MAJOR AMENDMENTS SLATED FOR VICTORIA’S SOP ACT

John Murray AM conducted for the Commonwealth the review of the different security of payment laws that operate in the various jurisdictions. John’s Final Report, “Building Trust and Harmony” was released by the Commonwealth in May 2018 and various of its 86 recommendations have been taken up by a number of State Governments. John is Adjudicate Today's Chief Adjudicator for the States of Queensland, Victoria, South Australia, West Australia, Tasmania and A.C.T. having adjudicated more than 500 matters.

Background / Context

Back in 2017, the Commonwealth of Australia engaged me to identify legislative best practice, with a view to improving consistency in security of payment (SOP) legislation and the level of protection afforded to construction industry subcontractors. At that time, every state and territory government had progressively enacted SOP legislation with the prime objective of facilitating prompt payment.

In broad terms, I found the following major problems associated with the SOP legislative regimes:

1. The legislative regimes were unduly complex and this discouraged their usage and caused confusion;
2. There is an imbalance of bargaining power within the contractual chain and the practice of passing on contractual risk has resulted in the imposition of unfair contract terms that operate to prevent payment to the party that has carried out construction work;
3. Late payment continues to be a major issue for the construction industry; and
4. With the exception of Queensland, none of the existing state and territory legislations provide any effective “security” of payment where a party higher up in the contractual chain becomes insolvent.

The approach I adopted, in carrying out my Review, was to recommend a model legislative regime that was underpinned by the following three policy considerations:

1. Preserving the cashflow of the party that has carried out construction work or provided related goods and services by enshrining its right to receive prompt payment of progress claims;
2. Providing an adjudication process that ensures disputed payment claims are quickly, fairly and efficiently determined so that prompt payment can be made; and
3. Protecting payments made in respect of a progress claim so that the party that receives the payment holds the payment for those to whom it is rightfully due.

I found that some of the SOP legislations were better in meeting one or two of the above policy drivers than others. However, with the exception of Queensland, none of the other jurisdictions had addressed the third policy driver of providing security in circumstances where party higher up the contractual chain becomes insolvent (but noting, however that the Queensland project trust account model imposed an unduly high administrative burden on industry). Compared to other jurisdictions, I found the NSW legislative regime best met the prime objects of the Act, with the then Western Australia legislation (Construction Contract Act 2004) and the Victorian legislation being the worst of breed.

Subsequent to the release of my Report, the former NSW government amended their legislation and took up a number of my recommendations, thereby further enhancing its legislative regime (e.g. repealing the concept of “reference dates” and extending the legislation to include the residential sector of the industry). The WA government repealed its existing legislation, and replaced it with a new legislative regime based on the NSW Act. In many ways, the new WA Act has set a new benchmark (although the legislature squibbed the opportunity to include a deemed cascading statutory trust as part of its new legislation). The previous South Australia and Australian Capital Territory governments announced an intention to incorporate various of my recommendations and tabled Bills for debate in their parliaments, but, in the case of South Australia, two of their Bills lapsed when its parliament was prorogued, and, in the case of the Australian Capital Territory, the amendments introduced earlier this year were but the first tranche of what is yet an undefined scope of review of its legislative regime. In the case of the Commonwealth, neither the previous Federal Coalition nor the current Federal Labour government have shown any meaningful leadership in this area, notwithstanding a range of policy pronouncements and Ministerial undertakings.

However, the Victorian Government, just like the Western Australia Government a few years ago, have decided to review their current legislative regime in a coherent, consultative and structured manner. Thus, in early 2023, the Victorian Legislative Assembly’s Environment and Planning Committee (Committee) conducted an “inquiry into employers and contractors who refuse to pay their subcontractors for completed works”, which was a descriptor into conducting an inquiry into ensuring subcontractors get paid for the work they have carried out. The Committee received submissions from industry stakeholders and held two public hearings receiving testimony and evidence from witnesses. In late October 2023, the Committee’s Report was released. It was a well written and intelligent document that examined the Victorian Act relative to its interstate counterparts and made 28 recommendations on how its current legislative regime can be improved.

