“Security of Payment” we have heard of it, but what is it exactly? And how does it impact on you as consultants?

The Building and Construction Industry Security of Payment Act 1999 (“SOP Act”) is the legislation that makes sure that any person who carries out construction work or supplies related goods and services (such as architecture or engineering services) under a construction contract or consultancy agreement, can get paid.

Yes, you have the contract, invoices and letters of demand route to recover fees, but this is the legislation that makes sure that you don’t have to go down that road. Not only have a contractual path to go down to be paid for the performance of your services but also a legal one. This comes in handy when you are trying to get payment from say the builder for your services and they say “Sorry mate, I haven’t been paid, so I can’t pay you”. This is because the SOP Act states there can be no such ‘pay when paid’ provisions within your consultancy agreement (s12, SOP Act).

Unfortunately, if for example, the services you are performing are for residential building work where the owner lives or intends to live at the property or they form part of a contract of guarantee or contract of indemnity then you are out of luck, the SOP Act does not apply in these circumstances (as well as a few others).

The SOP Act sets out guidelines and procedures for how consultants can make payment claims, and how clients/lead consultants can respond. If there is no agreement as to the amount due, the consultant can then apply for an independent third party to determine or ‘adjudicate’. But beware, timing of each payment claim, payment schedule, adjudication application and adjudication response are vital and if not adhered to, can leave the consultant with a figure of $0 as a result of not conforming to the requirements of the SOP Act !

But the SOP Act has been around since 1999, so why an article now? Well would you believe that the SOP Act was not entirely without fault. In November 2013, the NSW Parliament attempted to address some of the issues which arose out of the Collins Inquiry by amending the SOP Act. Those changes impact on consultants, particularly as we are starting to see Clients more and more often requiring the architect or engineer to be the ‘lead consultant’ on projects (bearing much of the risk too). Some of the major changes involve:

• Shorter timeframes for Principal’s to pay lead consultants (no later than 15 days), and in turn for those lead consultants to pay their subconsultants (no later than 30 days);
• A statement by the lead consultant that the subcontractors that you have engaged, have been paid what is due to them; and
• Removal of the requirement to state that a payment claim is “made under the Building and Construction Industry Security of Payment Act1999”.

If you would like to know more about the SOP Act, the changes made and the impact of both on you as a consultant, then please join us for our upcoming “Be Informed Briefing” on 28 June 2017.

Please visit the event on our website here for more details and to register.

Felicity Jools

Risk Manager