Moving towards a streamlined and uniform payment regime for the Victorian construction sector 5 min read
The Victorian Parliament has expressed its support for many significant reforms to the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOPA).
On 17 October 2024, the Victorian Government tabled a report containing its response to the Parliamentary Inquiry into the state of payments in the Victorian construction industry (Report). The Report demonstrates broad government support for many of the Inquiry's key recommendations.
In this Insight, we consider some of the key reforms that are likely to soon become law.
Background and context
In March 2023, the Victorian Legislative Assembly launched an inquiry into the state of payments in the Victorian construction industry.
A key focus of the Inquiry was the operation of the SOPA. The SOPA provides contractors and subcontractors in the construction industry with a statutory cause of action through which they can claim payment in a timely and efficient manner.
In January 2024, we published an Insight examining the reforms proposed by the Parliamentary Inquiry. With the Victorian Government having expressed support for many of these reforms, it is clear that significant changes are on the horizon. These proposed reforms point to an intention to streamline the Victorian SOPA regime and align it with other states, while maintaining the ability for contractors and subcontractors to receive timely payment for work.
Proposed reforms
Of the 28 recommendations considered in the Report, the following 8 warrant particular attention, given Government support for their reform and their potential impact on participants in the construction industry.
The government plans to introduce amendments to the SOPA that will repeal sections 10-10B of the Act, which prevent 'excluded amounts' from being taken into account when calculating progress payment entitlements. 'Excluded amounts' include many types of claims that commonly arise on construction projects, including damages relating to latent conditions, damages for breach of contract, time-related costs and changes in regulatory requirements. Victoria's excluded amount provisions are inconsistent with SOP legislation in every other Australian jurisdiction. This regime has had several consequences that have undermined achievement of the SOPA's key objectives, with such shortcomings including:
- increasing cost and complexity of adjudication proceedings;
- reducing the overall amount of money that can be recovered through the SOPA's adjudication process;
- excluding retention monies from consideration in adjudications; and
- jeopardising the recovery of any adjudicated amount as a debt where the adjudication includes any excluded amount.
Like the 'excluded amount' regime, the reference date provisions of SOPA are unique to Victoria. The calculation of reference dates can often be difficult and require legal advice to correctly identify them. These provisions can also facilitate unfair and unethical practices by which some builders and head contractors can prevent payment claims from being made by strategically invoking termination clauses prior to a reference date. By removing the concept of reference dates from Victoria's SOPA, the government aims to bring the regime in line with NSW.
Noting that the construction industry traditionally shuts down over the Christmas period, the SOP legislation in other states contains a blackout period during which time stops running. Currently, Victoria is the only jurisdiction not to exclude an extended Christmas shutdown period from the definition of 'business days'. The government has now indicated its full support for an extended blackout period from 22 December-10 January, which should ensure that those who work with SOP claims can have a much-needed break over the holiday period.
Construction contracts often include time-bar provisions that operate to bar a contractor from receiving a payment entitlement on the basis that a notice claiming the payment was not submitted within the timeframe or in the form specified by the contract. The government has indicated its support for a new provision (modelled on s16 of the WA SOP legislation) which allows for an adjudicator or other decision-maker to declare that a time-bar provision is unfair if compliance with it is onerous or not reasonably possible. This is justified on the basis that giving a decision-maker the power to determine, on a case-by-case basis, whether a notice-based time bar is unreasonable is preferable to trying to legislate any blanket prohibition. However, if a time-bar provision is declared 'unfair', that declaration will only affect the particular entitlement under the contract that is subject to the proceedings, but will not be binding on the same time-bar provision in another contract, or even on the same contract concerning another entitlement.
The government has indicated support for amending the SOPA to enact regulations that expressly prohibit other contractual clauses and so render them of no effect. In enacting these reforms, the government aims to ensure its regulations can keep pace with evolving contractual practices in the construction industry.
Due to the unequal bargaining power between parties up and down the contractual chain, lengthy payment terms are often imposed on subcontractors. To address this concern, the government has indicated its support to amend s12 of the SOPA to provide that payment under a construction contract becomes due and payable:
- on the date set by the terms of the contract, subject to the payment term not exceeding 25 business days after the payment claim has been made; or
- if the contract makes no express provision, 10 business days after the claim is made.
Adopting provisions from Western Australia’s recently rewritten SOP framework, the Victorian Government is supporting amendments to SOPA that will allow service in relation to payment claims to be made electronically, such as via email.
Without deciding on a model, the government has indicated in-principle support for processes that safeguard progress payments and retention monies from being wrongly withheld or misapplied by those higher up the contracting chain. While a range of trust models were considered, including those adopted by QLD, NSW and WA, and the Murray model (a cascading deemed statutory trust) which is yet to be adopted by an Australian jurisdiction, it ultimately decided further examination was necessary before it could decide on an appropriate trust model. However, it committed to undertaking further work towards the implementation of a trust model, and that it would need to engage in further consultation with relevant stakeholders before any specific amendments were made.
Next steps
The government is yet to publish a timeline for introducing legislation to give effect to these reforms. However, given the strong support for many of the reforms proposed by the Parliamentary Inquiry, we expect to see appropriate legislation enacting these reforms in the short to medium term.
If you would like to discuss the issues raised in this Insight, please contact us below.