Security of Payment Claims in Victoria — A Practical Guide (2026)

What Is the Security of Payment Act?

The Building and Construction Industry Security of Payment Act 2002 (Vic) ("SOPA" or "the Act") creates a statutory right to progress payments for anyone who carries out construction work or supplies related goods or services under a construction contract in Victoria (s 9). Its guiding principle is "pay now, argue later" — an adjudicator determines on an interim basis what is payable, and the respondent must pay. The parties' underlying contractual rights are preserved for final resolution later.

The Act applies to both private and public sector construction contracts. It does not apply to residential building work carried out on a residence occupied or intended to be occupied by one of the contracting parties (s 7).

Who Can Make a Security of Payment Claim in Victoria?

Any party to a construction contract who has performed construction work or supplied related goods or services may serve a payment claim under SOPA. In practice, this includes:

• Head contractors claiming against principals or developers
• Subcontractors claiming against head contractors
• Suppliers of materials and equipment
• Consultants and engineers providing related professional services
• Plant hire operators

The construction contract may be written, oral, partly written or partly oral (s 4). Claimants are entitled to make a security of payment claim regardless of whether the contract has been terminated or whether the other party purports to challenge its validity.

The Payment Claim Process — Step by Step

There are strict procedural requirements under SOPA. Errors in timing or form can render a claim invalid, stripping the claimant of the Act's protections. Each step below is mandatory.

Step 1 — Serve a Payment Claim (s 14)

A payment claim must be in writing and identify the construction work or related goods and services to which the progress payment relates. Critically, it must state that it is made under the Act — a failure to do so invalidates the claim.

Current law — when to serve: Under the Act as it currently stands, a payment claim may be served on and from the reference date for the progress payment. Reference dates are typically set by the contract (usually a date each calendar month) or, in the absence of a contractual date, arise at the end of each month in which work is carried out. A claimant has three months from the reference date to serve the payment claim.

From commencement of the 2025 Act reforms: Reference dates are abolished. A claimant will be entitled to serve one payment claim per calendar month — specifically on and from the last day of each named month in which construction work is carried out, or on an earlier date specified in the contract (new s 14A). The time limit for serving a payment claim is extended from three months to six months after practical completion (or after the relevant construction work was performed). A claim served before the earliest permitted date will not be invalid — it will be treated as served on the permitted date.

Step 2 — Respondent's Payment Schedule (s 15)

Upon receipt of a valid payment claim, the respondent has 10 business days to serve a payment schedule (or such lesser period as the contract provides). The payment schedule must:

• Identify the payment claim to which it relates
• State the amount the respondent proposes to pay ("scheduled amount")
• If the scheduled amount is less than the claimed amount, state reasons for withholding payment

Under the incoming reforms, respondents will be prohibited from raising new reasons for withholding payment in an adjudication response that were not included in the payment schedule. This represents a fundamental change from the current position, which uniquely allowed Victorian respondents to introduce new reasons at the adjudication stage. Every reason for non-payment must therefore be included in the payment schedule — failure to do so will preclude reliance on that reason in adjudication.

Step 3 — Consequences Where No Payment Schedule Is Served (s 16)

If the respondent fails to serve a payment schedule within the prescribed period and fails to pay the claimed amount by the due date, the claimant may:

• Apply to a court for judgment as a debt (s 16(2)(a)); or
• Serve a notice of intention to apply for adjudication under s 18(2), giving the respondent a last chance to provide a payment schedule within five business days (extended from two business days under the reforms).

Step 4 — Adjudication Application (s 18)

The claimant may apply for adjudication in the following circumstances:

The adjudication application is lodged with an Authorised Nominating Authority ("ANA") — an organisation approved by the Victorian Building Authority ("VBA") to nominate adjudicators. The application must include the payment claim, the payment schedule (if any), and the claimant's submissions.

Step 5 — Adjudication Response

Where the respondent has served a payment schedule, the respondent has up to five business days to serve an adjudication response on the adjudicator. Critically, the respondent may only rely on reasons for withholding payment that were included in the payment schedule. Under the incoming reforms, any reasons not in the payment schedule cannot be raised at all.

Step 6 — Adjudicator's Determination (s 23)

The adjudicator must make a determination within 10 business days of either accepting the application or the last day a respondent could have lodged an adjudication response (whichever is later). This period may be extended by up to a further 20 business days if both parties agree (extended under the reforms from the current 5 business day extension with claimant consent). The adjudicator determines:

• The amount (if any) payable by the respondent
• The date by which payment is due
• The rate of interest applicable to any unpaid amount

The adjudicator may consider the Act and regulations, the construction contract, the payment claim, the payment schedule, submissions from both parties, and the results of any inspection. Under the incoming reforms, the adjudicator may also declare a notice-based time bar provision unfair under new s 13A (see below).

Step 7 — Enforcement

If the respondent fails to pay the adjudicated amount, the claimant may obtain an adjudication certificate from the ANA. Under the incoming reforms, the adjudication certificate may be filed in any court of competent jurisdiction as a judgment for a debt due — a significant simplification of the current enforcement mechanism. The claimant may also suspend work under the contract (s 26) pending payment.

Payment Timeframes at a Glance

The 2025 Reforms — What Changes and When

The Building Legislation Amendment (Fairer Payments on Jobsites and Other Matters) Act 2025 (Act No. 43/2025) received Royal Assent on 13 November 2025. As of March 2026, the amendments to SOPA have not yet been proclaimed into force. Commencement is expected in early to mid-2026 and will occur no later than 1 September 2026. The amendments will apply retrospectively to all construction contracts then on foot, with limited exceptions where a payment claim has already been served or adjudication has commenced but not been determined.

