Changes in the Security of Payment Act which applies to residential building pursuant to Contracts after 28 February 2021 – urgent response required by Owners to all claims to avoid default position that the Owner must pay the claim notwithstanding its validity

10/07/2024

A Builder of residential building work for a person who resides in or intends to reside in the home, is entitled to make a claim under the Building and Construction Industry Security of Payment Act (SOP Act) in relation to Contracts that were entered into after
28 February 2021.  This gives the Builder a very significant right.  We refer to:

1.       Our article dated 28 August 2023 Homeowners beware of Builder’s extended rights in relation to residential building works undertaken subject to Contracts, that were entered into after 28 February 2021; and

2.       Our article dated 27 September 2023 providing a note of us assisting an Owner to defend an excessive claim by the Builder.  The claim was in excess of $125,000 and following consideration of the matter and us assisting the Homeowner, an Adjudication Determination was approximately $35,000. 

3.       If the Homeowner did not prepare a response to the Builder’s claim, the Builder would have obtained by default, the amount claimed in the Adjudication Application.

In the period since March 2021, there has been a significant increase in claims made by Builders under the Building and Construction Industry Security of Payment Act (Security of Payment Act) where Contracts have been entered into after 28 February 2021.  Some of those claims have been grossly excessive claims not supported by any reasonable interpretation of the Contract obligations of the Builder.  Where the Homeowners have approached us and they had written something in response to the claim, it was however very difficult to cover all the legitimate bases by the Owner to support the claim for not making the payment.

There have been numerous requests where we have been approached by an Owner in relation to circumstances of a Builder’s claim, and we have provided assistance.  However, we cannot assist if the approach is after the Builder has applied for Adjudication.  An Owner does not know when a Builder will make an Adjudication Application after sending a claim.  In those circumstances, you as an Owner must be prepared and respond to each and every claim by way of a Payment Schedule under the Security of Payment Act (often within 5 days of receipt of the claim). Failure to defend the claim in the form as required by the SOP Act results in the default position by which the Builder will receive a Determination, that the amount claimed is payable by the Owner.

Most, if not more than 90% of the Owners who have sought our advice, had not been aware of or considered issues relating to the Builder’s rights under the Security of Payment Act.  We have advised Owners as to our recommendations to properly prepare for each and every claim that is made by the Builder, so that there is an appropriate valid response to each claim in light of the facts of the matter and the “value of the works” that have in fact been carried out, rather than what the Builder was seeking.  The Owner in responding to the claims, needs to have the appropriate documentation prepared and the appropriate evidence available to satisfy the Adjudicator, in the event that the Builder makes an Application for Adjudication.  A process needs to be put in place which would include monitoring the progress of the works compared with the contractual obligations.  Also, an appropriate Building Consultant skilled in the consideration of the value of the completed works, the value of the work incomplete works and the extent of the works in accordance with the Contract and further, in relation to claims for variations.  This comes at a cost however the benefit is that the Builder becomes aware that the Owner is looking at the claims seriously and further, the Owner should be in a position to defend each claim by the Builder in accordance with the procedures required under the Building and Construction Industry Security of Payment Act.

Often Owners make the payments without consideration as to whether it is a fair or appropriate payment in light of their desire to have the building completed.  This is one consideration however, one needs to consider the promises of the Builder as well as the performance of the Builder to make decisions in this regard.

For Builders, the Builder generally wishes to complete the Contract work for the Contract Sum and be paid within time. 

Builders also need to consider their reputational damage if the Builder takes action for example, under the SOP Act which is lawful in terms of the procedure under the SOP Act, however may be over-reaching the claims (and sometimes by a very significant amount) the appropriate sum that is payable under the Contract. 

In the event that you are involved in building or propose to enter into a Contract, contact Richard Watson experienced Lawyer in all aspects of Building and Construction prior to entering into the Contract or if you have entered into a Contract for advice as to the matters of concern including those referred to in this article.  Please contact Shereen Da Gloria, Practice Manager and Richard Watson’s Personal Assistant to discuss your matter and to seek appropriate and timely advice sooner rather than later.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.