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Security of Payment - Overview
This information sheet provides an overview of the requirements of Building and Construction Industry (Security of Payment) Act 2021 (WA) (SOP Act) and how they relate to the residential building industry. The SOP Act establishes:
- A statutory right to progress payments.
- Requirements for construction contracts, including prohibited and unfair terms.
- A process for making and responding to payment claims.
- An adjudication process for disputed and unpaid claims.
- A process for appeals and enforcement of adjudications.
- A framework for adjudicators and nominating bodies.
- That in some cases retention monies are deemed to be held on trust.
What types of contracts does the SOP Act cover?
The SOP Act applies to contracts for construction work or related goods and services.
The SOP Act does not cover contracts for home building work valued under $500,000, between individual homeowners and builders or contractors.
HIA has further information available on the coverage of the SOP Act.
When will the SOP Act commence?
The SOP Act will apply to construction contracts signed after 1 August 2022.
For contracts signed before this date, the Construction Contracts Act 2004 (CCA) will continue to apply.
The CCA is not the same as the SOP Act, and the processes and application of the CCA and SOP Act are fundamentally different. If your contract is covered by the CCA, this and other information on the SOP Act will not apply.
If you require further information on the CCA, or if you are unsure which Act applies, please contact the HIA Workplace Services Team.
Contracts must comply with the SOP Act
Contracts that are covered by the SOP Act will need to meet certain requirements. For example, contracts must:
- Be in writing where they are valued over $20,000.
- List the parties names, scope and registration information.
- Not include prohibited provisions.
HIA has further information available on the requirements for construction contracts under the SOP Act.
Claiming payment under the SOP Act
The SOP Act establishes a statutory right to make progress claims under a construction contract. This means that if you are carrying out construction work, you are permitted to make a payment claim for the work you have carried out, or services or goods you have provided, up to the date of the claim. The right applies regardless of whether it is addressed in your contract.
There is no requirement to make a claim under the SOP Act. However, if you choose to make a payment claim under the SOP Act it must comply with certain requirements.
If you decide not to make a claim under the SOP Act you are still entitled to be paid if you have made a claim that complies with your contract.
Responding to a payment claim
If a contractor (claimant) makes a claim for payment from their client (respondent), the respondent is required to pay the claim or provide the claimant with a payment schedule setting out the reasons why they disagree with all or part of the claim.
The payment schedule must be served upon the claimant in the required timeframe. If this is not done, the respondent is required to pay the claimant within the relevant timeframe and if the claimant makes an application for adjudication, the respondent will not have the opportunity to respond.
What is adjudication?
If a payment claim is not paid on time, or if the amount paid is less that what was listed on the payment schedule, the claimant may apply for adjudication of the claim. The adjudication system allows for the appointment of an independent adjudicator to assess the claim and to make a determination on the unpaid amounts.
There are strict timeframes applicable throughout the adjudication process.
The SOP Act also includes a system for adjudicators to review determinations if the value of the claim is over a prescribed amount.
Will deemed statutory retention trusts apply to my business?
From 1 February 2023 construction contracts worth over $1 million that require retention money to be withheld must place those funds into a dedicated bank account. Those funds will be deemed under the SOP Act to be held on trust.
To find out more, contact HIA's Contracts and Compliance team
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