Major Reform on the Horizon for Victoria’s Construction Industry
Victoria’s construction industry is about to undergo one of its most significant overhauls in years. The State Government has introduced the Building Legislation Amendment (Fairer Payments on Jobsites and Other Matters) Bill 2025 (Vic) (Bill) to Parliament – the first stage of long-awaited reforms to the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act).
Origins of the Reform: Parliamentary Inquiry and Government Response
Stemming from the November 2023 parliamentary inquiry into subcontractor protections, titled ‘Employers and contractors who refuse to pay their subcontractors for completed works’ (view our analysis here), the Bill comes off the back of the Government’s response in October 2024 to the Inquiry report, in which they accepted and rejected recommendations of the inquiry report. If and when this Bill is passed, it will reshape how progress payments and adjudications are handled, fundamentally changing the way construction contracts are managed in Victoria.
Why Reform Is Needed: Victoria Catching Up to Other States
The Victorian SOP Act hasn’t been updated since 2006, even though other states have made significant changes over the years. It has traditionally lagged well behind those of other Australian jurisdictions like New South Wales, Queensland, and South Australia, both in scope and efficiency.
Therefore, the new reforms introduced by the Victorian Government aim to close that gap and bring greater consistency between Victoria’s regime and those in other parts of Australia.
Warlows Legal’s Role in Shaping the Future of Construction Law
Warlows Legal is proud to announce that it has been involved in, and will continue to contribute to, the Tranche 1 review of these reforms. As a firm specialising in construction law, we strive to stay at the forefront of industry developments and ensure our clients are well-informed and prepared for the upcoming changes to Victoria’s security of payment framework.
Read about our original submission to the Parliamentary Inquiry in 2023 that kicked off these reforms here.
Key Changes Under the Bill
End of Excluded Amounts
A key change under the Bill is the removal of the excluded amounts regime, which has long been viewed as confusing and unfair to contractors.
Under the current system, builders and subcontractors can’t include certain types of costs in their payment claims, which are things like disputed variations, delay or disruption costs, latent conditions, or expenses from changes in law. These issues have had to be resolved separately, often through time-consuming processes such as mediation, arbitration, or even court action. This has made cashflow slower and more complicated than it should be.
The reform scraps those restrictions entirely, meaning contractors will now be able to include those previously excluded claims directly in their payment claims. This will make the process far more straightforward.
It also brings Victoria into line with other states, where similar claims are already permitted. With more claims now able to be brought under the Act, it’s expected that both the number and size of adjudication applications will increase as contractors take advantage of these broader rights.
Timing of Claims Clarified and Simplified
Reference dates
Under the previous system, contractors could only submit a payment claim after a specific reference date, which is a date set by the contract or, if not stated, determined by the SOP Act. Claiming too early or too late could make the claim invalid, often leading to unnecessary disputes.
The reforms remove this technical hurdle entirely. Claimants will now be entitled to make one payment claim per calendar month for work done during that period. By scrapping the complex reference date system, the process becomes far clearer and easier to manage. It also brings Victoria in line with New South Wales and other states that already allow monthly payment claims, giving contractors more predictable and fair access to their payments.
Holiday period
A new summer period will apply each year from 22 December to 10 January, pausing all enforcement and adjudication timeframes under the Act. This break recognises the industry-wide slowdown over the holiday period and prevents disputes or deadlines from progressing while most sites and offices are closed.
Shortened Payment Timeframes
Under the reforms, respondents – such as principals or developers – must pay progress payments within 20 business days of receiving a valid payment claim. Previously, payment deadlines were set by contract and often stretched well beyond this timeframe, causing delays and cashflow pressure, particularly for smaller subcontractors. From the commencement date (no later than 1 September 2026), the 20-day limit will be mandatory, overriding any longer contractual terms. Overall, the change aims to speed up payments and provide greater cashflow certainty across the industry.
