Victoria’s construction law landscape is poised for its most significant transformation in nearly two decades with a range of reforms, including the impact of the Building Legislation Amendment (Buyer Protections) Act 2025 (Vic) as set out in the Russell Kennedy series below:
Constructing Compliance Series: Impact of the Building Legislation Amendment (Buyer Protections) Act 2025 (Vic)
In our latest Alert, we summarise recent reforms to the Building and Construction Industry Security of Payment Act 2002 (Vic).
Summary of Key Points
- The statutory security of payment regime, which applies to contracts for commercial construction and incidental services, has been substantially amended.
- Many of the changes eliminate aspects previously unique to Victoria, for example by eliminating statutory exclusions from payment claims, and by removing the right of respondents to include new issues in adjudication submissions.
- Consistent with the underlying rationale of the regime, the amendments further encroach upon, and in some instances overwrite, contract conditions which the contracting parties were previously free to agree upon between themselves.
- Overall, the amendments broaden the scope of payment claims available to contractors, and further diminish the rights of contract principals to oppose or disqualify payment claims.
Operations and Purpose of the Reforms
The changes commenced on 15 April 2026 and apply to all relevant current, and future, construction contracts as from that date. This will align Victoria’s regime more closely with counterpart Acts interstate such as in New South Wales, Queensland and Western Australia.
Purpose and Scope of the Reforms
The objective of the reforms is to address perceived shortcomings in the regime which have emerged as a result of divergent interstate regimes, as well as more recent legislative developments impacting contracting practices generally. Specific stated objectives of the reforms include better facilitating the payment of progress payments and release of performance securities, and streamlining the processes for payment claims and adjudication of disputes, as well as broadening existing statutory protections against unfair contract terms.
Key Changes
The changes include:
- New statutory entitlement to performance security.
- Removal of reference date as a trigger for entitlement to a progress payment.
- Removal of excluded amounts and claimable variations when calculating progress payments.
- Notice-based time bar provisions can be declared unfair.
- Payment claims are restricted to one per month and claims cannot be made more than six months after practical completion.
- Respondents must pay a progress payment within 20 business days of a valid payment claim being served.
- The definition of a “business day” excludes the period between 22 December and 10 January each year.
- Respondents cannot raise new reasons in adjudication submissions.
- Removal of the right to review an adjudication determination.
- Expanded restrictions on “pay when paid” provisions.
Statutory Entitlement to Performance Security
Principals are given a new statutory entitlement to obtain performance securities (which include a bank guarantee, performance bond and retention money), but hand in hand with that entitlement comes statutory control on how and when those securities must be released back to the contractor. This right exists both independently and alongside the existing entitlement to payment claims under the regime. Contractors can now serve formal claims for release of performance securities, which may also be subject to adjudication.
Unless the construction contract expressly provides otherwise, a principal is required to release any remaining performance security within 10 business days after the earliest date on which a contractor may serve a performance security claim – that is, 20 business days following the end of the relevant defects liability period. Importantly, the regime does not require the release of performance security at practical completion.
Conversely, the regime places conditions upon principals before they can draw down on performance security. A principal is now required to serve a notice of intention to have recourse to the performance security and must allow a notice period of at least 5 business days to elapse before assessing whether they can draw on the contractor’s security.
Removal of Reference Date
The concept of “reference date” as a trigger for the entitlement to a progress payment has been abolished. The right to a payment claim will arise so long as the person has begun construction work or supplied related goods and services.
Removal of Excluded Amounts and Claimable Variations
The excluded amounts regime and the concept of claimable variations have also been abolished, meaning contractors can now seek to include in payment claims costs associated with variations, latent conditions, delay, contract breaches, and regulatory changes.
Unfair Notice Based Time Bar Provisions
Adjudicators, courts, arbitrators or experts can now declare notice-based time bar provisions in a construction contract as unfair (and thus unenforceable), if compliance with the provision is not reasonably possible or would be unreasonably onerous. Principals should carefully reassess notice provisions in construction contracts in view of these new restrictions, and consider what alternative mechanisms could be used to trigger time bars.
New Time Limits for Payment Claims
Claimants are now confined to making one payment claim per month, unless the contract allows otherwise, and claims cannot be made more than six months after practical completion. Respondents are required to pay progress payments or release performance securities within 20 business days of a valid claim being served.
In addition, the definition of a “business day” has been amended to exclude the traditional end of year industry shutdown period from 22 December to 10 January, meaning that time-based obligations under the regime will not apply during this period. These changes will necessitate adjustments to payment processing timelines and procedures, to account for revised timeframes associated with payment and other claims under the regime.
Adjudication Restrictions
When preparing for and participating in adjudication, respondents are now strictly confined to only being able to rely upon those grounds and reasons previously articulated in the payment schedule or performance security schedule. Adjudication determinations are now final and not susceptible to being appealed to Court, save for very limited avenues of judicial review pursuant to administrative law principles.
Expanded "Pay When Paid" Prohibitions
“Pay when paid” provisions are those which make payment or release of performance security contingent on performance of a separate contract, and are prohibited under the new regime.
Implications for Principals
Principals are likely to be subject to an increased number of payment claims of higher quantum. Principals will also have less scope to rely on contracts in defending payment claims and will face greater exposure to adjudication risk.
Principals will need to reassess their approach to dealing with payment claims, and additional claims for return of performance security. Principals should update internal processes and systems to ensure compliance with new time restrictions, and maintain comprehensive documentation to support accurate and defensible payment schedules. Construction contracts must also be reviewed, to align them with updated statutory definitions and timeframes, and to remove any provisions that may be deemed unfair or rendered unenforceable.
Conclusion
The reforms are broad ranging and will require all parties to relevant contracts to ensure they understand the changes so as to avoid being taken by surprise. The statutory regime is very strict and does not provide any opportunity to overcome mistakes.
Please contact Principals,
Kyle Gillan and
Paul Somers, or a member of our
construction team, to discuss how these legislative changes may impact your construction contract and how best to navigate the revised security of payment regime. The content in this alert is of a general nature only for information purposes and is not legal advice, and may apply differently depending on individual circumstances.
Written with assistance from Daniel Amicucci (Lawyer) and Sean O'Connor (Lawyer)
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