Living in a Claimant’s Paradise?: Major reforms to the Victorian Security of Payment Regime
Background
On 11 September 2025, the Victorian government released the Building Legislation Amendment (Fairer Payments on Jobsites and Other Matters) Bill 2025 (Bill). The significant changes introduced by the Bill are the product of a major inquiry that was announced in 2023. The Legislative Assembly – Environment and Planning Committee was tasked with examining the issue of employers and contractors that refused to pay their subcontractors for completed works. The Legislative Assembly – Environment and Planning Committee prepared and published a report on 28 November 2023 (Report), that set out 28 recommendations for the Victorian Government to consider as part of their review and overhaul of the existing Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act). The SOP Act was last substantively amended around 2007.
In October 2024, the Victorian Government responded to the Report’s factual findings and the 28 recommendations for reform. The Victorian Government agreed to 16 recommendations in full, which are reflected in the newly introduced Bill, and these are referred to as ‘tranche 1’ reforms. The remaining 12 recommendations have also been agreed in part or in principle by the Victorian Government and will be considered under ‘tranche 2’ reforms, but these will be subject to further stakeholder consultation.
The Bill, if passed, will commence in part on the day the Bill (as an Act) receives Royal Assent, with the balance of the Act coming into force on 1 September 2026, unless proclaimed sooner.
Some of the key changes to the SOP Act under the current wording of this Bill are set out below.
Claimable variations and excluded amounts
In line with recommendation 2 and 19 of the Report, the Bill repeals the ‘claimable variations’ (current Section 10A) and ‘excluded amounts’ (current Section 10B) regime. This was a framework unique only in Victoria, where claims for disputed variations, latent conditions, time related costs (i.e. delay costs and liquidated damages) and the like were excluded from the operation of the SOP Act. The abolition of these regimes now broadens the scope of what can be claimed under the SOP Act and potentially reduces defences to claims that were previously available to respondents in an adjudication.
Adjudicated amount and performance security
A new definition of ‘adjudicated amount’ has been introduced. This new definition allows a claimant to claim for the release of a, ‘performance security’ (e.g. retention money and/or performance bonds such as bank guarantees) in addition to or separately from a payment claim for the value of construction related works, goods and services. This aligns with recommendation 9 of the Report. This legislative amendment also endorses the approach taken by the Court of Appeal in J.G. King Project Management Pty Ltd v Hunters Green Retirement Living Pty Ltd & Anor [2024] VSCA 310 to the effect that a builder’s final progress claim for the return of retention moneys held by the principal as security was a valid payment claim within the scope of the SOP Act.[1]
Defects liability period
A new definition has been introduced in the SOP Act, for the term, ‘defects liability period’ (DLP), which presumably has been incorporated to cater for construction contracts that lack such a definition. The end of the DLP is often when security is liable to be returned by one party to another and, as such, under the Bill a reference date often arises at this point in time now that security can be claimed for under the SOP Act.
Practical completion
Similarly, a definition of the term, ‘practical completion’ has been introduced, to likely address any inadequacies or disputes in construction contracts. Again, this definition is important now that security can be claimed under the SOP Act. Typically, some security is returned at practical completion with the balance at the end of the DLP.
Business Day
The definition of, ‘business day’ has been amended to exclude from the periods of time relevant to the operation of the SOP Act, the days between the period commencing 22 December in any year and ending on 10 January in the following year. Generally, it is customary for the building and construction industry to be closed for business in this period. This aligns with recommendation 24 of the Report. This may end the practice of claimants springing claims on respondents just before the Christmas shutdown.
Reference Date
Section 9 of the SOP Act has been repealed. This removes the use of the term, ‘reference date’. What is and is not a valid reference date for making a payment claim under a construction contract has been the subject of many judicial review applications under the SOP Act in Victoria. As per recommendation 3 and 7 of the Report, this amendment provides for a new simplified process for determining when claims may be made, will effectively be made on and from the last day of each named month in which the work was carried out or the related goods and services were supplied (see new section 14A).
For any works carried out in the period between 1 December and 21 December in any year, the payment claim may be served on a person on and from 22 December. For any works carried out in the period between 22 December and 31 December, a person may be served on and from 31 January in the following year, thus giving relief to both the claimant and respondent over the holiday period.
If a construction contract provides that a payment claim may be served on a person in relation to the carrying out of construction work or supplying related goods and services on and from a day that is earlier than a day permitted under the SOP Act, the payment claim may be served on and from that day.
If a payment claim is served before the earliest day for a payment claim to be served, it will not be invalid and the payment claim will instead be treated as being served on the earliest day and time for service of a payment claim.