Then, on 17 October 2024, the Victorian Government released its response to the Committee’s Report and it is clear that there is now an appetite to provide better protection to the most vulnerable parties within the contractual chain. The Victorian Government has supported 16 of the 28 recommendations in full, with the remaining 12 recommendations supported either in principle or in part. None of the Committee's recommendations were rejected.

Tranche 1 – Reform – Proposed (immediate) amendments to Victorian Act

In relation to those recommendations that the Victorian Government support in full, the intention is to amend the current Act to reflect the Committee’s recommendations. Set out below is an outline of how various of the Committee’s major recommendations that the Government has endorsed will improve the current Victorian Act.

1. Excluded Amounts

The most unfair aspect of the current Victorian Act is that it does not enable a claimant to include in a progress payment claim any “excluded amounts”, which is defined to include the following:

• disputed “non-claimable variations”;
• time related costs;
• costs related to latent conditions;
• costs due to changes in regulatory requirements; and
• damages for breach of contract.

Leaving aside the convoluted drafting of the provisions relating to “excluded amounts” the concept of the carve out is unfair and has severely undermined the integrity of the Victorian Act. It is unfair to deprive a contractor from being able to avail itself of the statutory regime in respect to disputed claims relating to variations, or the extra costs that a contractor has incurred in having to spend more time on the project than originally allowed for when entering into the contract. Variation works carried out by contractors on most projects are extensive and not allowing contractors to avail themselves of the rapid adjudication process where there is a dispute as to whether the claimed work constitutes a variation can have major cashflow ramifications for contractors. No other jurisdiction that has adopted the security of payment legislation regime includes such a carve out.

Accordingly, the Committee recommended that the excluded amount provisions in the current Act (viz ss 10, 10A and 10B) be removed and replaced with a new provision, similar to the NSW Act that enables a contractor to claim a progress payment calculated in accordance with the contract or, if the contract does not provide for the matter, calculated on the basis of the value of construction work carried out (see s 9 of the NSW Act). The Victorian Government said that it:

“agrees with the Committee's recommendation and will introduce amendments to the legislation repealing sections 10-10B of the SOP Act and making consequential amendments to remove other references to exclude amounts elsewhere in the legislation.

...

Repealing the excluded amounts provisions in the SOP Act not only removes much of the difficulty those provisions have spawned but serves the goal of making Victoria's SOP Act more consistent with security of payment legislation in other jurisdictions”.

2. Reference Dates

Under the current Victorian Act, a claimant is entitled to progress payment on and from each “reference date”, with such date determined by or in accordance with the terms of the construction contract or, if the contract makes no express provision with respect to the matter, the date set out in s(9)(2)(b) (i.e. the date occurring 20 business days after construction work was first carried out under the contract and every 20 business days afterwards). Industry has found the concept of reference dates very confusing and that was why the NSW Government recently amended its Act to provide that a payment claim may be served on and from the last day of the month in which the construction work was first carried out (or related goods and services were first supplied) under the contract and on and from the last day of each subsequent month. In other words, a claimant is now entitled to make monthly progress claims.

The current provision in the Victorian Act relating to reference date is not only confusing, but can also operate in an unfair manner. Permitting a reference date to be determined or worked out by reference to a construction contract may, in certain circumstances, undermine the prime objective of promoting prompt payment. For example, a construction contract that provides for a subcontractor to make a progress claim on the last day of the subsequent month after the claimed works have been carried out can hardly be regarded as consistent with the objective of promoting prompt payment. Similarly, the current concept of reference dates can (depending on the terms of the construction contract) enable a head contractor to strategically terminate a contract before the occurrence of a reference date, thereby depriving a subcontractor from being able to make a progress payment claim.

