Why you need to know about the Security for Payment Act

The Security of Payment Act legislation (SOPA) enabled through the Building and Constructions Industry Security of Payment Act 1999 (NSW) (“the Act”) is a provision which allows creditors to enforce progress claim payments as per their contract. This is for works carried out, and goods and services provided in the construction industry, in accordance with their contract.

How it works

If a progress payment claim is ignored by the debtor, SOPA provides an avenue in Court for the creditor to recover the payment. It also enables creditors to stop work for that debtor in light of their failure to pay the claim without breaching the terms of the contract.

This the first article in a series of three so make sure you stay tuned for the whole series!

What is a progress payment claim?

A progress payment claim is a claim for a portion of the payment of work carried out under a construction contract.  

For example, in the building of a house the builder may serve a progress claim payment after the foundations have been laid for the work of laying the foundation.

Why have they created SOPA?

The main purpose of SOPA is to help enforce payment. 

Where there is a construction contract SOPA provides a mechanism for trades to actually be paid for their work. SOPA is designed to provide a timely resolution with a final decision made for the aggrieved party, without waiting until the whole construction is finalised.

Who is covered by SOPA?

Only certain people qualify, and certain works, goods and services are covered by SOPA. This is outlined in ss 5-6 of the Act as follows:

1. Construction work
   1. The construction, alterations, repair, restoration, maintenance, extension, demolition or dismantling of buildings or structures;
   2. The installation of any building, structure of works or fittings forming or to form part of land such as walls, powerlines, railways, pipelines, sewers and coast protection;
   3. The installation in any building, structure or works of fitting, such as heating, lighting, air-conditioning, ventilation, water supply, drainage, fire protection and security;
   4. The external and internal of cleaning of building, structures and works in the course of their construction, alternation, repair and maintenance;
   5. Any operation which forms an integral part or prepatory for work referred to above; and;
   6. painting and decorating of internal and external surfaces of a building or structure.

2. This does not include
   1. Drilling for or extraction of oil or natural gas; and
   2. The extraction of natural minerals.
3. Good and services
   1. Goods:
      1. Material and components to form part of a building, structure or work arising from construction work,
      2. Plants or materials for use in connection with the above.
   2. Services:
      1. The provision of labour to carry out construction work,
      2. Architectural, design surveying,
      3. Building, engineering, interior or exterior design or landscape services.

What types of progress payment requests are covered by SOPA?

1. Any construction contract whether it is written or oral, or even partly written or partly oral is covered by SOPA (s7(1) of the Act).
2. This does not include the following:
   1. Construction contract which forms part of a loan agreement, contract of guarantee or contract of insurance which a financial institution undertakes:
      1. To lend or repay money;
      2. To guarantee payment of money owing or repayment of money loaned;
      3. To provide an indemnity for construction work carried out or related goods and services supplied under a construction contract.
   2. The carrying out of construction work or goods and services as an employee

Are there key timeframes to be aware of?

Any claims under SOPA must be made within 12 months after the construction work or goods and services were carried out to which the progress payment claim relates.

Service

Service of the progress payment claim must be served on the person who under the construction contract is liable to pay. It will be difficult to obtain a judgement or enforcement if the details do not match the progress payment claim and the person who was served. Personal service is best practice.

Turnaround time

From the time the creditor serves the debtor with a payment claim until a judgment is registered and enforcement proceedings commence can be approximately 6 weeks or more.

The actual process and procedures for the SOPA mechanism will be explored in detail in the next article.

If you have further questions, please contact us at frank@franklaw.com.au

This it not legal advice. 

Photo by Daniel McCullough on Unsplash