OVERHAUL OF VICTORIA’S
SECURITY OF PAYMENT REGIME AS PART OF NECA’S ROLE AS A PEAK INDUSTRY BODY, NECA VICTORIA AIMS TO HELP OUR MEMBERS AND THE WIDER INDUSTRY, NOT ONLY TO OPERATE AND MANAGE THEIR BUSINESSES MORE EFFECTIVELY AND EFFICIENTLY, BUT TO ALSO REPRESENT THEIR INTERESTS TO GOVERNMENT AND REGULATORS. NECA Victoria was recently approached by the Victorian Department of Environment Land Water and Planning (DELWP) to provide feedback on the Building and Construction Industry Security of Payment Act (the SOP Act) from the outset. A personal thank you to those members who took the time to provide feedback, as the crucial information on the day-to-day practical impacts on contracting businesses, has allowed NECA Victoria to properly represent members’ interests.
The issues Outlined below are the most common issues members face when it comes to payments for services performed: 1. Not getting paid As a finishing trade, electrical contractors are involved in the latter stages of the building and construction cycle. In the event
a head/principal contractor falls into receivership, electrical contractors, as subcontractors, can be heavily disadvantaged compared to other trades, which are paid much earlier in the build. 2. Late payments The most common issue is noncompliance with payment terms on invoices. For example, if payment terms are 60 days, the client can unilaterally stretch out payment to 90 days or longer, causing serious cash flow issues for the subcontractor, who typically works on terms of trade with suppliers, for 60 days or less. Members have also reluctantly accepted repayments in small monthly amounts, which can be an administrative nightmare to control. Long delays are also encountered in processing variations, payments and return of cash retentions. In these instances,
businesses, mainly SMEs, continue to experience cash flow issues due to the backlog, which creates a vicious cycle. To counter these payment issues, members have made use of debt collectors, the Magistrates Court or the Victorian Civil and Administrative Tribunal (VCAT), but the consensus is that debts are not pursued if they are less than $1,000 and the process is time-consuming. Even where an order is obtained, it is of little assistance if the client is insolvent. ……So that leaves us with the SOP Act.
Problems with the SOP Act The Act has been touted as a fast-track, cost effective process that aims to ensure that any person who carries out construction (or who supplies related goods and services under a construction contract), is entitled to receive and can recover progress payments for those works, goods and services. However, this is not what is experienced by members on the ground. In fact, the current process is time-consuming, complex, and expensive to access. Some of the key problems with subcontractors utilising the SOP Act include: a) If the subcontractor uses their statutory right under the Act to suspend work until paid, they are usually threatened with claims for liquidated damages. b) Usually, the appropriate person to deal with the payment from the client end is not contactable/accountable. c) The Act does not embrace variations, especially where the principal contractor/builder issues a variation order for works without a price.
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