Preparing for the 2021 Security of Payment Season

HWL Ebsworth Lawyers has expertise in advising on the above mentioned matters. Please contact Leighton Moon, Paul Graham or Tara Nelson of our Construction and Infrastructure team to discuss any issues relating to security of payment.

Business days over the holiday period

The timelines in the security of payment legislation are based on “business days” as defined in the Building and Construction Industry Security of Payment Act (Vic) 2002 (SOP Act) . For ease of reference we’ve set out the “business days” over the upcoming holiday period in Annexure A below.

Some warnings to remember:

• Be careful that the deadline for submitting payment schedules in the contract is not earlier than you think. The SOP Act requires a payment schedule within the earlier of 10 business days of the payment claim or as set out in the contract. If your contract requires a response based on calendar days or has a different definition of “business day”, the deadline may be earlier than you think.

For example, 14 calendar days can be significantly earlier than 10 business days – especially over the holiday period.

• A payment claim can only be served on or after the “reference date”. This is the date for submitting payment claims under the contract (or monthly if it is silent). If a Claimant serves a payment claim before the reference date, then it will be invalid and cannot be relied upon.

For example, a payment claim submitted on Christmas Eve before the Claimant’s office closes will be invalid if the contract requires payment claims to be submitted on or after the 25th day of each month.

• Many contracts state that a deadline that falls on a non-business day may be extended until the following business day. If it is served prior to that later date, then it would be invalid.

For example, a payment claim that would otherwise be due on 25 December may not have a “reference date” until 29 December.

Are liquidated and / or delay damages excluded under SOPA?

It is likely that liquidated damages and delay costs will become an increasing cause of disputes over the coming period for projects that have been impacted by COVID.

Victoria has a unique position in its SOP Act compared to other States in that it does not permit claims for “excluded amounts”. Claimants cannot include these “excluded amounts” in payment claims, and Respondents are not liable to pay them.

The concept of “excluded amounts” is relevant for both contractors’ delay costs claims and principals’ liquidated damages claims for delayed projects. Notably:

• Claimants (i.e. head contractors) are prevented from claiming their delay and disruption costs, or other time-related costs as these are “excluded amounts”; and
• Respondents (i.e. principals) are prevented from levying liquidated damages as they must pay the full value of work performed (on an interim basis).

Previously, a Claimant would have had to contest liquidated damages as soon as they were applied. As a result, a Claimant would have no choice but to apply for an adjudication during the Christmas period if liquidated damages were applied in the December payment schedule.

However, as outlined in our article “Are Liquidated Damages Excluded Under the SOPA“, this has recently changed following the decision in Goldwind.¹ In summary, a Claimant can now claim for work done, which may include an amount previously levied for liquidated damages. This means that a Claimant can make a calculated decision as to when they should apply for an adjudication to recover payment for the works that have been performed but not paid due to the deduction of liquidated damages (i.e. during the Christmas period or when they return to work).

This takes the pressure off Claimants, however, Goldwind is problematic for Respondents because, in effect, liquidated damages can be clawed back under the SOP Act at any time until the final reference date has expired.

Claims for the government’s COVID restrictions cannot be included under the SOP Act

It is unlikely that Claimants will be able to include claims for increased costs due to the government’s COVID related directions (e.g. to reduce labour on sites, implement COVID Safety Plans and similar). Subject to the terms of the particular contract, these costs are likely to be classified as claims for changes in legislation, and, therefore, are “excluded amounts” and cannot be included in a payment claim.

Security of Payment Season Calendar (Victoria) 2021/22

This article was written by Leighton Moon, Partner, Paul Graham, Partner and Tara Nelson, Associate. 

¹ Goldwind Australia Pty Ltd v ALE Heavylift (Australia) Pty Ltd [2021] VSC 625