Suspending Work under Construction Contracts - how the Security of Payment Act can help you get paid
In addition to, or alternatively, a Claimant who has submitted a Payment Claim under the Building and Construction Industry Security of Payment Act 2002 (Vic) (“SOP Act”) may be able to suspend the carrying out of the construction work or the supply of related goods and services under the construction work (hereafter known collectively as the “work”) by using the provisions of the SOP Act.
Suspending the work may also be used in circumstances where the matter has already been the subject of an adjudication application.
Using the provisions of the SOP Act to suspend work is distinct from suspending work using terms under the contract. It is a statutory right as opposed to a contractual right. In addition, where such a right is exercised properly, the same will not constitute a breach of the contract.
Where there is a statutory right to payment under the SOP Act, the Claimant may be able to apply commercial pressure on the Respondent to make payment of the amount in question.
The Suspension Process
In order to suspend the work using the provisions of the SOP Act, the Claimant must first give notice to the Respondent of its intention to suspend the work.
However, a right under the SOP Act must be conferred on the Claimant before it is entitled to give such a notice to the Respondent. The right will arise if one of the following events occur:
The Respondent has failed to make payment of the Claimed Amount on or before the due date for payment in circumstances where the Respondent failed to provide the Claimant with a Payment Schedule;
The Respondent has failed to make payment of the Scheduled Amount on or before the due date for payment in circumstances where the Respondent provided the Claimant with a Payment Schedule;
The Respondent has failed to make payment of an Adjudicated Amount on or before the relevant date; or
The Respondent has failed to make payment following a Review Determination on or before the date for that payment determined by the review adjudicator.
Without one of the above events occurring, the Claimant does not have a right to give notice of an intention to suspend work under the SOP Act. This, however, does not preclude the Claimant from suspending work using the terms of the contract (if an appropriate ground can be determined).
If one of the above events occur and the Claimant has subsequently caused a notice of its intention to suspend work to be given to the Respondent, the Claimant must then wait for a period of at least 3 business days to pass before actually suspending the work.
Only once 3 business days have passed since the Respondent received a copy of the Claimant’s notice of intention may the Claimant actually suspend the work.
How long does the period of suspension exist for?
If the Respondent makes payment to the Claimant, the period of suspension will come to an end at the following times:
if the construction contract provides for a period of at least 1 business day for a return to work after the Claimant receives payment from the Respondent, the end of that period; or
in any other case, the end of the period of 3 business days immediately following the date on which the Claimant receives payment from the Respondent.
Put simply, after the Respondent has made payment of the relevant amount to the Claimant, the Claimant is to return to work at the time dictated by the construction contract between the parties.
Alternatively, if the construction contract is silent on this point, the Claimant must return to work at the end of 3 business days immediately following receipt of payment.
Additional Costs of the Respondent – is the Claimant liable?
Where the Claimant suspends the work using the provision of the SOP Act, it is possible that the Respondent will incur loss or damage as a result.
Notwithstanding any such loss or damage, the SOP Act provides that where the Claimant suspends the work in accordance with its rights conferred by the SOP Act, the Claimant is not liable for the loss or damage suffered by the Respondent, or by any person claiming through the Respondent, as a consequence of the Claimant not carrying out the work during the period of suspension.
Before suspending the work using the SOP Act, we highly recommend that you seek legal advice to ensure you are in a position to suspend in your particular circumstances and to minimise the risk of any unintended consequences.
If you wish to discuss suspending any work using the provisions of the SOP Act or under the terms of the contract, please do not hesitate to contact the Principals of our firm, David Thomas on 0400 046 186 or John Perry on 0403 817 102.