5 things you need to know about the Security of Payment Act in Australia
Published March 27, 2023
The Security of Payment Act (SOPA) is a significant piece of legislation that has been introduced in most states and territories in Australia to ensure prompt and fair payment for construction work and related goods and services. In this article, we will discuss the five key things you need to know about the Security of Payment Act in Australia.
Who is covered by the Security of Payment Act?
The Security of Payment Act applies to most construction contracts in Australia, including those for building, engineering, and landscape works. However, it does not apply to contracts with a value below a certain threshold or to contracts for residential building work.
A construction contract is defined as any agreement, whether written or oral, that relates to the carrying out of construction work or the supply of related goods and services. This can include contracts for the design, construction, and maintenance of buildings, as well as contracts for the supply of materials and equipment.
It is important to note that the act applies to both contractors and subcontractors, as well as to clients who engage contractors directly.
Payment claims and deadlines
The Security of Payment Act provides a mechanism for contractors and subcontractors to receive progress payments for work done. This is done through the submission of payment claims, which are formal requests for payment that specify the amount claimed, the work done, and the relevant payment period.
Once a payment claim has been submitted, the client has a certain amount of time to respond with either a payment schedule or a payment in full. If no response is received, the full amount claimed becomes due and payable.
The timeframes for payment claims and payment responses are strict, and failure to comply with these deadlines can result in penalties and legal action. For example, in New South Wales, payment claims must be responded to within ten business days, while payment responses must be made within 15 business days.
If a dispute arises over a payment claim, either party can initiate an adjudication process to resolve the issue. Adjudication is a relatively quick and inexpensive process that involves an independent adjudicator making a decision on the matter.
The adjudication process is initiated by one party serving a notice of adjudication on the other party. The other party then has a certain amount of time to respond, after which the adjudicator is appointed. The adjudicator will then make a decision based on the evidence provided by both parties.
The timeframes for adjudication are strict, with most states and territories requiring a decision to be made within 10 to 30 business days of the adjudication application being made.
Retention money and trust accounts
Retention money refers to a portion of the payment that is held back by the client until the work is completed to their satisfaction. This is intended to provide an incentive for the contractor to complete the work to a high standard.
The Security of Payment Act provides for the use of trust accounts to hold retention money, which helps to protect contractors and subcontractors from the risk of non-payment. The use of trust accounts is mandatory in some states and territories, while in others, it is optional.
Trust accounts must be set up in accordance with strict requirements, including the appointment of an independent trustee and the maintenance of accurate records. Failure to comply with trust account requirements can result in penalties and legal action.
Security of Payment Act and contractual terms
The Security of Payment Act operates alongside contractual terms, but it takes precedence over any conflicting terms in a contract. This means that contractual terms cannot be used to override the requirements of the act.
The act also contains provisions relating to unfair contractual terms, which can be declared void if they are found to be unfair or unreasonably favour one party over the other. This helps to ensure that contracts are fair and balanced, and that both parties are protected.
The Security of Payment Act is an important piece of legislation in Australia that provides protection for contractors and subcontractors working in the construction industry. It ensures prompt and fair payment for work done, and provides a mechanism for resolving disputes through adjudication.
Contractors and subcontractors should be aware of their rights and obligations under the act, including the deadlines for payment claims and payment responses, the use of trust accounts, and the provisions relating to unfair contractual terms. By understanding the act and complying with its requirements, contractors and subcontractors can protect themselves from the risk of non-payment and ensure that they are paid fairly for the work they do.
Using a construction contract and payment platform like Paid to secure payments before commencing work can help to avoid the need to go through the Security of Payment Act process. By establishing clear payment terms and securing payment upfront, contractors and subcontractors can reduce the risk of non-payment and avoid the need to pursue legal action. This can also help to build trust between parties and foster positive working relationships, which can lead to repeat business and referrals in the future.
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