Understanding and using the Security of Payment Act (SOPA) [1] has never been more critical for subcontractors.
While the construction industry in Australia has been fortunate in avoiding shutdown, an uncertain pipeline of work, coupled with the economic impact of COVID-19 on otherwise profitable clients, and stringent government guidelines [2], means that ensuring prompt payment is more important than ever. The adage "cash is king" has never been truer.
What is the SOPA and how can it benefit your business?
Under the SOPA, those who undertake construction work (a "Claimant") can issue a payment claim and enforce their right to payment through:
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a rapid adjudication process if the recipient of the payment claim (the "Respondent") does not agree that the amount claimed in the payment claim is payable; or
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Court proceedings, when the Respondent does not respond to the payment claim within the time frame set out in the SOPA or make full payment by the due date. In such circumstances, under the SOPA, as long as the Claimant can demonstrate that:
a) they have served a valid payment claim, no payment schedule has been served within the time frame required by the SOPA and payment has not been made by the due date; or
b) they have served a valid payment claim, a payment schedule has been served within the time frame required by the SOPA and payment of the amount certified for payment in the payment schedule has not been made,
then the Claimant is entitled to judgment in their favour for the amount claimed in the payment claim (or the balance of any amount certified for payment in the payment schedule and not paid), and the Respondent is not, in those proceedings entitled to bring any cross claim or raise any defence.
Not surprisingly, the enforcement of rights to payment under the SOPA is far cheaper and quicker than traditional Court proceedings.
The SOPA also provides a Claimant with other protections, including a statutory right to suspend works or exercise a lien over unfixed plant or materials where the Respondent does not pay the Claimant an amount that is due and payable. It also allows a Claimant to enforce an obligation to make payment from the "Principal" (the party that is required to make payment to the Respondent).
- Each State and Territory has its own slightly different version.
- (e.g. COVID-19 Guidelines for the building and contruction industry Victoria )
Our team is actively monitoring and considering the implications of legal and regulatory developments in response to the COVID-19 pandemic. You can find our COVID-19 collection here.
