Victoria’s Security of Payment Act comes of age

It has been years in the making. The Victorian Government has finally proclaimed the first tranche of Part 2 amendments to the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act) commencing 15 April 2026.

Part 2 of the Building Legislation Amendment (Fairer Payments on Jobsites and Other Matters) Act 2025 (Vic) (Amendment Act) today introduces a much-needed raft of recommendations (supported in full) from the 2023 Parliamentary Inquiry by Victoria’s Environment and Planning Standing Committee.

With its retrospective application, claimants will benefit from Victoria’s new regime on existing contracts – but only in respect of payment claims served on or after 15 April 2026.

The reforms are designed to (and will) improve the Victorian construction industry’s ability to recover payments for works completed and the supply of related goods and services, and, critically, better align Victoria’s legislation with SOP legislation in Australia’s other states and territories.

We address the key changes below.

Abolition of excluded amounts regime

One of the most significant reforms introduced into Victoria is the repeal of sections 10A and 10B of the SOP Act, which removes the uniquely Victorian concepts of “excluded amounts” and “claimable variations”. Under the pre-reform regime, certain categories of claims (including contested variations, time-related costs, delay and disruption costs, costs arising from latent conditions, costs due to changes in regulatory requirements, and damages for breach of contract) could not be pursued through SOP Act adjudication.

This repeal aligns Victoria with the New South Wales, Queensland, and Western Australian jurisdictions where no such exclusion exists. The reform simplifies payment claims, with the aim of improving downstream cash flow (albeit any payment awarded is of course on-account). The industry can likely expect to see an increased number (and quantum) of payment claims in relation to these previously excluded yet fundamental categories of a claim.

Abolition of reference dates

The concept of a “reference date”, being the date on and from which a claimant becomes entitled to make a progress payment claim, has also been repealed. Under the previous regime, reference dates were determined by or in accordance with the terms of the construction contract (or, if the contract was silent, by the statutory default under section 9(2)(b)), and were one of the most frequently litigated issues in Victorian SOP adjudications.

In keeping with other Australian jurisdictions, claimants in Victoria now have a right to serve one payment claim on and from the last day of each month in which the relevant construction work was carried out, or the related goods or services were supplied. This change also expressly provides for a final payment claim to be made on or following the termination of a contract, for construction work carried out up to the date of termination.

This change overrides any dates contained in the contract that exceed those provided for by the updated SOP Act.

Prohibition on new reasons in adjudication

This one is a critical change – respondents are now prohibited from raising new reasons in an adjudication response that were not previously set out in writing in their payment schedule. Under the previous Victorian regime, respondents could introduce entirely new grounds for withholding payment during the adjudication process. This means providing fulsome reasons for withholding payment in a payment schedule is now critically important.

Unfair time bar provisions

New section 13A follows the Western Australia legislation by empowering adjudicators, courts, arbitrators, and expert determiners to declare notice-based time bar provisions in a construction contract “unfair” and of no effect in relation to the particular entitlement that is the subject of the proceedings.

A provision may be declared unfair where compliance is not reasonably possible; or would be unreasonably onerous.

It should be noted that the onus of establishing unfairness rests on the party alleging it (i.e. the claimant).

In deciding whether a provision is unfair, the decision-maker must take into account a list of matters, including 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 relative bargaining power of each party.

It should, however, be noted that a declaration of unfairness applies only to the specific claim in dispute. Further, the noticed-based time bar provision will continue to have effect in other circumstances arising under the contract.

Extended time to serve payment claims

The limitation period for serving a payment claim has been extended from three months to six months after practical completion of all construction work (or after the supply of all related goods and services) under the construction contract.

Statutory cap on payment terms

A maximum period of 20 business days after the service of a payment claim has been introduced for the payment of progress payments. Any contractual clause that purports to allow payment beyond this 20-business day period has no effect. Where the contract makes no express provision, payment is due 10 business days after the payment claim is served.

Late payment schedules

The timeframe for issuing a late payment schedule (where none was initially provided in time) has been extended from two business days to five business days.

Christmas shutdown period

In a much-welcome change to all in the industry, the definition of “business day” under the SOP Act has been amended to exclude the period from 22 December to 10 January each year, reflecting the customary industry shutdown.

Electronic service of documents

The amendments expressly permit electronic service of documents, including payment claims, payment schedules, adjudication applications, and related documents. Previously, the SOP Act did not expressly provide for electronic service. Another welcome addition.

New performance security regime

The Amendment Act introduces a comprehensive statutory regime for performance security (including bank guarantees, bonds, and retention money), which represents the most significant structural addition to the SOP Act.

Statutory right to release

Section 9 of the SOP Act has been replaced in full. The new section:

• 9(1) preserves the entitlement to progress payments;
• 9(2) creates a new statutory entitlement to the release of either the whole or a part of a performance security held under the construction contract; and
• 9(3) permits the claim to be standalone or combined with a payment claim. The right applies regardless of whether the contract expressly provides a right to release.

Timing of release and contracting out

Section 12 introduces “contracting out” prohibitions that render void any contractual provision that unduly restricts release or attempts to postpone, qualify, or condition the statutory right.

Under the new section 12(1A), contractual release triggers apply unless they conflict with statutory time limits; if the contract is silent, release is due 10 business days after the earliest day a security claim may be made under section 17B.

New section 12(1B) introduces a hard cap: a contract cannot provide for release of security later than 20 business days after service of a performance security claim.

Performance security claims and adjudication

New s 18A allows a claimant to serve a “performance security claim”, receive a “performance security schedule”, and seek adjudication if release is refused or delayed.

Contracting out of these rights is prohibited. Any term that postpones the earliest claim date, extends the latest claim date, or attempts to override the statutory right has no effect.

Entitlement to and notice before recourse to security

Under the new section 17H, a party must serve a written notice to the other party at least five business days’ before calling on performance security. The written notice must identify the:

• contractual basis;
• amount; and
• circumstances justifying recourse.

A party will not be entitled to the whole or a part of the performance security unless it has provided a notice to the releasing party that complies with the above.

These requirements override any conflicting contractual provisions.

Contact us

If you’ve any questions about how these changes impact your construction contracts, please don’t hesitate to contact a member of our Construction, Infrastructure & Energy team.

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