The amendments proposed by the Bill are set to critically change the operation of the SOP Act in Victoria. Accordingly, parties to construction contracts in Victoria and construction companies with operations in Victoria more broadly, should familiarise themselves with the changes and implement measures to ensure compliance. If parties are uncertain as to their rights and obligations surrounding the SOP Act in its current form and the amendments proposed by the Bill, legal advice should be sought as soon as possible.

The Bill proposes significant amendments to the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act), among other proposed changes. If passed, the reforms will bring Victoria closer into line with security of payment regimes operating in other jurisdictions across Australia, particularly in New South Wales and Western Australia.

This article highlights the key amendments proposed to the SOP Act regime under the Bill.

Key Takeaways

• Key reforms have been proposed to Victoria’s security of payment regime, amending the SOP Act
• The most substantial amendment proposed is the abolishment of Victoria’s unique ‘excluded amounts’ regime
• Other key changes include, among others, the release of and recourse to performance security, the abolition of reference dates, and the power to declare notice-based time bar provisions “unfair”
• These reforms will apply retrospectively to existing Victorian construction contracts (with some exceptions)
• Subject to the Bill’s enactment, the proposed amendments are to commence by at least 1 September 2026, unless an earlier date is proclaimed
• The Bill proposes substantial reforms to the security of payment regime. Construction industry participants should ensure that they familiarise themselves with the amendments.

Excluded Amounts Regime Abolished

Currently, the SOP Act does not permit claims for ‘excluded amounts’ such as amounts for contested variations and time-related costs such as delay or disruption costs and liquidated damages. The Bill proposes to repeal this regime by deleting ss10A and 10B, meaning that claims for these items can now be the subject of an adjudication under the SOP Act.

Performance Security

The Bill includes a statutory process to allow a claimant to seek the release of performance security (including bonds, guarantees, or retention money), by making a ‘performance security claim’. These reforms are contained in s20 of the Bill.

Respondents can issue a ‘performance security schedule’, stating the amount of security they propose to release and the reasons why. Disputes over security can be referred to adjudication, where adjudicators are empowered to determine whether security must be released, and if so, the amount or proportion to be released.[1]

This process mirrors the existing payment claim and schedule procedure but applies specifically to security.

The Bill also introduces strict notice requirements before a party can have recourse to performance security. A party must give at least five business days' written notice, unless a longer period is specified in the contract, before recourse to security may be had. This notice must identify the contractual provisions giving rise to the right, the circumstances justifying the call and particulars of the amount sought.

Any contract term that seeks to bypass these new safeguards will be void, reinforcing s48 of the SOP Act, which already invalidates provisions that attempt to contract out of the Act.

Monthly Payment Claims

The Bill proposes a monthly claims process, whereby a claimant can make a claim on and from the last day of each month. Parties to a construction contract or other arrangement, are not however limited to this date, and can specify an earlier date for the service of a payment claim. If a claim is submitted before the earliest permissible date, it will not be invalid but will be treated as served on the earliest permitted day.

This is coupled with an extension to the ‘long stop’ proposed extension to the last date on which a claim can be made, so that claimants can serve a payment claim within 6 months after practical completion. This is coupled with an extension to the current 3-month limitation period, so that a claimant can lodge payment claims within six months of carrying out the relevant construction work.[2]

Respondents Barred from Raising New Reasons in Adjudication

Under the new adjudication rules, respondents are strictly limited to the reasons outlined in their payment schedule when defending against a payment claim. They are barred from introducing new grounds during the adjudication process, and adjudicators are no longer permitted to consider any reasons not previously stated.[3] This means that it is essential to include the reasons for withholding payment in a payment schedule or performance security schedule. The Bill also extends the timeframe for issuing a payment schedule under s18(2) (where one was not previously provided within time) from two business days to five.[4]

Notice-based Time Bars can be Declared ‘Unfair’

The Bill empowers adjudicators, courts, arbitrators, and expert determiners to declare notice-based time bar provisions in construction contracts as unfair and unenforceable, particularly where compliance is not reasonably possible or would be unreasonably onerous.[5]

This reform is intended to ensure that claimants are not denied payment due to rigid contractual terms that may have been non-negotiable at the time of contracting. When assessing fairness, decision-makers must consider factors such as how and when notice must be given, and the relative bargaining power of the parties. The party alleging that a term is unfair bears the onus of proving that it is unfair, and the Act sets out some criteria for making this assessment.[6]

Broadening of ‘Pay When Paid’ Provisions

‘Pay when paid’ restrictions have been expanded, rendering any contract provision invalid if it makes the following contingent on the operation of another contract: the liability to pay money owed, the due date for payment, the right to claim payment, or the right to seek release of performance security.[7]

Holiday Blackout Period

A blackout period will be introduced between 22 December and 10 January each year, during which enforcement and adjudication timeframes under the SOP Act will be suspended.[8] This period will be excluded from the definition of “business day”, meaning time will not run for the purposes of the Act, recognising the customary shutdown across the building and construction industry. Payment claims relating to works carried out between 22 and 31 December may be served from 31 January in the following year.[9]

Commencement and Retrospective Application

The Bill has not yet received royal assent and has not passed. While it is subject to change, we do not anticipate that further reforms will substantially depart from the current position.

The amendments will take effect either on a proclaimed date or by 1 September 2026, whichever comes first.[10] Notably, the reforms will apply to contracts entered into before the commencement date, with a key exception: Part 3 of the amended SOP Act (which deals with the procedure for recovering progress payments) will not apply where a payment claim has been served, or an adjudication application made but not yet determined before commencement.

Further information / assistance regarding the issues raised in this article is available from the authors, Bill Papastergiadis OAM, Melbourne Managing Partner, Partners Nathan Cutts and Phillip Vassiliadis or your usual contact at Moray & Agnew.

[1] Bill, s.20.

[2] Bill, s.16.

[3] Bill, s.23.

[4] Bill, s.21.

[5] Bill, s.13.

[6] Bill, s.13 (proposed new s.13A(5)-(6) of the SOP Act).

[7] Bill, s.12.

[8] Bill, s.5(6). 

[9] Bill, s.16.

[10] Bill, s.2.