Accordingly, the Committee recommended the removal of the concept of “reference dates” from the Victorian Act and inserting a similar provision that currently apply under the NSW Act. Such new provision would:

• enable at least one payment claim to be made per calendar month;
• expressly provide for a payment claim to be made on or following the termination of contract, for construction work carried out (or related goods and services supplied) up to the date of termination; and
• override any contracted dates for payment claims if they are longer than those provided by the Act (see below).

The Victorian Government accepted this recommendation and said it:

“...will amend the SOP Act by repealing the current reference date provisions and enacting provisions identical or substantially like those in NSW's legislation... Not only will this remove the complexity and unfairness associated with the current SOP provisions regarding reference dates, but it will also further the goal of making Victoria's legislation more consistent with other jurisdictions’ (SOP) legislation.”

3. Due Date for Payment

In Victoria, a progress payment becomes due and payable on the date on which the payment claim becomes due and payable in accordance with the construction contract, or, if the contract makes no express provision with respect to the matter, a progress payment will become payable within 10 business days after the service of the payment claim. In effect, the current Victorian Act provides the parties with unrestricted freedom to agree on their own contractual due date for payment. However, the nature of the hierarchical contractual chain and the imbalance of bargaining power means that the notion of freedom of contract in the construction industry is an entirely misplaced concept. Further, to allow the parties an unfettered right to agree on payment terms in the context of an imbalance of power, undermines the objective of the legislation of promoting prompt payment so as to maintain the cashflow of the party that has carried out construction work. Such a provision permits the dominant party in a contractual relationship to impose unfair payment terms.

Accordingly, the Committee recommended that the Victorian Act be amended to provide that a payment under a construction contract becomes due and payable:

• on the date set by the terms of the contract, subject to the payment term not exceeding 25 business days after the payment claim has been made; or
• if the contract makes no express provision with respect to the matter, on the date occurring 10 business days after a payment claim is made.

The Victorian Government in accepting the Committee’s recommendation said it will introduce legislation amending its current Act in accordance with the Committee's wording, noting that it is not only consistent with the Commonwealth's Construction Industry Payment Principles, but will also bring those payment terms into closer alignment with other Australian jurisdictions’ legislation and, will also benefit all participants in the contractual chain, including head contractors.

4. Period of time for making a payment claim

Under the current Victorian Act, a payment claim may be served by the later of:

• the period determined under the construction contract; or
• 3 months after the reference date applicable to the payment claim.

Different jurisdictions provide for a different time period in which a payment claim may be served under the Act. Thus, NSW, Tasmania and the ACT prescribe a 12 month period, whereas South Australia, Western Australia and Queensland prescribed for a 6 month period. Victoria is the only jurisdiction that provides for a payment claim to be served within 3 months after the reference date.

Identifying an appropriate period in which payment claim may be served involves striking a balance between two competing considerations. On the one hand, the legislation should provide a claimant with sufficient time to prepare the details of payment claim for submission to the respondent and to allow sufficient time for the parties to negotiate an agreed outcome. Sometimes the preparation of a claim is not a straightforward exercise and may require sufficient time to compile the necessary supporting information. On the other hand, the object of the legislation is to promote prompt payment and, accordingly, allowing a party and inordinate period of time in which to submit a payment claim would not be consistent with the objective of promoting cashflow. Further, allowing a claimant long period of time to prepare its claim but giving the respondent a compressed timeframe in which to respond, raises issues of fairness and has the potential to expose a respondent to ambush claims.

Accordingly, the Committee recommended that the Act be amended to extend the time limit to 6 months and that the amendments be modelled on s23 of the WA Act which enables:

• a progress of payment to be claimed up to 6 months after the relevant construction work was completed, or later if provided for in the contract
• a final payment to be claimed before whichever of the following is the latest:
   — 6 months after completion of the works (or supply of related goods and services) under the construction contract
   — 28 days after the end of the last defects liability period

The Victorian Government, in supporting the Committee’s recommendation, noted the strong support by industry stakeholders and that there was an absence of any opposition for a longer payment period than the current 3 months:

