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.
The main protections for contractors in Victoria under the Security of Payment Act include:
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:
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.
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:
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.
Under section 18 of the Security of Payment Act, a claimant can apply for adjudication of a payment claim if:
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.
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:
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”:
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.
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.
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.
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