Security of Payment

Every day, individuals and organisations enter into contracts for building and construction – and sometimes disputes arise over payment.

The Building and Construction Industry Security of Payment Act 2002 (known as the SOP Act) helps ensure that any person who carries out construction work or supplies related goods and services under a construction contract gets paid.

It is designed to provide a fast and inexpensive process to recover payments due under a construction contract, without the need for lawyers to become involved.

The VBA monitors the operation of the SOP Act. It does not nominate adjudicators or take part in payment disputes. This is the role of Authorised Nominating Authorities (ANAs), who are authorised by the VBA to perform this service.

The VBA has collated common questions and answers about Security of Payment into a fact sheet (Word (DOCX, 256.63 KB) | PDF (PDF, 160.28 KB))

The following video provides an introduction to the SOP Act.

Overview of the SOP Act

Contracts covered

The SOP Act applies to construction contracts entered into on or after 30 March 2007. For construction contracts entered into between 31 January 2003 and 30 March 2007, the SOP Act applies as if it had not been amended by the Building and Construction Industry Security of Payment (Amendment) Act 2006.

The SOP Act applies to most contracts for building work or for the supply of related goods and services in Victoria. The contract may be oral, written or a combination of both.

Domestic building contracts between a builder or supplier and the home owner are not covered. These come under the Domestic Building Contracts Act 1995. However, contracts between a home owner’s building contractor and any subcontractor or supplier are covered.

Work covered

The SOP Act applies to the following types of work:

• residential and non-residential building
• civil engineering
• demolition
• electrical
• professional services (e.g. architecture, design, surveying)
• hire of plant and equipment
• landscaping
• maintenance
• mechanical air conditioning
• plumbing
• supply of building material.

Types of payments covered

Claims may be made under the SOP Act for 'progress payments' for work done or supplies made since a date determined by the contract or under the SOP Act. For contracts entered on or after 30 March 2007, progress payments include final, single and milestone payments.

Statutory right to payment

Contractors have a statutory right to receive progress payments. If the contract does not specify when the contractor is entitled to be paid, the SOP Act sets the date. Any 'paid when paid' or 'paid if paid' clauses in the contract have no effect.

SOP process

1. Payment claim

A person who has carried out work or supplied goods or services under a construction contract in Victoria (the claimant) can claim progress payments by giving a ‘payment claim’ to the relevant contractor, purchaser or client (the respondent). A payment claim specifies the work, goods or services supplied and the amount claimed and states that it is made under the Building and Construction Industry Security of Payment Act 2002.

2. Payment or payment schedule

The respondent can pay in full or, if they dispute the amount due, give the claimant a ‘payment schedule’. A payment schedule states how much the respondent is willing to pay and why it is different from the amount claimed. A respondent who fails to provide a payment schedule within 10 business days or as required by the contract – whichever is earlier – is liable to pay the full amount claimed.

3. Adjudication option

If there is a dispute about payment, the claimant can apply for adjudication by contacting an Authorised Nominating Authority (ANA). The ANA nominates an adjudicator with the necessary skills and experience to adjudicate the dispute. After accepting nomination, the adjudicator has 10 business days (or up to 15 business days if the claimant agrees) to determine what amount (if any) the respondent should pay, and when. In some cases, if the adjudicated amount exceeds $100,000 either party can apply for an adjudication review.

4. Court assistance

A claimant may choose to go to court to resolve a payment dispute rather than apply for adjudication. This is done by lodging a complaint with the Magistrates' Court or a writ in the County Court or the Supreme Court, depending on the value of the claim.

The claimant can also go to court to enforce payment of an adjudicated amount. An adjudication certificate is filed in the court, with an affidavit attesting that the respondent has failed to pay, and the court can issue a warrant or other order requiring payment.

5. Recovery from respondent's principal

In certain circumstances where a respondent has failed to pay the adjudicated amount, the claimant may seek payment from the respondent’s principal.

For more information

If you have any questions about SOP, please submit an enquiry or call us on 1300 815 127.

Enquiries outside Victoria