Significant changes to the Victorian security of payment regime are set to take place, with the Building Legislation Amendment (Fairer Payments on Jobsites and Other Matters) Bill 2025 introduced to Parliament in September.

The Bill follows a November 2023 report by the Victorian Government’s Environment and Planning Standing Committee, after its inquiry into employers and contractors who refuse to pay their subcontractors for completed works. It closely reflects the Government's response in October 2024.

If passed, the Bill will bring Victoria in line with the security of payment laws in other states.Security of payment regimes exist in each Australian state and territory and are intended to give builders, subcontractors and consultants a fast and efficient way to resolve payment disputes.

Since its inception in 2002, the Victorian Building and Construction Industry Security of Payment Act (SOP Act) has been an outlier, with features that made it less used than in other states. Following a spate of construction insolvencies after the COVID-19 pandemic, an inquiry was launched and significant changes recommended.

Abolition of excluded amounts
The most unique aspect of Victoria’s SOP Act is its excluded amounts provisions, which prevent claimants from obtaining determinations of claims for variations, time-related costs, such as extensions of time and liquidated damages, latent conditions, damages for breach of contract and claims for amounts outside the construction contract.

As many disputes involve these claims, the regime has often been of limited use.

The Bill repeals the concept of excluded amounts, meaning all such claims may be pursued. This change is expected to significantly increase use of the amended SOP Act.

Abolition of reference dates
A payment claim under the existing SOP Act must be tied to a reference date. The technical nature of reference dates has created ground for disputes, often preventing or delaying payment.

The Bill abolishes reference dates and instead gives a claimant rights to claim monthly, at year-end dates, and on termination. Importantly, a claim served before the relevant date will still be valid, reversing existing case law.

Performance security
Currently, there is no statutory right to seek release of performance security. The Bill introduces the ability to claim release of performance security, including bank guarantees, through adjudication. Adjudicators may determine when and in what amount security must be released, and parties are prohibited from contracting out of these rights.

Unless provided in the relevant contract, the Bill does not create a statutory right to claim release of security at practical completion. It creates new statutory restrictions around the recourse to security, preventing recourse to security without five business days’ written notice.

Unfair time bars
The Bill empowers adjudicators, courts, arbitrators and experts to declare a notice-based time bar unfair and of no effect if compliance is ‘not reasonably possible’ or ‘unreasonably onerous’ – a significant addition to the proposed legislation.

The Bill sets out factors for assessing whether a term is unfair, for example, assessing the relative bargaining power of the parties, and allows SOP regulations to be amended to prohibit other unfair terms in future.

‘No new reasons’ for non-payment
The proposed legislation removes the ability under the current SOP Act to add new reasons for non-payment in an adjudication response, if those reasons did not appear in the payment schedule.

20 day limit on payment
In recent years, payment terms for construction contracts have increasingly extended to 60 or even 90 days, causing real cash flow problems for contractors.

The Bill makes any clause in a construction contract ineffective to the extent it provides for payment later than 20 business days after a payment claim is served.

A Christmas shutdown and other notable changes
Currently, Victoria is the only Australian state that does not pause the strict and brutally short SOP timelines during the Christmas and New Year period. SOP deadlines will now be paused between 22 December and 10 January.

Other amendments include extending the time to make a claim from three months to six months after completion. The time to issue a payment schedule in response to a ‘last chance notice’ will be extended from two to five business days.

Restrictions on ‘pay when paid’ clauses are extended to expressly prohibit clauses which link payment of the claimant to obligations, rights or dates under another contract.

What hasn’t changed?
The broad mechanics of the SOP Act remain. Respondents still only have five business days to respond to adjudication applications. The SOP Act will still not apply to domestic building contracts unless the principal is a developer, with further consultation to occur on whether to extend its scope.

Proposals for cascading statutory trust or retention trust schemes, and changes to adjudicator regulation, remain under review.

When will the Bill take effect?
The Bill is before Parliament. Once passed, its provisions will take effect no later than 1 September 2026 and will apply to all construction contracts, whether entered before, on or after commencement.

The changes will not apply to adjudication processes already underway, such as served payment claims, commenced adjudications or issued adjudication certificates.

All construction industry participants should prepare for the changes by reviewing ongoing projects likely to extend beyond September 2026, considering amendments to contracts under negotiation, and updating contract templates, notices and adjudication processes to account for the reforms.

by Holding Redlich Partner Lachlan Ingram

Architecture & Design Team

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