Building Legislation Amendment (Fairer Payments on Jobsites and Other Matters) Bill 2025 (Vic)

Key changes

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.

Release of performance security

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.

No more “reference dates”

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.

Business days

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.

Excluded amounts

The concepts of “excluded amounts” and “claimable variations” will be repealed – these provisions will no longer limit what may be included in a payment claim (so all claims for variations, time-related costs, latent conditions etc will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.

Due date for progress payment

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.

Notice-based time bar provisions

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).

Entitlement to have recourse to a performance security

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

Other proposed reforms in the Bill include:

• A new regulation power to prescribe that a provision or a class of provisions in a construction contract or a class of construction contracts is to be taken to be of no effect (which may be subject to prescribed exceptions);
• A modernised service of documents provision;
• Removing the current limited right to review of adjudication determinations;
• Removing the ability for respondents to include in their adjudication responses a reason which was not set out in the relevant payment schedule / performance security schedule;
• An express right for claimants to serve a payment claim when a construction contract is terminated; and
• Extending the last day for serving a payment claim to six months after practical completion (from the current three-month period).

Transitional provisions – retrospective application

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.

Recommendations not included

The Bill does not:

• introduce a retention trust scheme to secure retention monies provided under a construction contract; or
• amend the SOP Act to include construction contracts between builders and homeowners.

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.

Takeaways

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:

• a likely increase in the number of adjudication applications made in Victoria, due to repeal of the “excluded amounts” regime;
• the need to review forms of construction contract, including to ensure that notice-based time bars are fair, and to align with the provisions relating to performance security (such as the requirement for prior notice before having recourse to performance security). Some provisions (for example notice-based time bars) should be amended as soon as the Bill is passed, given that the SOP reforms will apply to construction contracts entered into before the reforms come into force; and
• the need to review contract administration procedures in relation to SOP, for example to ensure that respondents include all relevant reasons in payment schedules, given that new reasons will not be able to be included in adjudication responses.

We will publish a further update when the Bill is passed through Parliament.

You can access the Bill here.