“The Government also agrees with the Committee that 12 months may be too long and may risk undermining the procedural fairness afforded (to) respondents under the SOP Act…”

5. Claims for retention monies

There are conflicting decisions by the Victorian Supreme Court as to whether it is possible to claim retention sums when making a payment claim (compare Punton’s Shoes Pty Ltd v Citi-Con Pty Ltd [2020] VSC 514 to Hunters Green Retirement Living Pty Ltd [2023] VSC 536). Unlike Victoria, all other jurisdictions have an express provision that the “claimed amount” may include any amount “that is held under the construction contract by the respondent that the claimant claims is due for release” (see, for example, s13(3)(b) of the NSW Act, or s58 (as well as the Note in s23 of the WA Act).

Accordingly, the Committee recommended that s 14 of the current Victorian Act be amended to expressly:

• provide an entitlement to claim retention money under the Act, either as part of a broader payment claim or as a standalone claim
• empower an adjudicator to decide whether retention money is to be returned, the proportion which is owed, and the date on which it is to be returned

The Victorian Government, in fully supporting the Committee's recommendation, said that whereas the repealing of the excluded amounts provision in the Act (i.e. ss10, 10A and 10B) and by making other amendments required because of that repeal will remove some of that uncertainty, the further amendment as recommended by the Committee will “ensure retention monies are appropriately dealt with in the future under the SOP Act.”

6. Unfair Contract Terms and Conditions

The pyramidal contractual structure within which the industry operates has created an imbalance of bargaining power between the contracting parties and this imbalance becomes more acute the further one goes down the contractual chain.

It is because of this imbalance of power that legislatures in the various jurisdictions have felt it necessary to intervene so as to provide protection for the more vulnerable party. Thus, for example, s13(2) of the current Victorian Act prohibits a provision within a construction contract that makes the liability of a head contractor subject to the head contractor being paid under its contract with the client. However, many in the industry feel further intervention is warranted, particularly in circumstances where standard forms of construction contracts prepared and published by Standards Australia have been the subject of extensive amendments and where most of the risks associated with a project are transferred to the party that is least able to absorb such risk.

There are many in the industry who believe that the concept of freedom of contract is misconceived. Negotiations between parties on contract terms are not always extensive and it is not uncommon for a head contractor to agree on the contract terms requested by the client so as to secure the contract (no matter how one-sided such terms may be) because it knows that it can pass on these one-sided terms to its subcontractors by way of back-to-back subcontracts on a “take it or leave-it basis”.

There are many examples of unfair contract terms. I have outlined above how some contracts provide for elongated periods for payment for work carried out and how the Victorian Government proposes to amend its current Act so as to provide that a progress payment under a construction contract cannot exceed 25 business days after a payment claim has been made. There are, however, other contract terms that may be considered to be unfair and these include, the following:

• variation clauses which allow one party to direct the other party to carry out variation work;
• termination for convenience clauses that only allow for one party to terminate the contract;
• novation clauses which confer power to one party to novate the contract without the other party’s consent;
• time bars which limit the time within which certain contractual rights (such as, for example, determining whether a contractor/subcontractor is entitled to an extension of time).

However, it does not follow that any of the above provisions can be said to be unfair in all circumstances and that such provisions should therefore be prohibited. For example, it is perfectly reasonable for a construction contract involving, say, a government department as a client, to contain a termination clause where there has been a change in government policy, or where there has been a significant cost-overrun associated with a project. Similarly, there is nothing inherently unreasonable with a contract provision which requires a contractor/subcontractor to give timely notice when intending to make a claim for extra costs. The question of whether a particular provision ought to be construed as unfair or unreasonable will very much depend on the circumstances.

Accordingly, the Committee recommended that the Victorian Act be amended by inserting a provision modelled on s16 of the WA Act. The new section should provide that notice-based time bar clauses can be declared “unfair” by an adjudicator, a court, an arbitrator or an expert determiner if compliance with the clause:

• is not reasonably possible
• would be unreasonably onerous

A notice-based time bar provision of a construction contract that is declared to be unfair has no effect in relation to the payment claim that is the subject of the proceedings. However, it continues to have effect in other circumstances arising under the same or related contract.

