Summary

A ‘pass through’ provision in a subcontract related to work on the Metropolitan Remand Centre was recently the subject of a challenge by Built Pty Ltd (Built) under the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act). Built argued that their entitlement to be paid should not be subject to an upstream dispute, despite the wording of the contract suggesting otherwise.

The Victorian Supreme Court held that Built had made Linked Claims (including extension of time (EOT) and variation claims), and the disputes in Victorian Correctional Infrastructure Partnership Pty Ltd’s (VCIP) notice of dispute were Linked Disputes subject to upstream resolution.

The Court dismissed Built’s challenge. It held that the subject provision (clause 48A of the subcontract) was not void or inoperative under the SOP Act because no payment claim was on foot. Declaratory relief was refused because what Built sought was effectively hypothetical.

The case is useful in the context of ‘pass through’ provisions for claims/disputes, which are regularly used by project parties as a risk minimisation/allocation tool, and the potential impact from the security of payment regime.

What happened?

Built entered a subcontract with VCIP, for the design and construct of modular cells at the Metropolitan Remand Centre. VCIP had a head contract with the State of Victoria (State) for the delivery of the project.

A dispute arose in relation to defective works under the head contract. This dispute was the subject of an arbitration. In March 2025, VCIP issued a notice of dispute (NOD) to Built under the subcontract, essentially to the same effect of the State’s notice (that there were defective works (by Built)).

Built pressed two key arguments: first, that the claims were not ‘Linked Claims’ under the subcontract, and therefore not ‘Linked Disputes’ and second, in the alternative, clause 48A of the subcontract was a ‘pay when paid provision’ (s 13) and was therefore void under the SOP Act (s48 (‘no contracting out’)).

‘Linked Claims’ were defined as any claim/entitlement or potential claim/entitlement of Built against VCIP under and in accordance with the subcontract, arising out of the same, or substantially the same circumstances as a claim that VCIP would have against the State.

For relevant purposes, the effect of clause 48A of the subcontract was that ‘Linked Claims’ by Built to VCIP would be prosecuted and determined ‘upstream’, between VCIP and the State, and Built was bound by that determination.

Built put forward various arguments on the first point, that:

1. a ‘Linked Claim’ must be a positive claim ‘by or of Built against VCIP’, not a claim passed down from the State or initiated by VCIP (ie VCIP’s downstream defect allegations could not trigger clause 48A;
2. there were no positive claims or assertions of entitlement by Built, and that it had merely adopted a defensive position (in response to VCIP/State allegations (ie a denial of liability cannot amount to a claim); and
3. clause 48A should not apply unless Built intentionally asserts a claim, and it was only commercially sensible where it chose to pursue a claim (and not where it was merely defending one).

What did the Court say?

On the first argument, the Court:

1. Held that Built’s EOT claim, variation claim, delay cost claim, and related allegations – even if framed as responses to VCIP or the State – were positive assertions of entitlement, not mere denials and therefore were ‘Claims’ and ‘Linked Claims’.
2. Determined that VCIP’s disputes regarding defects, delay, liquidated damages, rectification refusal to rectify work, and failure to achieve practical completion, were directly related to the Linked Claims made by Built.
3. Dismissed the notion that Built’s position was merely defensive. Built’s position went well beyond bare denials, involving affirmative contentions about entitlement and responsibility, making them Claims, particularly its EOT and variation claims.

On the SOP Act challenge, the Court:

1. Considered the threshold issue of whether the dispute was justiciable and appropriate to make a declaration.
2. Held that Built’s argument was entirely abstract because no payment claim was on foot, and none of the disputes in VCIP’s NOD concerned any payment for construction work (under s13(1) of the SOP Act).
3. Stressed that declaratory relief cannot be granted on hypothetical or future scenarios, especially where no concrete SOP Act entitlement is engaged. The question Built posed was divorced from any factual dispute concerning the interaction between the statutory and contractual provisions and would require the Court to give an advisory opinion, which is impermissible.

The Court also noted that, although clause 48A is not expressly about progress payments, if read in isolation it might appear capable of restricting SOP Act rights. However, reaching that conclusion would require two assumptions: first, that a payment claim caught by clause 48A is a ‘Linked Claim’, and second, that the parties intended clause 48A to apply to progress‑payment entitlements. The Court did not make those assumptions and also made clear that Built had not demonstrated either.

Why is this case important?

This case demonstrates the importance of considering the reason for, and ambit of, ‘pass through’ provisions in construction contracts. It is also a reminder of the court’s reluctance to delve into hypothetical scenarios or give advisory opinions.

Pass through provisions that regulate parties’ rights or obligations for claims or disputes must be carefully considered and drafted. They need to give effect to the commercial intent that a dispute regarding the same subject matter on a project does not yield different results upstream and downstream. These provisions must also not offend statutory rights and entitlements or fall foul of statutory prohibitions.

On the latter point, as Victoria will shortly enter a new SOP realm, arguably allowing much broader claims to be brought (and disputes/adjudications to be had), parties will need to be mindful of drafting to ensure that provisions are enforceable and not found wanting under the SOP Act.

This article was written by Theo Kalyvas, Partner, and Jashrin Whitehead, Associate