Victorian Security of Payment Act reforms have landed with a retrospective bite

One year after the Victorian Government’s response to a 2023 Parliamentary Inquiry into revising the Building and Construction Industry Security of Payment Act 2002 (SOP Act), the first tranche of reforms has landed in Parliament.

On 11 September 2025, the detail in the Building Legislation Amendment (Fairer Payments on Jobsites and Other Matters) Bill 2025 (Bill) was made public. Consistent with the analysis in our previous Insight, the Bill seeks to strengthen and simplify the regime, and achieve harmonisation with the rest of Australia.

This first package of reforms contains the 16 Inquiry recommendations which the Government endorsed in full in October 2024, with the balance to be implemented after further stakeholder consultation. The reforms are slated to take effect by no later than 1 September 2026 and also apply retrospectively to construction contracts entered into before that date. 

Broadly, the reforms achieve many of the Government’s objectives, however some complexity and uncertainty lie in the detail. In this Insight we examine:

• the scope of changes detailed in the Bill; and
   
• the retrospective application of the changes and practical implications for the construction industry.

The scope of reform

The Bill represents the most radical overhaul of the SOP Act since it was introduced two decades ago. The most important changes to be aware of include:

• Farewell to excluded amounts and reference dates: The Bill simplifies the procedure for claiming progress payments by repealing the excluded amounts regime and the confusing ‘reference dates’ concept. Under the changes, claimants will be able to recover all contractually payable amounts on and from the last day of each month (or earlier if the contract permits) – so disputed variations, latent condition claims, and time-related claims. We expect this will mean payment claims and adjudication applications, which are higher in quantum and more complex, but note that the process is simplified and aligned with other major Australian jurisdictions. 
   
• Christmas shut-down period and tighter timeframes: The Bill amends the definition of a ‘business day’ to exclude the Christmas shut-down period (22 December to 10 January), with the effect that respondents cannot be ambushed with payment claims during the break. While this may affect cashflow projections, the Bill also caps the period to 20 business days by which respondents must pay, or release security to, the claimant.
   
• Unfair notice-based time bars: The Bill empowers adjudicators to declare that a notice-based time bar provision in a construction contract is unfair, and thus of no effect, on the basis that compliance was not reasonably possible or would be unreasonably onerous. This is a welcome change for claimants to ensure payment is not denied by reason of terms in a contract which may not have been negotiable at the time of contracting.
   
• Return of performance security: The Bill grants a statutory right alongside the right to progress payments for the return of performance security, which includes bonds, guarantees and retention money. This drafting widens the scope beyond that initially considered in the Inquiry’s recommendation. Simultaneously, the Bill recognises that the party holding the benefit of a performance security can have recourse to it provided it gives at least five business days’ notice of their intent to exercise that right. Parties that have provided the security must act swiftly, possibly by seeking injunctive relief, to prevent that action. 
   
• New rules on adjudication responses: The Bill prevents respondents from raising new reasons not included in a payment schedule during an adjudication process. Importantly, respondents retain sufficient opportunity to give reasons why a payment claim is not fully paid in either a payment schedule or a performance security schedule. The Bill also strives to strike a fair balance by expanding the time to five business days (from two) for a respondent to provide a payment schedule in response to an adjudication application notice where one had not already been issued. The intention of this change is to afford respondents adequate time to put their case, which enhances the opportunity for the parties to settle before adjudication.

Many other changes are found in the Bill, including greater flexibility for early payment claims, modernised methods of service, potential for extensions of time for adjudication determinations, and revisions to various timeframes under the framework. All parties should be aware of the details, particularly given the retrospective application of the reforms.

Retrospective application

Under the current drafting of the Bill, the changes will apply retrospectively to construction contracts entered into before the Amendment Act takes effect - which will be on a date to be proclaimed or, if not specified, on 1 September 2026. A key exception to this rule is that the reform to Part 3 of the SOP Act will not apply where a payment claim has been served or an adjudication application has been made but not yet determined before the commencement date.

Participants in the industry must be aware of this feature of the reform, which did not form part of the Inquiry’s recommendations or the Government response. In short, it means parties cannot rely on ‘grandfathering’ existing risk allocations or payment procedures.

Practically, there may be a risk to respondents and an incentive to claimants to delay making a payment claim until after the reform commences in order to take advantage of the more favourable regime. This is principally due to the abolition of the excluded amounts regime which opens the door for claims relating to disputed variations and time-related costs. This is likely to raise strategic and complex questions for how the reform will operate and its relationship with existing contractual arrangements. The flip side for owners and head contractors is that, under the new regime, they will be able to deduct or set-off liquidated damages against payment claims made under the SOP Act.

Practical implications

This first tranche of reforms to the SOP Act has major consequences for Victoria’s construction industry and represents a policy shift towards greater statutory intervention in the parties’ freedom to contract. When the rubber finally hits the road and the reforms take effect, Victoria will no longer be considered an unfavourable outlier compared to other states and territories. We expect to see a significant uptick in the number and value of adjudication applications in Victoria, including on major projects, once the reforms take effect. All parties should, starting now, take stock of the upcoming changes to align their commercial strategy and contract administration processes accordingly.

In particular, respondents to payment claims operating in Victoria must be alert to:

• greater dispute quantum and novel arguments, in light of the abolition of the excluded amounts regime;
   
• a higher administrative burden in responding to payment claims and requests for security; and
   
• any payment provisions in their existing or template contracts which are inconsistent with the proposed reform.

Failing to do so could expose respondents – typically project owners and head contractors – to an increased cashflow risk down the contractual chain.