Security of payment 101

A must read for homeowners, owners corporations and strata managers.

What is the SOPA?

The Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) is legislation which assists with cashflow for builders by providing a mechanism for quick dispute resolution regarding payment for ‘construction work’.

The SOPA regime has strict timeframes. These timeframes can catch unsuspecting homeowners off guard and have unforgiving consequences if they are not complied with.

Does SOPA apply to work done in my home?

Yes, SOPA applies to work done in residential homes, including strata schemes.

From 1 March 2021, the SOPA regime applies to building work done to residential properties where the person who engages the builder resides or proposes to reside.

Prior to this date, residential home building work carried out by a builder for an owner occupier homeowner was exempt from the SOPA laws in NSW.  This change has caught a number of homeowners off guard.

SOPA now applies to all residential building contracts and residential builders now have a statutory entitlement to receive progress payments.

When can a residential builder use SOPA?

a)    The work must be done in NSW

b)    A construction contract must exist (whether written, oral or both)

c)    The contract must be entered into on and from 1 March 2021.

The first step in the SOPA regime: payment claims

The starting point in the SOPA regime is the service of a payment claim by the builder. This is a document outlining the amount the builder is seeking payment for in relation to the work they have performed. For it to be valid, the payment claim is required to:

a)    be in writing and state the amount due to be paid by the homeowner

b)    have sufficient detail so that the homeowner receiving the payment claim can understand the work the amount payable relates to

c)    be endorsed with a statement confirming “This is a Payment Claim made under the Building and Construction Industry Security of Payment Act 1999 NSW”.  

To those unaware of the SOPA regime, a payment claim will generally look like an ordinary invoice. However, the phrase set out in paragraph (c) above needs to set off alarm bells for a homeowner as it indicates the builder’s reliance on the SOPA regime.

I have received a payment claim.  What do I do now?

Once the builder issues a payment claim to a homeowner, the homeowner generally has two options:

a)    Pay the amount sought in the payment claim by the due date

b)    Dispute the amount in the payment claim.

In both circumstances above, the homeowner must respond to the payment claim within 10 business days (or an earlier date provided in the contract), by serving a document called a payment schedule on the builder.

The payment schedule must outline the amount the homeowner is proposing to pay. If that amount is less than the amount claimed by the builder, the homeowner must provide reasons for the lower amount intended to be paid.

It is vital that all reasons for paying less than the amount claimed are included in the payment schedule. Any documents supporting these reasons (for example inspection reports) should be annexed to the payment schedule. The homeowner will be prevented from raising new reasons in any adjudication response (see below) that were not included in the payment schedule.

What if I don’t serve a payment schedule?

If a homeowner fails to serve a payment schedule after receiving a payment claim within the required time frame, the amount sought in the builder’s payment claim automatically becomes due and payable to the builder.  In this event, the builder has two options:

a)    proceed to adjudication by filing and serving an adjudication application on the homeowner

b)    commence proceedings to recover the amount owed in the payment claim.

Builders generally prefer option (a) because adjudication tends to be the faster and cheaper option.

The Adjudication Application  

The adjudication process allows disputes relating to payment claims to be determined in an efficient way without the need to commence court proceedings.

A builder can proceed to adjudication in circumstances where:

• The homeowner has not served a payment schedule

• The homeowner has served a payment schedule, but has agreed to pay less than the amount sought in the payment claim.

An adjudication application is a written statement outlining the entitlement to the money claimed in the payment claim. The application is generally filed with a nominated authority such as Adjudicate Today.

The adjudication process varies depending on whether a payment schedule has been served and/or the amount claimed has been paid.  This process is set out below. 

Scenario 1: Payment schedule is served but amount agreed to be paid is less than the amount claimed by the builder	Scenario 2: Payment Schedule is served but amount is not paid within the required time frame	Scenario 3: No payment schedule is served
An adjudication application can be made by the builder within 10 business days of receiving the payment schedule	An adjudication application can be made by the builder within 20 business days of the due date for payment.	Builder can notify the homeowner within 20 business days following the due date for payment, that the builder will be commencing adjudication. The homeowner then has 5 business days to serve a payment schedule.

 

The adjudication response

After an adjudication application is filed by the builder, it must be served on the homeowner. An adjudicator is also nominated to determine the application.

Once a homeowner receives an adjudication application, they have an opportunity to respond as follows:

Scenario 1: Payment schedule is served but amount agreed to be paid is less than the amount claimed by the builder	Scenario 2: Payment Schedule is served but amount is not paid within the required timeframe	Scenario 3: No Payment schedule is served
The homeowner must provide an adjudication response within 5 business days of receiving the adjudication application. NOTE: the homeowner is prevented from raising new reasons in the adjudication response that were not included in its payment schedule.	The homeowner must provide an adjudication response within 5 business days of receiving the adjudication application NOTE: the homeowner is prevented from raising new reasons in the adjudication response that were not included in its payment schedule.	The homeowner has no entitlement to serve adjudication response because no payment schedule was served.

 

The adjudication determination

The matter is determined by an Adjudicator within 10 business days of its acceptance of the application, unless the parties agree to extend this deadline.

Once a determination is made, the homeowner must pay the adjudicated amount within 5 business days of service of the determination.

What if the adjudicated amount isn’t paid?

If the adjudicated amount is not paid by the homeowner, the builder can file the adjudication certificate in Court as a judgment debt and enforce it accordingly.          

Key Takeaways

It is vital that homeowners, owners corporations and strata managers familiarise themselves with the SOPA regime before engaging a builder to undertake any work to avoid being caught out. 

If you would like legal advice on a building related dispute, Bartier Perry’s specialist strata, building and construction team is experienced and able to assist you in interpreting the SOPA legislation.

Authors: Sharon Levy and Breitil Sulaiman