Builder’s Beware

Author: Jade Ellis 

The Building and Construction Industry Security of Payments Act 1999 (NSW) (SOPA) is designed to protect contractors, subcontractors, and suppliers by ensuring they can recover payments promptly for the work and services they provide. It plays a crucial role in maintaining cash flow within the building and construction industry, helping to keep projects moving and preventing delays caused by payment disputes.

One of the key features of SOPA is the adjudication process, which offers a fast and cost-effective alternative to traditional litigation. Through adjudication, an independent adjudicator reviews and assesses a claim, allowing claimants to receive payment more quickly than if they were to go to court. While litigation can stretch over 12 to 18 months (or even longer), adjudication is typically completed within 3 to 4 months, providing much needed cash flow to contractors and avoiding the financial strain that extended legal battles can impose.

Historically, adjudication has been used predominantly for commercial construction projects. However, changes to SOPA which were effective from 1 March 2021, extended its application to include residential owner-occupier construction projects, opening up new avenues for owners and builders to resolve payment disputes efficiently.

In a further development, on 14 August 2024, the NSW Government passed the Better Regulation Legislation Amendment (Miscellaneous) Act 2024 No 53, which introduced a significant change to SOPA. Under this amendment, contractors who are unlicensed or who fail to maintain proper insurance as required by the Home Building Act 1989 (NSW) (HBA) will no longer have the right to use the process created by SOPA to secure progress payments. The changes to SOPA are designed to align with the restrictions in the HBA which prevent builders from enforcing a contract to recover payment where the contract is not compliant.

This highlights the importance for residential builders of ensuring that all licensing and insurance requirements comply with the HBA before contracting for any construction work.

If you are a builder or an owner with questions about your contract’s compliance with the HBA or the adjudication process, contact Aaran Johnson or Bharath Balasubramanian at Marsdens to learn how we can assist you.

The content of this publication is for references purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.