Critical amendments to legislation regulating entitlement to progress payments under construction contracts in Victoria

The first tranche of foreshadowed reforms of Victoria's security of payment regime were recently tabled in Victorian Parliament via the Building Legislation Amendment (Fairer Payments on Jobsites and Other Matters) Bill 2025. The Bill is the first step to action the recommendations arising out of the 2023 parliamentary inquiry into subcontractor protections.

If passed, the Bill will introduce widespread changes to the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act), including to the payment claim and adjudication processes. These changes will fundamentally alter the administration of construction contracts in Victoria.

Taking effect no later than 1 September 2026, and applying retrospectively to pre-existing construction contracts, key changes to the SOP Act include:

1. Removal of the excluded amounts regime: meaning that contractors will be able to include contested claims for scope variations, delay costs, latent conditions, and changes in legislative requirements in a payment claim. Claims of these kinds are excluded from rights under the current SOP Act.

2. Removal of the concept of "reference dates" as a trigger for the right to claim, instead permitting claimants to make one payment claim per calendar month.

3. Introduction of a summer blackout period between 22 December and 10 January each year, which will suspend enforcement and adjudication timeframes under the Act.

4. Long stop limit on time for making payment claims requiring claimants to make a payment claim within six months of performing the relevant construction work.

5. Shortened timeframe for making progress payments requiring respondents to pay a progress payment within 20 business days of the claimant issuing a payment claim (or when time expires to issue one).

6. Respondents barred from raising new reasons in adjudication: respondents will only be able to rely on the defences and reasons set out in the payment schedule.

7. Notice-based time bars can be declared as unfair contract terms: in line with the approach in WA, adjudicators and courts can declare a contract term is unfair and unenforceable, including notice-based time bars.

8. New statutory rights regarding release of, and restrictions on right of recourse to, performance security.

As with the current SOP Act, contractual provisions that would have the effect of restricting statutory rights will be unenforceable.

This update focuses on amendments to the SOP Act. However, the Bill also addresses other issues relevant to the Victorian construction sector, such as reforming the building surveyors and building inspectors registration scheme, authorising development of a plumbing code of conduct to be enforced by the newly-strengthened Building and Plumbing Commission and amending other legislation, including the Environment Effects Act 1978, Planning and Environment Act 1987 and the Heritage Act 2017.

Retrospective application

The changes will apply retrospectively, meaning they will apply to pre-existing construction contracts on foot when the relevant amendments commence. Some exceptions will apply in respect of payment claims already served under the current SOP Act and adjudications commenced before the commencement date of the amendments.

Consistent with common practice, prior amendments to the SOP Act did not have retrospective application to pre-existing construction contracts. That common practice is consistent with the proposition that contracts carefully negotiated under one legislative regime should not, mid-project, have to be administered under a substantively amended legislative regime.

The current amendments depart from that common practice. In this case there are justifications for retrospective application. It will reduce the administrative complexity for contract administrators overseeing a portfolio of multiple projects. The traditional approach of "grandfathering" pre-existing construction contracts would mean that contract administrators would need to simultaneously apply two different versions of the SOP Act to the extent that their portfolio involved construction contracts entered into before, and after, the date the amendments come into effect.

Anticipated consequences

The delayed commencement of the amendments (as late as 1 September 2026) is intended to allow industry participants time to prepare. Industry participants should take advantage of the time available to review current practices.

The retrospective nature of the amendments makes it critical that organisations involved in the Victorian construction industry understand the practical implications and update their business practices accordingly. Contracts negotiated and executed under one legislative regime will need to be administered under a new regime. It is not only contract administrators who will be affected. The amendments will have whole-of-business implications, from legal and contract administration teams to commercial managers and finance and accounts departments. This will necessitate a whole-of-business review of current practices.

Once enacted, the practical implications the amendments include:

1. The amendment which is likely to have the largest immediate impact is the removal of the excluded amounts concepts. The amendments will bring the Victorian SOP Act into line with other jurisdictions. Experience in those other jurisdictions indicate that principals and head contractors under Victorian construction contracts should expect a noticeable uptick in the number and value of payment claims and adjudications under the SOP Act. The main purpose of the SOP Act is securing cashflow and the amendments will serve that purpose.

2. The prohibition on raising new reasons in an adjudication not already included in a payment schedule will make it critical that principals and main contractors respond to payment claims within the statutory timeframes and set out all defences and reasons for reducing or rejecting a payment claim.

3. Given the short timeframes for responding to payment claims, efficient project administration and document hygiene is critical. Principals and head contractors should continue to ensure that communication lines between project and legal teams and the finance and accounts departments are efficient and reliable.

4. Rights in respect of pre-existing performance securities (which includes bank guarantees and performance bonds) will be fundamentally changed. Contractual rights will be overridden by the amended SOP Act in some respect. Statutory rights to the release of securities, and restrictions on recourse to securities, need to be carefully considered. Otherwise, historically acceptable unilateral actions by security holders might contravene the new requirements.

Tranche 2 reforms still under consideration

Industry consultations remain underway in respect of Tranche 2 reforms. We will report on updates as they develop.