The Building and Construction Industry Security of Payment Act 2002 (Vic) (‘Act’) was recently amended. The amendments come into effect and apply to construction contracts entered into after formal commencement of the legislation (at this stage no later than 30 March 2007). The amendments bring the Victorian regime more in line with equivalent New South Wales and Queensland security of payment regimes (with the notable exception of the provisions relating to variation claims set out in part 1 below which is unique to Victoria).
The original Act was introduced with the intention of protecting smaller building contractors and sub-contractors from poor payment practices. The Act dictates that any person who undertakes construction work or supplies goods or services under a construction contract is entitled to progress payments at intervals set out in the contract or if none is specified every 20 business days.
Once a progress claim has been made under the Act the respondent (usually the principal or head contractor) must pay the claimed amount on the due date for payment set out in the contract, or if none is set out within ten business days of receipt of the progress claim. Failure to pay has serious consequences, including possibly cessation of work and a judgment against the respondent for the amount of the claim.
If the respondent disputes all or part of the amount set out in the progress claim the respondent then has ten business days to serve the claimant with a payment schedule. The payment schedule will contain details of the amounts disputed and reasons for the dispute. The amount conceded in the payment schedule (if any) then becomes payable on the due date for payment in the contract or if there is none set out in the contract on the tenth business day after service of the schedule.
If the claimant is not happy with the amount conceded in the schedule the claimant may refer the payment claim and schedule to an adjudicator who has 10 business days to make a decision (see part 2 below regarding the effect of the recent amendments). Once the adjudicator has made his decision and served it on the claimant and respondent the respondent has five (5) business days in which to pay the adjudicated amount (if any). If the respondent fails to make the payment the serious consequences referred to above apply.
Two important amendments to the Act are explained below.
Significantly, the amendments clarify what is or is not a “claimable variation”. Only variations that are “claimable” may be included in a progress claim made under the Act. The amendments outline two classes of variation:
- variations where the parties to the construction contract agree; and
- certain disputed variations;
and now expressly exclude from claims made under the Act amounts claimed as part of a variation relating to:
- latent conditions costs;
- time-related costs;
- costs inferable to changes in regulatory requirements;
- damages for breach of contract; and
- claims arising at law, other than under the construction contract.
Importantly, the Act introduces a limitation: in order for a disputed variation to be a “claimable variation” and included in a claim under the Act, the contract price must be less than $5 million. If the value is greater than $5 million, disputed variations will only be claimable where the contract does not provide a method for resolving disputes (which would be rare).
A further limitation is imposed by the Act: if the aggregate of disputed variation claims exceeds 10% of the contract price, the total contract price must not exceed $150,000 for the variation to be included in a claim under the Act. Disputed variations above this cap can only be claimed under the dispute resolution provisions of the relevant contract.
These provisions mean that for contracts where the value is greater than $5 million (and the contract contains dispute resolution provisions) disputed variation claims under the security of payment legislation cannot be relied on. Instead, recourse is to the dispute resolution provisions in the contract. Dispute resolution provisions will apply also if the aggregate of variations claimed exceed 10% of the contract price unless the price is less than $150,000.
Once the amendments to the Act take effect, where a claimant has made a payment claim under the Act and it has not been paid in full, the claimant may enforce the payment as a debt in court or make an adjudication application under the Act. The adjudication option arises under the amendments.
Importantly, if the claimant refers an unsatisfied claim made under the Act to a court, the respondent cannot bring a cross-claim against the claimant or raise any defences. However, once the amendments take effect, the respondent may defend on the basis that excluded claims were included in the claim.
An unpaid adjudicator determination may be registered as a judgment in the appropriate court and enforced against the respondent with relative ease.
Non-payment where the Act requires payment will also give the claimant the right to stop work.
It is important that those participating in the construction industry are aware of the Act and its application to their particular role in the industry.
For further information, please contact Peter Macnish on + 61 3 9608 2229 or p.macnish@cornwalls.com.au
or Richard Feelyon + 61 3 9608 2207 or r.feely@cornwalls.com.au
