Anna Scannell
Anna is the Practice Team Leader for the Maddocks Construction & Projects team in Victoria.
View profile
Legal Insights
Security of Payment Reforms commence in April 2026: A Practical Guide to the Key Changes to the Building and Construction Industry Security of Payment Act 2002
By
•
14 April 2026
•
7 min read
Important changes are expected to come into effect in April 2026.
This article was updated on 14 April 2026. It was originally published on 31 October 2025.
Fairer Payments and Stronger Protections
The Victorian Government has introduced sweeping reforms to the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act) through the Building Legislation Amendment (Fairer Payments on Jobsites and Other Matters) Act 2025 (Amendment Act). These changes aim to improve payment practices, reduce disputes, and enhance protections for contractors and subcontractors across the construction sector.
The changes introduced by the Amendment Act are highly significant for both claimants and respondents.
- For claimants, the reforms provide greater certainty and stronger statutory rights - particularly around the release of performance securities, the ability to claim a broader range of costs such as time related costs that were previously excluded, and protection from unfair contract terms.
- For respondents, the changes introduce stricter processes and timelines for responding to claims and recourse to security, as well as increased scrutiny of contract provisions.
The Amendment Act was passed by Parliament on 30 October 2025. The Amendment Act will commence on Wednesday, 15 April 2026. It is important to note that the Amendment Act applies retrospectively to existing contracts and the performance security already held under those contracts. The provisions discussed below will apply immediately upon commencement, including relevantly to the April payment cycle, including in relation to timing for Payment Claims, Payment Schedules and dates for payment of Payment Claims.
In preparation, parties should proactively review and update their contracts and internal processes to ensure alignment with the new obligations. The Maddocks team is well-positioned to assist clients in navigating these changes and implementing compliant practices.
1. Timing of progress claims and payment schedules
-
January – November timeframes
-
Process Step Timing Requirement Earliest Time to Serve Progress Payment Claim Last day of named month in which works were carried out (or earlier if allowed by the contract). Latest Time to Serve Progress Payment Claim Before 6 months after practical completion or supply. Due Date for Payment As per contract (provided it is less than 20 business days after claim served) or, where no payment period is specified, 10 business days after claim is served. Deadline to Serve Payment Schedule Either the earlier time stated in the contract or 10 business days after claim served. The inclusion of a 20 business day statutory cap on payment terms, is a first for Victoria, but a common feature in other States, such as New South Wales and Queensland.
-
-
Christmas period timeframes – works performed in December
-
Amendments exclude the period 22 December to 10 January from the meaning of ‘business day’ under the SOP Act. It also creates specific payment claim service dates for the end of year period, subject to any express contrary intention in the contract:
December work supply period Claim Date Work performed up to the Christmas period (1 to 21 December) On and from 22 December of the same year. Work performed during the Christmas period (22 to 31 December) On and from 31 January in the following year.
-
2. Performance Security
The Amendment Act introduces statutory rights to claim the release of securities, including bank guarantees, as well as a statutory notification period prior to recourse.
| Provision | Summary |
| Statutory Entitlement to Release of Performance Security | A person is entitled to submit a claim for the release of the whole or part of a performance security under a construction contract (Performance Security Claim). This applies whether the Performance Security Claim is served alone or with a progress payment claim. Section 17D of the amended SOP Act invalidates any contract term that overrides the right to serve a Performance Security Claim. |
| Due Date for Release of Performance Security | If the contract specifies a release date of 20 business days or shorter that date applies. If not, release is due 10 business days after the earliest day a claim may be served (typically 20 business days after the defects liability period ends). Contract terms setting a later date are void. |
| Notice Before Recourse to Performance Security | A principal must serve written notice identifying the contract, amount, and justification before calling on a performance security. A minimum 5 business day waiting period applies. These requirements override conflicting contract terms. |
Defects Liability Period
The amendments introduce a statutory definition of the defects liability period. The period will:
- START on the day of practical completion under the Contract; and
- END when any required rectification of omissions or defects is completed.
This does not appear to affect the duration of the defects liability period agreed by the parties in a contract and is otherwise consistent with current contract convention. It also does not appear to effect the release of 50% of security at practical completion.
Security Release Timing
| Provision | Description |
| Earliest Time a Performance Security Claim May Be Served | A claim may be served no earlier than 20 business days after the end of the defects liability period or on a date/event specified in the contract. If served early, it is deemed served on the earliest valid day. |
| Latest Time a Performance Security Claim May Be Served | A claim must be served no later than the latest of:
|
| No ‘contracting out’ of claimant’s right to claim Performance Security | Any contract term that overrides the right to serve a performance security claim for the release of performance security is invalid. |
| Performance Security Schedule | A respondent must serve a performance security schedule within the earlier time:
|
| Consequences of Not Providing a Performance Security Schedule | If the respondent fails to provide a schedule within the required time, they become liable to release the claimed security on the due date. |
| Application for Adjudication of Performance Security Claim | A claimant may apply for adjudication if the respondent disputes the claim or fails to release the amount. The application must be made within the prescribed time. |
Interest on Delayed Release of Performance Security
Section 12(3) of the amended SOP Act may render interest payable to the contractor on any performance security that is not released by the due date. The interest rate is the greater of the rate under the Penalty Interest Rates Act 1983 (Vic) or the rate specified in the contract. This provision ensures compensation for delayed release and incentivises timely compliance.
3. Categories of Costs Claimable
Expanded Claimable Amounts
The amendments repeal the concept of 'excluded amounts', allowing contractors to claim previously barred items such as delay costs, compensation due to latent conditions, and amounts related to variations not agreed in writing. This change broadens the scope of adjudication and enhances recovery options for contractors.
Offsets and Liquidated Damages
Principals may now offset liquidated damages against payment or performance security claims, provided the reasons are clearly stated in the payment or performance security schedule. Adjudicators will be restricted to considering only those reasons included in the schedule.
4. Unfair Time Bar Provisions
The Amendment Act introduces criteria for determining whether a notice-based time bar provision in a construction contract is unfair. A provision may be declared void if compliance is not reasonably possible or is unreasonably onerous.
| Provision | Description |
| Timeframe Unreasonableness | A time bar provision may be declared unfair if compliance is not reasonably possible or is unreasonably onerous. |
| Factors for Assessment | Includes awareness of deadline, method and timing of notice, bargaining power, binding nature of notice, competence, and prescribed matters. |
| Excluded Considerations | Related contract provisions or events cannot be considered when assessing fairness. |
| Presumptions | Parties are presumed to have read and understood the contract and possess commercial and technical competence. |
Need guidance on the Security of Payment Reforms?
Contact our Construction & Projects team
Jessica Herd
Jessica is a construction and projects lawyer specialising in disputes arising from large, complex construction and infrastructure projects.
View profileVujan Krunic
View profile
By
Keep up to date with our legal insights and events
Sign upRecent articles
Legal Insights
OC Act reforms: how the balance of power in strata is shifting - and what it means for developers
By
The Victorian Government released its response to an expert panel review aimed at reforming the Owners Corporations Act.
Legal Insights
Rising fuel prices and supply shortages: managing risk in construction projects
By
We take a look at impacts on construction cost and programs in Australia
Legal Insights
Strengthening Major Capital Project Delivery: Lessons from the NSW Audit Office
By
This article considers the Audit Office of NSW published it Local Government 2025 Financial Audit
Legal Insights
Changes to the way that the cost of building work for building permit applications (and building permit levy) is calculated
By
The Supreme Court of Victoria determined how building surveyors can estimate the cost of the building work
Partner
Sector Leader - State Government VIC
Melbourne