Termination of contract
The Bill provides that termination of a construction contract does not affect the entitlement of a person to submit a final payment claim. This ends the previous practice of terminating a contract before a reference date arises to prevent a valid payment claim from being made.
Due date for payment under the contract
A progress payment and a performance security under a construction contract will become due and payable on the day on which the payment becomes due and payable under the contract. If the contract does not expressly provide for when a progress payment (and/or a performance security) is due, then it will be due on the day that is 10 business days after the earliest day on which a payment claim may be served under the SOP Act for a payment claim or for return of performance security.
Time for making a payment claim
The Bill amends the SOP Act’s absolute limit in which a payment claim can be served, from the current position of three months from the date of the supply of works or construction related goods and services to the later of the period for making a payment claim under the contract and six months from the date of the last supply of works or construction related goods and services. This aligns Victoria’s SOP Act with that of many other state jurisdictions.
A term in a construction contract will be of no effect to the extent that it provides for the payment of a progress payment or the release of a performance security beyond 20 business days after service of a payment claim or performance security claim. A default 10-business day term for progress payments and for the return of security will apply where a construction contract is silent on this point. These changes align with recommendation 8 of the Report.
Pay when paid provisions
A further sub-section 13(c) has been introduced to broaden the pay when paid restrictions, by making invalid payments contingent or dependent on the operation of another contract for, (i) the liability to pay money owing; (ii) the due date for payment of money owing; (iii) a person’s right to claim money owing; and (iv) a person’s right to claim the release of a performance security.
Notice-based time bar
A new provision has been introduced, giving an adjudicator, court, arbitrator and/or expert appointed by the parties, a discretion to exercise a power to declare a notice-based time bar provision of the contract unfair, if compliance with the provision – is not reasonably possible or would be unreasonably onerous. The onus of establishing that a notice-based time bar is unfair resides with the party alleging it to be as such.
In determining whether a notice-based time bar provision of a contract is unfair, the adjudicator, court, arbitrator or expert must take the following matters into account:
- when the party required to give notice would reasonably have become aware of the last day on which notice could be given;
- when and how notice is required to be given;
- the relative bargaining power of each party in entering into the contract;
- if compliance with the provision is alleged to be unreasonably onerous—whether the matters set out in the notice are final and binding;
- that the parties to the contract have read and understood the terms of the contract;
- that the party required to give notice has the commercial and technical competence of a reasonably competent contractor;
- any matter prescribed by the regulations for the purposes of this subsection.
This new provision represents recommendation 5 and 6 of the Report.
New reasons for withholding payment
One of the unique aspects of Victoria’s SOP Act regime is that further submissions or reasons may be raised by a respondent in an adjudication response, without those reasons being included in a payment schedule. Under the proposed terms of the Bill, a prohibition will be introduced preventing respondents from including any new reasons in their adjudication response that were not previously included in the payment schedule. Such a proposal would bring Victoria in line with many of the other state jurisdictions.
It is important that respondents issue a payment schedule containing all potential reasons for withholding payment in part or in full, as there will likely no longer be a way to introduce new reasons in the adjudication response phase. This reflects recommendation 15 and 16 of the Report. In our view this prohibition will not prevent a respondent from raising jurisdictional issues in an adjudication response. However, given the other amendments made by the Bill the scope of such jurisdictional issues will be significantly curtailed.
Notice to performance security
The Bill introduces a new provision that require a party intending to call or have recourse to the whole or part of a performance security under a construction contract, to give a notice of its intention to the other party that it will have recourse to the performance security. The notice must be provided at least 5 business days before the recourse is actioned. These changes align the Victorian regime with the regime of other state jurisdictions. These provisions will take priority over other terms of the construction that may provide otherwise.
The notice requirement will allow the party who provided the security to take action to prevent the recourse, such as through negotiation or by going to court to seeking injunctive relief.
Delay in adjudication determination
If an adjudicator’s determination is delayed beyond the period set out in the adjudication application and/or is outside the prescribed statutory period, it will no longer be invalid solely on that basis. This is in line with recommendation 17 of the Report.
Retrospective application
The changes proposed by the current Bill will apply to construction contracts entered into on and before the Bill is passed through both houses, and receives Royal Assent, save for some limited exclusions.
Further comments
If the Bill is passed largely unamended, the effects of the Bill will most likely require contract templates, ancillary documents and processes to be revised and updated for principals, contractors and subcontractors.
Please contact the authors, or any member of our Building & Construction team, should you have any questions about this article, or if wish to discuss how we may be able to assist your business and/or projects.
Disclaimer
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.
_____________________
[1] For more information see https://www.cornwalls.com.au/can-security-and-retention-funds-be-claimed-under-the-sop-act/