Australia | Publication | October 2025
The Victorian Government has introduced major reforms to the security of payment (SOP) regime in Victoria with the Building Legislation Amendment (Fairer Payments on Jobsites and Other Matters) Bill 2025 (Vic) (the Bill).
The reforms respond to recommendations by a parliamentary inquiry conducted by the Environment and Planning Standing Committee (Committee) in 2023 into non-payment of subcontractors in Victoria. In its response to the Committee’s report, the Victorian Government acknowledged that the current legislation had not been reviewed since 2006 and it was timely to examine its effectiveness and consistency with other jurisdictions’ legislation.
This is the third package of major building reforms introduced by the Victorian Government since April this year. You can read our updates about the other two packages of reforms here, here, here and here.
In this update, we summarise the key changes proposed in the Bill as they relate to SOP. If the Bill is passed, the SOP reforms will come into force on a day to be proclaimed, or 1 September 2026 at the latest.
Claimants will be entitled to rely on the SOP Act to ensure the release of “performance security” (including bank guarantees and retention money) under a construction contract, in addition to being entitled to progress payments.
In response to a “performance security claim”, the respondent will be required to serve a “performance security schedule”. Claimants will have equivalent rights as they do in relation to progress claims, including to apply to court for judgment where no performance security schedule is served, and to make an adjudication application.
The concept of a “reference date” as the date when a claimant is entitled to a progress payment will be removed. Instead, a claimant will be entitled to serve a payment claim on and from the last day of the month in which construction work was first carried out and each subsequent month during which any construction work is carried out (with special provisions for December). Parties will be free to provide for an earlier date for serving payment claims in their construction contract.
Calculating when a “reference date” arises can be complex and often spawns disputes, so this is a welcome reform. Several jurisdictions have implemented similar reform in recent years so the change will also improve consistency of SOP laws across jurisdictions. The Bill also contains provisions to ensure that claimants are entitled to serve payment claims at least monthly, including in relation to milestone payments.
The definition of “business day” will be amended to create a Christmas black out period from 22 December to 10 January in the following year. This recognises the Christmas shutdown in the building industry, and will make life much easier for respondents who receive payment claims or adjudication applications during this time.
The concepts of “excluded amounts” and “claimable variations” will be repealed – these provisions will no longer limit what may be included in a payment claim (so all claims for variations, time-related costs, latent conditions etc will be able to be included in a payment claim). The exclusion of “excluded amounts” from SOP claims is a unique element of the current Victorian legislation which does not exist in other Australian jurisdictions. It has triggered unintended problems, including increasing the cost and complexity of adjudication proceedings and driving down the number of payment claims submitted for adjudication in Victoria. The reform aims to resolve those difficulties, and make Victoria’s SOP Act more consistent with legislation in other jurisdictions.
The Bill provides for a maximum period for payment of a progress payment that a construction contract is permitted to specify, of 20 Business Days after the payment claim is served. Under the current Act, a construction contract can specify any period for payment. This aims to address industry concerns about lengthy payment terms being imposed on subcontractors.
A new provision will be inserted providing that a notice-based time bar provision may be declared unfair by an adjudicator, court, arbitrator or expert in relation to a particular entitlement under the contract if compliance with the provision is not reasonably possible, or would be unreasonably onerous.
If a provision is declared to be unfair, it will have no effect on the entitlement that is the subject of the relevant adjudication or proceeding, but will continue to have effect in other proceedings. The party alleging that the provision is unfair bears the onus of establishing it is unfair. In deciding whether the provision is unfair, the decision-maker is required to take a list of matters into account (including such things as when a party would reasonably have become aware of the last day for giving a notice, how the notice is required to be given and the bargaining power of each party in entering into the contract). The new provision is modelled on s15 of the Building and Construction Industry (Security of Payment) Act 2021 (WA).
A party to a construction contract will not be entitled to have recourse to performance security unless the party has served a notice of intention to have recourse to the security and at least five business days have passed (or any longer period provided for in the contract). It will not be possible to contract out of this requirement. This will change contract drafting in the industry, which frequently does not require prior notice for recourse to security.
Other proposed reforms in the Bill include:
The SOP reforms will apply to construction contracts entered into before the reforms come into force, but not to payment claims already served or adjudication applications already on foot before the reforms come into force.
The Bill does not:
The Victorian Government supported “in principle” Committee recommendations to consider making reforms to address these issues. They may be the subject of a future tranche of reforms.
The Bill, if passed through Parliament, will make significant changes to Victoria’s SOP regime that builders and developers will need to be prepared for, including:
We will publish a further update when the Bill is passed through Parliament.
You can access the Bill here.
Publication
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