In addition, the Committee recommended that the Victorian Act be amended to insert a provision modelled on s15 of the WA Act which would provide the Government, by regulations, to prohibit construction contract clauses and, in doing so, nullify their effect.

The Victorian Government, in fully supporting the above two recommendations, said:

• The insertion of a provision in the current Act modelled on s16 of the WA Act giving “an adjudicator, court etc the power to determine, on a case-by-case basis, whether a construction contract's notice-based time bar is unreasonable is preferable to trying to legislate a blanket prohibition”; and
• the insertion of a provision in the current Act modelled on s15 of the WA Act, “simply gives the industry notice that the Government may, by amendment to the (SOP) regulations, expressly prohibit other contractual clauses and so render them of no effect...(Such) a provision allows Victoria's SOP regulations to keep pace with evolving contractual practices in the construction industry.”

7. New reasons in an adjudication response to be prohibited

All jurisdictions, except Victoria, expressly prohibit a respondent from including reasons in its adjudication response that had not been included in the payment schedule that the respondent had provided to the claimant.

The current Victorian provision (s21(2B)) is an unfair provision as it enables a respondent to “game” the adjudication process to the disadvantage of the claimant. It encourages a respondent to provide brief and general reasons in its payment schedule as to why payment is being withheld and to then, when submitting its adjudication response, include new/additional reasons, knowing that the claimant will only have 2 business days in which to reply/comment on those new reasons. A legislative scheme that includes such a provision serves to disincentivise a claimant to avail itself of their statutory entitlement and that is why all other jurisdictions prohibit a respondent from including new reasons in its adjudication response. In other words, all other jurisdictions provide that if a respondent does not intend to pay an amount claimed it must, not only provide a payment schedule within the prescribed time period, but also must set out all of its reasons for withholding payment in its payment schedule so that the claimant is apprised of the case it will need to make if it refers the disputed payment claim to adjudication.

Accordingly, the Committee recommended that s21 of the Victorian Act be amended so as to prohibit respondents from including reasons in their adjudication response that were not previously included in the payment schedule.

The Victorian Government, in fully supporting the Committee's recommendation noted not only that the current provision in the Victorian Act unfairly disadvantages claimants but that it also “unnecessarily consumes an adjudicator’s time and attention (discerning “new” claims and then notifying claimants and providing them 2 business days to respond) and increases an adjudicator's costs. (Further), s21(2B) has a further negative impact since incorrectly identifying the respondent's reasons can serve as grounds for a court setting aside an adjudicator's determination.”

8. Definition of business days

The current Victorian Act defines a business day to mean a day that is not—

• a Saturday or Sunday; or
• a day that is wholly or partly observed as a public holiday throughout Victoria

However, the construction industry traditionally shuts down over the Christmas period and that is why all jurisdictions, other than Victoria, provide for a period to exclude the extended Christmas shutdown from the definition of “business days”, which are used to determine when a particular document within the adjudication process may be made/given (e.g. a payment schedule, adjudication response, adjudication application, adjudication determination etc).

The Committee recommended that the current Victorian Act be amended so that the definition of “business days” exclude:

• Saturdays and Sundays;
• Victorian public holidays; and
• The period between 22 December and 10 January inclusive

The above recommended provision is identical to the provision set out in the WA Act.

Accordingly, the Victorian Government in fully supporting the Committee's recommendation said that the amendment to the current Act is both uncontroversial and sensible and “therefore will be adopted”.

9. Time period for the making of an adjudicator's determination

Under the current Victorian Act, an adjudicator is required to determine an adjudication determination as expeditiously as possible and, in any case within 10 business days after the adjudicator's acceptance of nomination, or “within any further time, not exceeding 15 business days after that date, to which the claimant agrees” (s22(4)(b))). As a result of the decision in Ian Street Developer v Arrow International Pty Ltd ([2018] VSC 14), the reference to 15 business days referred to in the current Act has been construed to mean that the maximum additional period that an adjudicator can have for the making of an adjudication determination is 5 business days.

