Major Security of Payment Act Reforms - September 2025 - Legal Update

A significant overhaul of Victoria’s construction payment laws is underway, with the Building Legislation Amendment (Fairer Payments on Jobsites and Other Matters) Bill 2025 (Vic) (Bill) introduced into the Victorian Legislative Assembly on 11 September 2025.

The Bill marks the first major step toward implementing reforms recommended in the 2023 Parliamentary Report into employers and contractors who refuse to pay their subcontractors for completed works.

If passed, the Bill would deliver sweeping changes to the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act), removing key barriers that have hindered claimants and broadening the Act’s coverage to better protect subcontractors and contractors across the industry.

1.     Removal of the “Excluded Amounts” Regime

 

•     The Bill proposes to abolish the current “excluded amounts” provisions under the existing SOP Act.

 

•     Claimants will now be entitled to make claims under the SOP Act for latent conditions, time-related costs such as delay costs, liquidated damages and interest, claims for variations and damages for breach of contract that were not permitted under the existing legislation.

 

•     The abolition of the excluded amounts regime will remove a significant obstacle to Claimants obtaining judgment under the existing legislation as Claimants are presently unable to obtain judgment under the existing legislation if the payment claim includes any claim for excluded amounts.

 

2.     Changes to Payment Claim Validity

 

•     The current SOP Act’s complex and at times confusing formulae for determining ‘reference dates’ have been removed entirely and replaced with a new, simplified process for determining when a payment claim may be made.

 

•     Payment claims will be able to be made on the last day of each named month in which the work was carried out or the related goods or services were supplied (or such earlier date specified in the Contract).

 

•     Payment Claims for the month of December will be entitled to be served on 22 December 2025 and any work performed between 22 December and 31 December will be included in the claim served at the end of the following month on 31 January.

 

•     The period for submitting payment claims will be extended from three months to six months from when the relevant entitlement to claim arose.

 

•     If a payment claim has been served before the relevant date then it will not be invalid, the payment claim will simply be deemed to have been served on the earliest available date.

 

•     Where a contract provides for milestone payments, the Claimant will still be entitled to make a milestone payment claim at least once per month.

 

•     Where a contract has been terminated for any reason (including by a termination by consent), the Claimant will be entitled to submit a further payment claim immediately following the termination of the contract.

 

•     The above changes will significantly improve a Claimant’s ability to obtain judgment under the SOP Act as many of the commonly used arguments around the existence of a valid reference date that would invalidate a payment claim under the existing legislation will be removed.

 

3.     Payment Terms

 

•     The Bill introduces maximum payment terms not exceeding 20 business days after the date on which the payment claim was served.  The maximum payment terms will override any term of a contract which provides for a longer payment period.

 

4.     Reforms to Time Bar Clauses

 

•     The Bill introduced significant reforms to time-bar clauses by allowing a Court, Adjudicator, Arbitrator or Expert to declare any notice requirements under a contract to be void or unenforceable if compliance with such clauses is deemed unreasonable.

 

•     The reforms to time bar clauses are not limited to disputes under the SOP Act but will apply to all construction contracts in all circumstances.

 

•     In considering whether a time-bar is unreasonable, an Adjudicator, Court, Arbitrator or Expert must take into account when and how the notice is required to be given, the relative bargaining power of the parties, if compliance with the provision is unreasonably onerous, whether the parties have read and understood the terms of the contract, whether the party required to provide the notice has the commercial and technical competence to be providing the required notice.

 

•     Further, an Adjudicator, Court, Arbitrator or Expert must not take into account the provisions of any related contract or the things that happen under a related contract when determining whether a time bar clause is unreasonable.

 

•     Head contractors will not be entitled to justify a timebar clause contained in a subcontract on the basis that a similar timebar clause is contained in its head contract for the project.

 

5.     Performance Security Claims

 

•     A further significant reform proposed by the Bill is the introduction of a more structured process for the release of performance security (including retention moneys, bonds or bank guarantees) held by the principal or contractor. The Bill allows a Claimant to make a separate payment claim for the release of part or all of the performance security once specified stages of the project have been completed or upon final completion.

 

•     Further, the Bill introduces a mandatory requirement for a party to provide 5 business days’ prior notice before that party can make a claim for performance security. This notice must inform the party holding the security of the intent to claim all or part of the performance security and will override any provision in the construction contract to the contrary.  This requirement is not limited to the SOP Act but will apply in all circumstances.

 

•     Whilst the Bill does not prohibit a party from having recourse to the performance security after the 5 day notice period has elapsed, the Claimant will have an entitlement under the SOP Act to make a claim for the return of the performance security to recover any amounts received by a Respondent who has wrongfully had recourse to the performance security.

 

6.     Clarification of “Business Days” and Holiday Shutdowns

 

•     The Bill revises the definition of “business days” by excluding from the calculation of business days, the Christmas and New Year’s shutdown period between 22 December in any year and 10 January the following year.  This will avoid the need for Respondents to issue a payment schedule or adjudication response during the Christmas and New Year shutdown period.

 

7.     Adjudication Applications

 

•     The Bill extends the timeframes for an Adjudicator to provide an Adjudication Determination to 10 business days from the latest day on which the Respondent is entitled to submit an Adjudication Response. The Bill also provides for a further extension (agreed by the parties) to a maximum of 20 business days.

 

•     However, the timeframe for providing an Adjudication Response has remained at 5 business days from the date of receipt of the Adjudication Application.

 

•     Further an Adjudicator’s determination will not be invalid if it is made after the time allowed under the Act.

 

8.     Prohibition of including New Reasons for withholding payment in Adjudication

 

•     Under the Bill, a Respondent will not be permitted to introduce new reasons in an adjudication response for withholding payment that were not previously included in a payment schedule. This also applies to payment claims for performance security.

 

•     The Respondent must therefore provide all grounds for withholding payment upfront in the payment schedule otherwise it will not be entitled to rely on any new reasons for withholding payment in the Adjudication Response.

 

•     Respondents will need to ensure that they have included detailed reasons in a payment schedule when rejecting any claim included in a payment claim.

 

9.     Transitional Arrangements

 

•     The Bill will apply to existing contracts that were in place before the date of commencement of the amending legislation.  However, any existing payment claims or existing adjudication applications that had already been submitted prior to the date of commencement of the amending legislation will be subject to the existing legislation.