Ready, Steady? What You Need to Know About The New Security of Payment Laws That Kick in on 1 August 2022

Stage 1 of the Government’s 3 year action plan to implement the new Building and Construction Industry (Security of Payment) Act 2021 comes into effect on 1 August 2022 (the SOPA Act).

Overview of Stage 1

Stage 1 of the Government’s 3 year action plan to implement the new Building and Construction Industry (Security of Payment) Act 2021 comes into effect on 1 August 2022 (the SOPA Act).

The SOPA Act promotes cash flow in the construction industry by providing mechanisms for the recovery of payments. It also protects head contractors, subcontractors and suppliers regardless of whether the project is privately funded or government funded.

The SOPA Act will apply to construction contracts entered into on or after 1 August 2022. The Construction Contracts Act 2004 (CCA) still continues to apply to contracts entered into prior to 1 August 2022.

Late last year, we published an update on the staged approach to the rolling out of the SOPA Act. You may access that publication here.

Stage 1 is focused on implementing new payment and adjudication regimes. Stage 2, which will focus on the implementation of the first phase of the retention trust scheme, will kick in on 1 February 2023. Finally, stage 3 which will relate to the implementation of the second phase of the retention trust scheme will kick in on 1 February 2024.

Snapshot of key changes under the SOPA Act

The most notable changes of relevance to contract administrators relate to:

  • Security/retention: where security is held by way of retention, those monies must now be placed in a separate trust account and be held on trust for the subcontractor. There are fines that will be imposed for failure to set up a trust account.
  • Pay when paid provisions: Under the SOPA Act, the definition of prohibited pay when paid clauses has been expanded
  • Payment claims and timeframes: The Principal must make a payment within 20 business days after a payment claim is made by a head contractor. The head contractor must make a payment within 25 business days after a payment claim is made by a subcontractor. The respondent needs to provide a payment schedule within 15 business days. It is also worth noting, that unlike the current regime under the CCA, the respondent cannot include in the adjudication response reasons for withholding payment unless those reasons have already been included in the payment schedule. 
  • Rapid Adjudication Process – applications must be made within 20 business days and responses must be lodged within 10 business days. The adjudicator must make a determination within a further 10 business days.

The Department has also published a range of educational materials on its website which you may access here. If you want to find out more about the SOPA Act and would like more information on how you can ensure that your construction contract will comply with the SOPA Act, the Construction and Infrastructure team at Lavan is here to help.