It is clear that the time cap prescribed under the current Victorian Act within which an adjudicator is required to complete their adjudication determination is unrealistic because some adjudication applications involve complex issues where the parties have made extensive submissions and have provided an adjudicator with voluminous documentation.

Accordingly, the Committee recommended that s 22 of the current Act be amended to provide that an adjudication determination must be made within 10 business days of:

• a respondent providing a valid adjudication response;
• the date an adjudication response became due; or
• if the respondent is not entitled to provide an adjudication response (because it had failed to provide a payment schedule within the prescribed time), the date the adjudicator accepted the adjudication application.

However, if both the claimant and respondent agree to extend the time by which an adjudicator must make a determination, then such additional time may be extended by a further 20 business days.

The Victorian Government, in fully supporting the Committee’s recommendations noted that the above change will amend s22 of the Victorian Act in line with s37 of the WA Act and that in “the Government's view, the WA provisions regarding when adjudication applications (sic) may be made is more straightforward and clearer than similar provisions in either the SOP Act or the NSW legislation”.

10. Service of documents

The current Victorian Act does not contemplate service of documents related to payment claims, payment schedules, adjudication applications etc to be made electronically, such as email, which has become a standard means of communication for businesses.

Accordingly, the Committee accepted the need to modernise the SOP Act with respect to service of notices and therefore recommended to amend s50 of the current Act and its Regulations so as to be modelled on s113 of the WA Act and Reg 22 of the WA Regulations.

The Victorian Government fully supported the Committee's recommendation.

Tranche 2 Reform? – Subject to further consideration

There are several of the Committee's recommendations that whilst receiving in-principle support by the Victorian Government, will be further considered after further consultation with industry stakeholders. I highlight the following recommendations of the Committee and set out the Government's responses relating to some of the more significant recommendations that may be dealt with by the Victorian Government down the track

1. Deemed cascading statutory trusts

In its response, the Victorian Government said:

“More examination is necessary regarding the handling of trust obligations for progress payments and retention monies. The need for detailed specifications on the establishment and upkeep of trust accounts, as seen in WA and Queensland, warrants further consultation and analysis of competing models before legislative amendments can endorse any particular approach or alternative. Accordingly, the Government supports the Committee's recommendation in principle and will undertake further work toward implementing it through future amendments to the legislation.”

My Comments

Yet again, another state government shrinks from delivering the most critical reform measure. Introducing statutory trusts into the construction industry will overhaul the appalling payment culture that pervades the industry. It is immoral for someone to use moneys that rightfully belong to someone else as free working capital and it is equally immoral to permit financial institutions to “scoop” moneys that rightfully belong to subcontractors where a builder becomes insolvent. To look away from these immoral practices is to enable undercapitalised and unscrupulous businesses to continue wreaking havoc in the industry. Hopefully, the Victorian Government’s in principle support will translate into finally biting the bullet so as to provide subcontractors with more robust and meaningful security of payments. The continuing high incidence of builders’ insolvency ought to result in the implementation of statutory trusts as soon as possible.

2. Retention trust scheme

Whereas the Committee considered that introducing a retention trust scheme as an interim measure until the review contemplated by Recommendation 27 is completed would deliver substantial financial relief to subcontractors and assist in familiarising and normalising the concept of trust accounts in Victoria, the Government said:

“The question of trusts, and trust obligations, raises sufficiently complex and controversial issues that no obligation should be imposed at this time. Further consultation with relevant stakeholders needs to be undertaken before any final decision is made with respect to specific amendments to the SOP Act.”