Performance Security and Notices
Under the current regime, claimants have no right to request the release or return of the performance security, such as bank guarantees. The reforms introduce new statutory rights around performance security in construction contracts. Contractors can now make independent claims for the release of retention money or bonds through the adjudication process, even if the contract says otherwise, and this gives contractors greater control, particularly once works are complete or the defects liability period has ended.
Principals, in turn, must now give at least five business days’ written notice before calling on any security. This requirement overrides conflicting contract terms and ensures contractors have a fair chance to respond before their security is used.
Unfair Time Bars
Victoria’s reforms also target notice-based time bar clauses in construction contracts. These clauses often require contractors to give written notice of claims, for example, for delays or variations, within very short timeframes, sometimes only a few days. Missing the deadline can mean losing the right to claim altogether.
Under the new rules, adjudicators, courts, and arbitrators can now declare a time bar clause unfair and unenforceable if meeting its requirements is either not reasonably possible or unreasonably onerous.
In practice, this means if a clause demands notice within an unrealistic period or under impractical circumstances, it can be struck out, allowing the contractor’s claim to proceed. This change brings Victoria into line with Western Australia, which already has similar protections in place.
No New Reasons in Adjudication
Under the new reforms, respondents can only rely on the reasons included in their original payment schedule when an adjudication takes place. They won’t be able to introduce new arguments or defences later in the process, such as in their adjudication response.
This change prevents last-minute surprises and ensures the adjudication remains fair and efficient. It also puts greater responsibility on principals and head contractors to prepare comprehensive and timely payment schedules, clearly setting out all reasons for wanting to withhold or reduce payment. Failing to do so may mean losing the right to rely on those reasons later, reinforcing the need for accuracy and good record-keeping from the outset.
Adjudication Decisions Treated as Court Judgments
At present, enforcing a successful adjudication outcome can be a drawn-out process under the current Security of Payment Act. The new Bill streamlines this by allowing an adjudication certificate, which is issued after a determination, to be filed directly in a court with jurisdiction as a judgment for a debt owed. This means the determination will carry the same weight as a court judgment, making it much quicker and easier for claimants to recover unpaid amounts.
Other Changes
Many other changes are found in the Bill; however, these key reforms mark the most significant shift in Victoria’s security of payment framework since the legislation was first introduced.
as this article is merely a summary of the changes and not legal advice, we recommend that if you would like further information on the specific changes made, that you get in touch with our experienced construction team, and we can guide you in your construction dispute.
Retrospective Application and Timing
The new laws are expected to start by 1 September 2026, and they will apply retrospectively, meaning they will cover construction contracts that are already underway when the reforms begin.
Unlike past amendments, which only applied to new contracts, these changes will apply across the board to make things easier for those managing multiple projects. However, it also means some contracts will need to adjust partway through to meet the new rules.
There are a few exceptions – for example, payment claims or adjudications already in progress will continue under the existing system.
Practical Implications for Industry Participants
The reforms will affect all levels of the construction industry, and because they apply retrospectively, preparation is key. Principals and head contractors should review their contracts, making sure they are in line with the new changes. Contractors and subcontractors should tighten their contract management processes and use the expanded claim rights under the new Act. With shorter timeframes and more adjudications expected, clear communication and strong record-keeping will be essential.
Tranche 2 Reforms
This Bill forms only the first stage of the government’s reform agenda. The second tranche of reforms, currently under consultation, is expected to introduce a statutory trust framework for retention money, strengthen protections for residential builders, and further modernise payment security mechanisms.
Looking Ahead
The Bill signals a landmark shift in how construction contracts are managed in Victoria. By removing outdated mechanisms and enforcing stricter payment discipline, the legislation seeks to deliver fairer, faster, and more transparent payment practices across the sector.
With commencement no later than September 2026, now is the time for industry stakeholders to review and fix their internal processes to ensure compliance with the new, and better, security of payment framework.
For more information, or to consult with our construction law specialists, please get in contact with Warlows Legal today using the contact information below.
