Victoria’s Security of Payment laws have changed: what contractors and principals need to know
Victoria’s security of payment regime has undergone significant reform, with wide-ranging changes affecting the way payment claims and payment disputes are dealt with under the Building and Construction Industry Security of Payment Act 2002 (Vic) (VIC SOP Act).
The reforms commenced on 15 April 2026 and changed a number of longstanding features of the VIC SOP Act, including the amounts that can be claimed, when payment claims can be made, the operation of contractual time bars, payment terms and the treatment of performance security.
A key feature of the reforms is that they also apply to construction contracts that were already in place when the changes commenced. Subject to the transitional provisions, the amended VIC SOP Act generally applies to existing construction contracts from 15 April 2026, including payment claims served on or after that date.
Different transitional arrangements may apply to payment claims and adjudication applications already underway before commencement of the reforms.
Accordingly, principals, head contractors, subcontractors and consultants operating in Victoria should be aware of how the reforms affect both their existing construction contracts and the procedures they use when making, responding to and administering payment claims and payment disputes.
What are the key changes?
1. Fewer restrictions on recoverable amounts
One of the most significant reforms is the abolition of Victoria’s former concepts of “excluded amounts” and “claimable variations”.
Previously, certain amounts relating to disputed variations, latent conditions, delay or time-related costs and damages for breach of contract could not be pursued through the VIC SOP Act.
Those restrictions have now been removed, allowing claimants to include a broader range of amounts in payment claims and respondents to rely on previously excluded amounts, including liquidated damages, as a set-off.
This substantially expands the types of disputes that can now be determined through the Victorian security of payment regime.
2. Reference dates have been replaced by monthly payment claims
Under the former regime, a payment claim could only be made where a valid “reference date” had arisen under the construction contract or the VIC SOP Act.
The reforms have abolished reference dates and replaced them with a monthly entitlement to make payment claims. Subject to any earlier date permitted by the contract, a claimant can generally serve a payment claim from the last day of each month in which work was carried out or related goods and services were supplied.
Only one payment claim can generally be served each month, although it can include previously claimed but unpaid amounts and amounts relating to earlier work or supplies.
Importantly, a payment claim is no longer invalid merely because it is served before the date on which the claimant is entitled to make the claim. Instead, the payment claim is taken to have been made on the relevant date permitted under the VIC SOP Act.
Termination or expiry of the construction contract also does not, of itself, prevent a claimant from making a payment claim.
3. Contractual time bars can be declared unfair
Strict notice requirements in construction contracts can result in a contractor losing an entitlement to payment, an extension of time or the release of performance security.
Under the amended VIC SOP Act, a notice-based time bar may be declared unfair where compliance is not reasonably possible or would be unreasonably onerous. If declared unfair, the provision will have no effect in relation to the relevant entitlement.
A notice-based time bar can be declared unfair by an adjudicator, court, arbitrator or expert determining the relevant dispute. In determining whether a time bar is unfair, a number of statutory factors must be considered, including the timing and manner in which notice was required to be given, the parties’ relative bargaining power and the commercial and technical competence expected of a reasonably competent contractor.
That said, we strongly encourage our clients to continue to comply with applicable notice requirements and implement strong contract administration practices. A contractual time bar should not simply be disregarded on the assumption that it will ultimately be found to be unfair. Whether a particular provision is ineffective will depend upon the circumstances and application of the statutory test.
4. Greater protections around performance security
The amended VIC SOP Act introduces significant new rights concerning performance security, including bank guarantees, bonds and retention money.
A person who claims to be entitled to the release of all or part of a performance security can now make a statutory claim for its release. The VIC SOP Act establishes when such a claim may be made and provides mechanisms for enforcing the entitlement, including through adjudication or court proceedings.
Where the construction contract does not specify when performance security is to be released, the VIC SOP Act provides a statutory mechanism for determining when release can be claimed following the end of the relevant defects liability period.
Importantly, however, the reforms do not create an automatic statutory entitlement to release performance security at practical completion unless the construction contract itself provides for release at that time.
There are also new restrictions on calling on security. Before having recourse to performance security, a party must give written notice identifying the construction contract and the contractual provisions relied upon, stating the amount of security to which it intends to have recourse and describing the circumstances said to entitle it to have recourse.
The notice must generally be given at least 5 business days before recourse, or within any longer period required by the construction contract.
The changes mean that parties should carefully review both the circumstances in which their contracts permit recourse to security and the procedural steps required before any call is made.
5. More time for making payment claims
The period for making a payment claim following completion has been extended from 3 months to 6 months after practical completion or the supply of all related goods and services, unless the construction contract permits a later date.
The extended timeframe gives claimants more time to identify, quantify and pursue outstanding amounts.
