Short Term Justice for Builders – The Security of Payments (SOP) Act
In this article we explain the processes involved in builders seeking to enforce payment for their work, an issue that often arises when there is a dispute over the quality of that work.
Any builder will be familiar with the Building and Construction Industry Security of Payments (SOP) Act or its various interstate equivalents. Before the SOP Act, large construction jobs could be delayed as a consequence of relatively minor disputes between principals and contractors over progress payments, and when a building job grinds to a halt, costs can start to pile up (equipment hire, liquidated damages et cetera).
The SOP Act provides for a ferocious mechanism to get money moving on construction jobs to ensure that these sorts of costly delays don’t occur. It involves a number of quick stages as follows. A contractor issues an invoice under the SOP Act (known as a payment claim). The principal has 10 business days (or less, if stated in the contract), to put on a response (known as a payment schedule). If the principal proposes in the response to pay less than the amount claimed, they must give reasons. If the principal fails to serve the payment schedule in time, then the contractor has two options:
- The debt can be pursued through a court, and the principal is barred from pleading any objections to the claim other than jurisdictional objections (in other words, the claim is a free kick!); or
- The contractor can issue a notice of an intention to have the matter adjudicated under the SOP Act.
If the principal does serve a payment schedule in time (and proposes to pay less than the amount claimed), and if the contractor disagrees with that lesser amount, the contractor can apply to have the matter adjudicated.
Adjudication is a cheap and dirty process. The SOP Act provides an extremely short timeframe for submissions, and is utterly ruthless in terms of what is allowed and what is not allowed. The principal cannot raise any matters at adjudication that were not raised in the payment schedule, so their hands are tied by a position which was reached in at most, 10 business days, and likely under considerable stress of competing commitments. Adjudicators are under significant pressure to make quick decisions with limited information, no face time, and with very limited input from the parties.
The effect of all this is that both sides to a dispute under the SOP Act need to make quick decisions on extremely short notice that can drastically affect their rights and entitlements down the track. While adjudicated decisions are only interim (that is, once money has moved and the construction job is back on track, the parties can go through the much more thorough and forgiving court process to establish their rights in a final sense), they often represent the practical end of disputes having regard to the costs associated with going to court.
An in-depth knowledge of the SOP Act, its procedures, and the case law that surrounds it is absolutely mandatory to gaining a good result when disputes arise in building works. A technical slip might invalidate your claim altogether (if you are a contractor), or leave you with no choice but to pay a claimed amount without dispute (if you are a principal). Good legal advice can maximise the chances of success at adjudication, and take the pressure off during the crucial but brutally short time periods imposed by the SOP Act.