less than the claimed amount, or
• provides a payment schedule but does not pay the scheduled amount by the due date for payment.

A respondent who receives a performance security claim must release the amount claimed in full by the due date for release or give the claimant a performance security schedule within 10 business days after being served with the claim (or sooner, if the contract sets a shorter deadline).

If you are the claimant, you can take action against a respondent if the respondent:

• neither provides a performance security schedule nor releases the whole of the claimed amount on time, or
• provides a performance security schedule and the amount proposed to be released is less than the claimed amount, or
• provides a performance security schedule but does not release the proposed amount for release by the due date for release.

For unpaid progress payments, you can:

• exercise a lien over unfixed plant and materials
• suspend work or the supply of goods and services
• apply for adjudication or go to court to recover the unpaid amount.

For performance security claims, you can apply for adjudication or go to court to recover the unreleased amount.

If there is dispute about payment or release, the claimant can apply for adjudication by lodging an application with an Authorised Nominating Authority (ANA).

Authorised Nominating Authorities (ANAs) are authorised by the BPC under the SOP Act to undertake a range of functions including providing assistance to parties about the adjudication process.

ANAs receive adjudication applications, nominate adjudicators and administer the adjudication process.

The ANA nominates an adjudicator with the necessary skills and experience to adjudicate the dispute.

The BPC publishes the ANA register, which includes information about the ANAs.

The adjudicator has 10 business days after accepting the nomination or after the date the respondent may lodge an adjudication response to determine what amount (if any) the respondent should pay or release, and when. The adjudicator’s deadline can be extended by a further time, not exceeding 20 business days after that period, if the claimant and respondent agree.

A claimant may choose to go to court to resolve a payment or performance security dispute rather than apply for adjudication.

This is done by lodging a complaint in the Magistrates’ Court or a writ in the County Court or Supreme Court (depending on the amount owed) and paying a filing fee, if any. Your lawyer can advise you about this process.

The SOP regime operates in all states and territories.

See contact details on our  Security of Payment web page.

If you have any questions about SOP, please email us at sopenquiry@bpc.vic.gov.au or call us on 1300 067 088.