In brief
If recently recommended amendments to the Security of Payment Act in Victoria come into effect, there will be changes in the nature of claims that can be brought, allowing variation, latent conditions and time-related claims to be made in adjudications. Accordingly, it is anticipated there will be an increase in the number and size of claims. Changes will likely also be required to construction contracts, including mandatory 25 business day maximum payment terms and reconsideration of potentially onerous time bar and other clauses.
On 28 November 2023, the Victorian Government's Legislative Assembly Environment and Planning Committee ("Committee") tabled a report, "Employers and contractors who refuse to pay their subcontractors for completed works" ("Report"). The Report highlighted research into construction sector payment practices and how payment problems have led to financial and emotional stress experienced by contractors, and the negative flow-on effects to Victoria's economy.
The Report recommends changes to the Building and Construction Industry Security of Payment Act 2002 (Vic) ("SOP Act") to improve certainty and simplicity for subcontractors when claiming payment and greater consistency with equivalent Security of Payment legislation in other states and makes broader recommendations regarding the ability to invalidate unreasonable time bars and to prohibit unfair contractual terms. We summarise below the key proposed changes to allow early consideration regarding commercial implications and changes to contracting practices, noting that most of the changes will already be familiar to stakeholders working in other jurisdictions.
The Victorian Government has six months from the date the Report was tabled to provide its response so we must wait until June 2024 to see which of the Report's recommendations are to be implemented, following which amendment legislation will need to be enacted. Amendments to Victorian Legislation may therefore still be one to two years away.
The Report's recommendations if implemented would require those in the construction industry to make adjustments to their contracts and ways of operating. Required changes include ensuring payment terms are no more than 25 business days and preparing to make and receive a wider range of claims for determination by Security of Payment and the consequential increase in the likely size of amounts payable under Adjudication Determinations. In addition, giving careful consideration to contractual provisions such as time bars to ensure they are reasonable and not commercially onerous.
Depending on a construction entity's usual customers and suppliers, amendments for contract terms should already be under review in light of changes to the Australian Consumer Law effective after 9 November 2023 which prohibits businesses from using or relying on unfair contract terms in standard form contracts with consumers and small businesses.
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