6. Payment terms capped at 20 business days
A progress payment is now due no later than 20 business days after service of a payment claim under the amended VIC SOP Act.
If a contract provides for a longer payment period, that provision will not apply to the extent that it exceeds the statutory limit.
Importantly, the statutory timeframe is not postponed by a contractual requirement for the claimant to subsequently provide a tax invoice or take some other step before payment becomes due.
For parties using contracts with longer payment periods, or payment mechanisms which make payment conditional upon the provision of further documentation, those provisions should be reviewed against the amended VIC SOP Act.
7. Broader prohibition on “pay when paid” provisions
The reforms have also expanded the prohibition on “pay when paid” provisions.
The prohibition now extends beyond provisions that simply make payment dependent upon another party first receiving payment under another contract.
It also captures provisions that make liability to pay, the due date for payment, a person’s right to claim payment or a person’s right to claim the release of performance security contingent or dependent upon the operation of another contract.
Parties using back-to-back payment or security provisions should therefore review their construction contracts to determine whether those provisions remain enforceable under the amended VIC SOP Act.
8. No new reasons at adjudication
Like NSW and Queensland, a respondent cannot introduce new reasons for withholding payment for the first time in an adjudication response.
A payment schedule therefore needs to clearly identify the amount proposed to be paid and all substantive reasons for withholding any part of the amount claimed.
The timeframe for providing a payment schedule remains the earlier of the period required under the contract or 10 business days after service of the payment claim.
If no payment schedule is provided within that period, the respondent risks losing its ability to respond at adjudication, subject to the further opportunity provided under the “second chance” procedure.
The practical consequence is significant: respondents should treat the payment schedule as their primary opportunity to identify and particularise their reasons for withholding payment rather than assuming those reasons can be developed later if the dispute proceeds to adjudication.
9. Extended “second chance” period
Where a respondent fails to provide a payment schedule within the initial statutory period, the VIC SOP Act provides a further opportunity for a payment schedule to be served after the claimant gives the required notice of its intention to apply for adjudication.
The reforms have extended that further period from 2 business days to 5 business days.
If a payment schedule is still not provided within that period, the respondent cannot lodge an adjudication response in response to a valid adjudication application, materially increasing the risk of an adverse adjudication determination.
10. Longer adjudication timeframes and review adjudications removed
An adjudicator now has 10 business days from the later of their appointment or the last day for an adjudication response to make a determination. The parties may also agree to a further extension of up to 20 business days.
Victoria’s former review adjudication process has also been removed.
Parties can therefore no longer seek statutory review of an adjudication determination under the VIC SOP Act for non-jurisdictional errors.
A party seeking to challenge an adjudication determination may instead need to commence proceedings in the Supreme Court of Victoria where there is an available basis for judicial review, including where the adjudicator has committed jurisdictional error.
11. New Christmas blackout period
The amended VIC SOP Act has introduced a Christmas blackout period, with the definition of a “business day” now excluding the period from 22 December to 10 January, in addition to weekends and Victorian public holidays.
The effect of the blackout period is that those dates do not count when calculating statutory timeframes under the VIC SOP Act.
Parties nevertheless need to carefully distinguish between statutory deadlines under the VIC SOP Act and any separate contractual timeframes, which may continue to apply during the Christmas and New Year period.
What do the changes mean for you?
The reforms have significant practical implications for parties operating under construction contracts in Victoria.
Existing contracts and contract administration procedures should be reviewed, particularly provisions dealing with:
1. payment claims and payment schedules;
2. payment periods;
3. contractual time bars and notice requirements;
4. performance security and rights of recourse;
5. “pay when paid” and back-to-back contractual provisions; and
6. adjudication procedures.
This is particularly important for contracts entered into before 15 April 2026, as the amended VIC SOP Act applies to existing construction contracts subject to the applicable transitional provisions.
The reforms also increase the importance of effective contract administration. Claimants now have broader rights to pursue disputed amounts through the security of payment regime, while respondents need to ensure that payment schedules comprehensively identify their reasons for withholding payment within the applicable statutory timeframe.
Dark Legal is here to help
Security of payment disputes move quickly and strict statutory timeframes apply. Obtaining early legal advice can help ensure that payment claims, payment schedules and adjudication materials are properly prepared and that important rights are not lost through missed deadlines or procedural errors.
Dark Legal has extensive experience advising and representing parties in building and construction disputes, including security of payment matters, and can provide practical advice and strategic representation at all stages of a payment dispute.
Whether you are seeking payment for construction work, responding to a payment claim or adjudication application, dealing with a call on performance security or reviewing your construction contracts following the reforms, we encourage you to contact us at an early stage so that we can advise you as to your position, available options and the most appropriate strategy.
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