My Comments

The deferral in implementing a retention trust scheme as an interim measure until a review of Recommendation 27 has been completed, is most disappointing. Retention trusts currently apply under the NSW, WA and Queensland legislative regimes. Further, most contracts on government projects require retention moneys to be held in trusts. The non-payment of retention moneys has been an issue that has embarrassed the industry for too long and that is why government agencies (at all levels) now require a contract clause to quarantine subcontractors retention moneys in the trust account. To not provide such protection to subcontractors on non-government projects is to abandon the most vulnerable parties within the industry. That is why the Queensland, NSW and WA Governments have amended their legislation to require retention trust accounts to be established on all construction projects. The Victorian Government should do the same.

3. Extending the Act to the residential building sector

Currently, the Victorian Act does not apply to contracts between a residential builder and a homeowner as payment disputes between these parties are dealt with under the provisions of the Domestic Building Contracts Act 1995 (DBC Act). However, payment claims by residential builder's subcontractors against the builder are dealt with under the SOP Act and this creates tensions and inconsistencies between the payment dispute adjudication processes that apply to different building practitioners engaged in the construction of a residential building.

In supporting the Committee’s recommendation in principle, the Government said this issue ought to be considered, in the first instance, as part of the Minister for Consumer Affairs’ review of the DCB Act and the broader building reform program led by the Minister for Planning.

My Comments

The whole point in recommending that the Act be extended to enable a house builder to make a progress payment claim on a home owner is to avoid the not uncommon scenario where a house builder is obliged to pay a subcontractor for work completed by the subcontractor pursuant to an adjudication determination, but where the builder has failed to obtain an order from the Dispute Resolution Officer who had made a decision under the regime of the Domestic Building Dispute Resolution Victoria. It is bizarre that two conflicting decisions can be made under two different dispute resolution mechanisms for the same construction work That is precisely why the NSW, WA and Tasmania governments extended the scope of their legislation to cover residential buildings. The Victorian Government should adopt the same common sense approach.

4. Adjudication review mechanism

The Government in giving in-principle support to the above recommendation, said that it:

“...sees potential merit in providing a broader adjudication review mechanism in the SOP Act, especially given its decision to introduce amendments repealing the limited right of review provided under the current legislation. However, the Government (believes) that more consultation, and consideration of how WA’s recently enacted adjudication review mechanism works in practice, is needed before proposing any new legislation on this

My Comments

The reason that I recommended the introduction of an adjudication review mechanism was to provide cost affective relief to a party that was dissatisfied with an adjudicator’s determination. The current arrangement of leaving a dissatisfied party to pursue its grievance through the courts is not an attractive option. Where the courts have set aside an adjudicator’s determination because of jurisdictional error or denial of natural justice (and there have been many), the costs to the parties can be significant. This is particularly the case for a claimant who not only failed to obtain a valid adjudication determination (and therefore failed to obtain a progress payment), but who will also be required to pay the costs associated with the aborted adjudication application, its own legal costs in defending the respondent’s Supreme Court application, as well as its own legal costs. Similarly, to deprive a dissatisfied party from referring an adjudicator’s determination for review in circumstances where an adjudicator had misconstrued key provisions within a construction contract (and so arrived at an incorrect conclusion), seems to be a harsh consequence of the current legislative regime which could be so expeditiously and efficiently dealt with by way of a full merit review by a senior adjudicator. Clearly, introduction of a review adjudication mechanism as set out in my Report would enhance the credibility of the current legislative regime.

Summary

There is no doubt that the amendments to the current Victorian Act that the Victorian Government has said it would make as outlined in the first section of this paper will vastly improve the effectiveness of the legislative regime and bring it in line with the current exemplar NSW and WA Acts. When implemented, (and the intention is to introduce the amendments to the legislation within the next 6 months), the improved legislative regime should be well received by the Victorian construction industry.

There remain, however, other important improvements that need to be made to better protect subcontractors who carry out 80% of the construction work as set out in the second part of this paper. The Victorian Government has indicated that it will further consider these matters and consult widely with industry stakeholders. If the consultation process carried out to date is any indication, it would appear that further sensible measures may not be too far away from being implemented.