Security of payment (SOP)

Effective 1 March 2021, the Building and Construction Industry Security of Payment Regulation 2020 (NSW) Schedule 2 has introduced important consequences for owners and builders on all residential building in NSW where the owner occupies or plans to occupy the home at the end of the project. Read more about the changes in NSW here.

Security of Payment (SOP) legislation is in effect in each Australian state and territory. SOP is aimed at encouraging timely progress payment and standardising the payment processes for construction work or the supply of construction-related goods or services work performed. As a general rule, the SOP legislation only applies to construction work or the supply of construction-related goods and services under a construction/building contract for commercial construction. SOP legislation applies to residential building work only in some states and territories.

For example: in NSW, contracts for residential building work if the principal resides in or proposes to reside in the premises, as well as owner occupier construction contracts, now attract the SOP legislation. In Tasmania, a person who carries out building work or the supply of construction-related goods and services has the protection of the SOP legislation under a contract that relates to a Class 1 or Class 10 residential building or structure. In Victoria, contracts between owner and builder under the Domestic Building Contracts Act 1995 and contracts for architectural, engineering or drafting services are excluded from the application of SOP legislation. See Security of Payment notes for NSW, Tasmania and Victoria respectively for further information.

The same basic principles apply across all jurisdictions, although there are some notable differences. Each state and territory defines ‘construction work’, ‘building work’ and ‘related goods and services’ slightly differently to each other and in some this includes residential building work and others it does not. For architects who:

  • directly engage subconsultants who will deliver construction-related services; or
  • practice across state borders and in multiple jurisdictions;

it is important to know the SOP procedures and key timeframes as well as the general differences and any exclusions to the definitions that may apply. You should refer to the information for the state or territory in which the construction-related services are to be carried out.

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