What is the Security of Payments Act (SOPA) & How Does it Apply to Subcontractors?

In the complex world of subcontracting in construction work, where cash flow is king, understanding the nuances of the Security of Payments Act (SOPA) is more than just good business; it’s essential.  

For subcontractors, the SOP Act is payment legislation that serves as a crucial safeguard against clients withholding payment in the construction industry, offering a robust mechanism for resolving payment disputes and ensuring timely compensation. In this blog, we’ll delve into the fundamentals of SOPA, explain its significance for business owners, general managers, project and operations managers in the construction industry in Australia.

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Overview of the Security of Payments Act

The Security of Payments Act is designed to address the inherent challenges faced by subcontractors performing services and supplying related goods for construction projects. At its core, SOPA aims to level the playing field between huge and small players by establishing a framework that ensures timely payments within the construction contracts. For subcontractors, this means more than just compliance – it’s a lifeline for reducing the incidence of clients withholding payment; for maintaining healthy cash flow, and; sustaining their business operations.

How SOPA Affects Subcontractors

Subcontractors can benefit more from SOPA than most other construction industry participants. SOPA provides a powerful mechanism for resolving payment disputes swiftly – in as little as 10 or 15 business days – offering subbies support when facing a client many times larger in business size than themselves. Beyond dispute resolution, SOPA plays a pivotal role in protecting the financial interests of subcontractors as claimant, allowing them to navigate the often challenging terrain of project financing. 

Key Provisions of the Act Relevant to Subcontractors 

Breaking down the legal jargon, SOPA introduces terms like “payment claims,” “payment schedules,” and the “adjudication process.” For subcontractors, these provisions are not mere legal formalities but practical support that shapes the financial landscape of their projects. The inclusion of an adjudicator and an adjudication process helps to weigh the two sides of a payment dispute more evenly

To illustrate, a payment claim is an action served on a client to extract a progress payment or final payment for a construction project. The subcontractor/claimant can provide a supporting statement with evidence of the work done. The head contractor/respondent can respond with payment withholding request, and/or offer a payment schedule to complete within the strict timeframes set out in SOPA, which may be 10 business days.

If the schedule is not fulfilled, then the adjudication process provides for a third party to enter into the issue to manage the resolution of it. An adjudicator’s determination is important in the process, even if it needs to progress further and ultimately requires a court judgment for the final determination.

A requirement of the SOP Act, retention money being held in a trust account provides invaluable protection for subcontractors when dealing with a head contractor and have a valid payment claim, with supporting documentation.

Compliance with SOPA for Subcontractors 

Compliance with SOPA is a requirement also upon subcontractors in order to avoid payment disputes toward their own business. While subcontractors as a claimant gain a significant support system to be able to recover monies owed by clients, they too need to be compliant to the payment claims of their suppliers. SOPA is legislated in each state and territory, so details such as payment timeframes can vary by location, however wherever the business is conducted, each subcontractor also needs to pay for the related goods and services it procures for construction work – or be held liable under SOPA in the same way that head contractors and clients are.

Leveraging Technology for SOPA Compliance

SOPA is an important support system for subcontractors when facing payment disputes with head contractors, but not an automatic protection for smaller businesses. Understanding the payment legislation and its intent, processes and timeframes is vital in order to be a successful claimant. This needs the documentation and evidence to support a valid payment claim for either contract works or claimable variations.

In a busy construction business, the most sustainable way to retain project information to the detail and extent required to prove compliance and work done is by using construction management software. This is a system built with deep understanding of the work involved in construction projects, and is pragmatic and easy to use – so the whole team can use it as their best tool on the job.

In the digital age, tools like Neo Intelligence are revolutionising how subcontractors approach SOPA compliance. Beyond the significant business efficiencies that it delivers, construction management software includes information-gathering tools to support a SOPA payment claim under a contract or claimable variations.

From the incremental collection of site data into a digital site diary, to the seamless integration of timesheets with payroll software, digital tools enhance record-keeping. This enables quick and easy reporting, plus monitoring work done, expenses and task compliance. All project information is filed in the one construction management system. Having easy access to detailed information assists businesses to be efficient but also to compile information for payment claims, and respond to disputes with evidence – ultimately empowering subcontractors in their day-to-day operations.

Best Practices for Subcontractors under SOPA

Subcontractors of all types working in the construction industry can improve their business profitability and be ready to enact the protections of SOPA by fully embracing a construction management software across their business operations. 

• Work with an expert to integrate the system into the business day to day operations, by moving tasks done manually in person, such as scheduling and time sheeting, to be done automatically into the system.
• Provision time for every person on the team to be thoroughly trained and supported as they transition into using the platform throughout their working day.
• Require each person in the team to use key tools such as the digital site diary to capture details of activity on site, in photos, notes and annotated PDFs. Use the customised form builder to create checklists and forms that ensure that no steps are missed, and all the important information is collected.
• Draw data from the system to report on compliance, progress, contract works, claimable variations and more. Tailored report templates for different purposes – from management to compliance – can leverage the power of your data to support payment claims, especially for disputed variations and additional services.

SOPA can be an important support system for a subcontractor when facing non-payment on contracted work; however, it’s not a silver bullet. Understanding the legislation, its intent, processes and timeframes is vital for a successful subcontracting business. However, the importance of a subbie having the documentation and evidence to support a claim is just as important. In a busy construction business, the only way to retain project information to the detail and extent required to prove compliance and work done is with a construction management software built with a deep understanding of the work of a subcontractor and is pragmatic and easy to use so that the whole team can use it as their best tool on the job. 

Clients such as SDC Group Concrete Construction have experienced the benefits of having all the relevant, detailed information on hand before making a payment claim. Managing multiple projects with significant variations and having the information to back up a valid payment claim has reduced the risk and stress of getting paid.

Before using construction software Neo Intelligence, the Project Managers and members of the Accounts team would wade through paper copies of dockets and invoices for goods and services, site records and client instructions and then decipher what concreters had reported into one program, then copy it into another before sending out the invoices for progress payments or final payments. The company estimates that, overall, there has been an 80% saving in person hours spent on compiling supporting statements for invoicing payment claims. Plus, the accuracy, credibility and overall organisation have been enormously improved. Payment of progress payments and final payments are more timely, and payment disputes have reduced – so cash flow is protected. 

Do you want to be ready for any future payment dispute? Book a demonstration with the Neo Intelligence team today to find out more about how one platform can draw together all the information you need to leverage SOPA if you ever need it.