Security of Payments Spotlight

How many contracts exist for works you are conducting on site?

A valid payment claim under the Security of Payments Act (SOPA) has the following limitations:

• Payment Claims can only claim amounts owed on one project.
• Only one payment claim can be issued per reference date.

Sounds simple enough, you just issue one (1) payment claim per contract.

The recent case of Rapid Concrete Developments Pty Ltd v Lorem Constructions Pty Ltd (2020) VCC 858 shows how two (2) contracts can exist on a single project site.

Two separate quotes were signed by the head contractor, prior to works commencing on site. This created two (2) contracts for the works onsite.

The two (2) contracts cannot be merged into one (1) when making Payment Claims under SOPA.

Only one payment claim can be issued per reference date for each contract.

If you do not have a formal subcontract with the builder or scope of works has drastically changed, consider whether two (2) contracts exist and seek advice issuing your final claim.

Best Business Practices – Draft a comprehensive Quote Template & Terms and Conditions.

Contracts can be verbal, written or implied by conduct.

In legal disputes the requirement of evidence means that written documents and conduct are generally relied on to show contract formation.

Many LPF clients seek advice because they claim that no contract exists because a formal subcontract or purchase order has not been provided.

A common scenario is that a subcontractor sends out their quote and the builder directs the subcontractor to commence onsite.  A formal subcontract is later presented, and the subcontractor is asked to sign before the builder will release the first payment.

In this scenario, a contract was formed when the subcontractor has commenced onsite.

The issue is that the terms and conditions of that contract are unclear.

A well drafted Quote template and Terms and Conditions will put the subcontractor in a better legal position when the builder presents the formal subcontract. Essentially, parties are trading on the subcontractor’s terms until the agreement is varied.

A subcontractor is then in a better position to negotiate clauses and the scope of works in a formal subcontract.

COVID 19 -Enforcement Challenges

Changes to Statutory Demands

A statutory demand is a demand made to a company by a creditor under Section 459E of the Corporations Act 2001.

Prior to 25 March 2020, a statutory demand could be issued against a company for non-payment of a debt of $2,000 and over. Failure to comply with the statutory demand would lead to the company being presumed insolvent and would form the basis for a court ordered winding up.

A debtor will be taken to have not complied with a statutory demand, 21 days from when the service has occurred, thus opening them up to winding up.

As of the 25 March 2020, the following changes were made:

• A statutory demand served on a corporation must be for a debt that is $20,000 or more.

The debtor now has 6 months to respond to the statutory demand. Statutory demands are now significantly less useful until the end of September 2020.a

What are the Alternatives?

Adjudication and recovery from the Principal.

If the adjudicated amount is for work, goods or services that are incidental to or part of a contract between the respondent and a third party (the principal), you may recover the adjudicated amount from the principal (In certain circumstances).

To use this option, you need to recover as soon as possible to ensure he head contractor is still receiving the payment from the principal on that specific project.