The Victorian Government has at long last issued its response to the parliamentary inquiry into payments to subcontractors under the Building and Construction Industry Security of Payment Act 2022 (Vic).
This alert touches on some of the key recommendations agreed to by the Victorian Government which will have an impact on parties entering into construction contracts.
Background
In March 2023 the Victorian Government issued an inquiry “into employers and contractors who refuse to pay their subcontractors for completed works”. The Parliamentary Inquiry published its report in November 2023 (Inquiry). The Inquiry is available here. The Inquiry made 9 findings and 28 recommendations. A key focus of the Inquiry was reviewing the Building and Construction Industry Security of Payment Act 2022 (Vic) (SOPA) which has not been amended since 2006. On 18 October 2024, the Victorian Government issued its response to the Inquiry (Government Response). The Government Response can be found here. The government has agreed in full or part with all the recommendations made in the Inquiry.
Key Recommendations
A summary of some of the key recommendations of the Inquiry that were supported in full in the Government Response is below:
- Repeal of excluded amounts and non-claimable variations (Recommendation 2): The SOPA does not allow a party to take into account certain ‘excluded amounts’ when making a payment claim, including some variations that are in dispute (non-claimable variations). The ‘excluded amounts’ concept is unique to Victoria and the Inquiry found that it increased complexity of the adjudication process. The Inquiry recommended the repeal of ss 10, 10A and 10B of the SOPA to allow claims to be made in accordance with the contract.
- Remove the concept of reference dates (Recommendation 3): The Inquiry found that the concept of reference dates were confusing and unfairly prevented payment claims.Reference dates determine when a party may make a payment claim. This concept is unique to Victoria. The Inquiry recommended that the reference date concept should be replaced with an entitlement to claim at least once per calendar month, on the termination of a contract for goods and services up to the date of termination, and override any contracted dates for payment claims if the contracted dates are longer than those provided for by the SOPA.
- Exclude Christmas period (Recommendation 4): Victoria is the only jurisdiction not to exclude the Christmas shutdown period from the definition of business days.The Inquiry recommended that the period from 22 December to 10 January inclusive is excluded from the definition of business days to ensure that claimants do not “ambush” respondents by issuing payment claims which require a response during the Christmas period.
- Unfair time bars and other onerous clauses (Recommendations 5 and 6): The Inquiry recommended amending the SOPA to nullify unfair time bar clauses by introducing a new section to allow an adjudicator, court, arbitrator or other expert to declare a time bar clause ‘unfair’ if it is not reasonably possible or would be unreasonably onerous.The Inquiry also recommended inserting a provision providing that the regulations may prohibit and nullify unfair construction contractual clauses. These proposals would work in conjunction with the amendments to the unfair contract terms regime recently made under the Competition and Consumer Act 2010 (Cth).
- Increasing the time available for payment claims and limiting payment times (Recommendations 7 and 8): The Inquiry recommended extending the time limit to claim progress payments to at least 6 months after construction is completed and providing that payment is due and payable no more than 25 days after a payment claim is made.
- Prohibit new reasons in adjudication response (Recommendation 15): Victoria is the only jurisdiction that allows a respondent to an adjudication claim to provide new reasons for non-payment that were not set out in the payment schedule responding to a payment claim.The Inquiry recommended the removal of this entitlement.
Next Steps
The Government will need to introduce legislation to enact the recommendations. However, it has not announced when it intends to do so. Victoria’s reputation as a jurisdiction that offers more limited scope for SOPA claims than its peers could be changing. In the meantime, industry participants should monitor any legislative developments so that if these changes are enacted, their construction contracts are compliant and ready for the new regime.
If you want to know more contact Senior Associate, Michael Bragg and Principals Kyle Gillan and Paul Somers.
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