1. Abolition of Excluded Amounts (ss 10A, 10B Repealed)

Victoria's "excluded amounts" regime was unique in Australia and one of the most significant constraints on claimants. Under the current Act, the following categories of amount cannot be included in a payment claim or payment schedule:

• Claims for most disputed variations
• Time-related costs (delay damages, extension of time costs, acceleration costs)
• Latent condition costs
• Claims relating to changes in regulatory requirements
• Damages for breach of contract

The 2025 Act repeals ss 10A and 10B in their entirety, abolishing the excluded amounts and "claimable variations" concepts. From commencement, claimants may include all of the above in their payment claims and refer them to adjudication. This change aligns Victoria with New South Wales, Queensland, Western Australia and other jurisdictions and will substantially increase both the number and value of adjudication applications. Principals and head contractors should audit their contract administration practices now — their exposure to adjudication claims will materially increase.

2. Abolition of Reference Dates — Monthly Claims

The concept of the "reference date" — which generated substantial litigation over its technical requirements — is abolished. A claimant will be entitled to serve one payment claim per calendar month, on and from the last day of the named month in which construction work is carried out (new s 14A). Claims may also be made upon or following termination of the contract for work performed up to the date of termination.

A payment claim served before the earliest permitted date is not invalid — it is treated as served on that date. This reverses the current position under which an early claim is invalid.

3. The 20 Business Day Payment Cap

Under the current Act, the parties are largely free to negotiate extended payment terms. Payment periods of 60 or even 90 days are common in the industry, causing acute cashflow difficulties for subcontractors and suppliers. The 2025 Act introduces a hard cap: a progress payment becomes due and payable no later than 20 business days after the payment claim is served (s 12, as amended). Any contractual clause providing for payment later than 20 business days is void to that extent. This cap cannot be contracted out of.

4. New Performance Security Regime (New Division 1A)

The 2025 Act creates a new statutory framework for the release of performance securities — including bank guarantees, retention money and performance bonds — which takes effect independently of the payment claim process. Key features include:

• Statutory right to release (new s 9(2)): Any party who has provided performance security under a construction contract has a statutory entitlement to claim its release once the relevant conditions are met, regardless of what the contract says.
• When claims may be made (new s 17B): A performance security claim may be served no earlier than 20 business days after the end of the relevant defects liability period, or on or after a date or event specified in the contract (whichever is earlier).
• When security must be released (new s 12(1A) and (1B)): Where the contract is silent, security must be released within 10 business days after the earliest date a claim may be made. No contract may provide for release later than 20 business days after service of a performance security claim — a hard statutory cap.
• Adjudication pathway (new s 18A): A claimant may apply for adjudication if the respondent fails to release security by the due date or serves a performance security schedule proposing less than a full release. The process mirrors the payment claim adjudication procedure.
• Mandatory notice before calling on security (new s 17H): A party wishing to have recourse to a performance security must give written notice at least five business days in advance, identifying the contract and the contractual basis, the amount, and the circumstances justifying recourse. This requirement cannot be excluded by contract.

5. Power to Void Unfair Notice-Based Time Bars (New s 13A)

Contracts frequently contain notice-based time bar clauses requiring a party to give written notice of a claim within a short period (often 14 or 28 days) or lose the right to claim entirely. The 2025 Act inserts a new s 13A empowering an adjudicator, court, arbitrator or expert determiner to declare such a provision unfair and unenforceable in relation to a particular claim if compliance was not reasonably possible or would have been unreasonably onerous in the circumstances. The burden of proving unfairness rests on the party alleging it. A declaration of unfairness has no effect beyond the particular dispute in which it is made.

6. No New Reasons in Adjudication

Victoria was the only Australian jurisdiction to permit a respondent to introduce reasons for non-payment in an adjudication response that had not been included in the payment schedule. The 2025 Act closes this door. Respondents may only rely on reasons included in their payment schedule. This change significantly strengthens the claimant's position and makes timely, comprehensive payment schedules essential for respondents.

7. Christmas Shutdown

The definition of "business day" in the Act is amended to exclude the period from 22 December to 10 January (inclusive) in each year. All SOPA timeframes — including the time to serve a payment schedule, apply for adjudication, and make an adjudication determination — are suspended during this period. This prevents "holiday ambush" adjudication applications served immediately before Christmas.

8. Broadened "Pay When Paid" Prohibitions (s 13)

The prohibition on "pay when paid" provisions is extended to expressly void any contractual clause that makes any of the following contingent or dependent on the operation of a separate contract: the liability to pay money owing; the due date for payment; a claimant's right to claim money; or a claimant's right to claim the release of a performance security. This closes drafting gaps previously exploited to link subcontractor payment to receipt of payment from principals or developers upstream.

Tranche 2 — What Comes Next

The 2025 Act represents only the first tranche of reforms. Further consultation is underway on "tranche 2" measures, which are expected to address:

• A trust regime for retention monies
• Statutory trusts to secure progress payments
• Extension of SOPA protections to residential construction work

Builders and subcontractors engaged on residential projects should monitor these developments closely.

Practical Checklist — What Builders and Subcontractors Should Do Now

With commencement of the 2025 Act reforms expected within the next six months, now is the time to act:

1. Audit existing contracts. Identify clauses that may be overridden by the reforms — including extended payment terms, exclusion of excluded amounts, and notice-based time bars. Any clause that purports to exclude SOPA rights is void.
2. Review your payment claim processes. Update invoice templates to ensure they identify the construction work claimed, state the claimed amount, and include the mandatory statement that the claim is made under the Act.
3. Update payment schedule procedures (for principals and head contractors). Payment schedules must now include every reason for withholding payment. Incomplete schedules will be fatal in adjudication under the new regime.
4. Track performance security expiry dates. Note the end of defects liability periods to trigger timely performance security claims under the new Division 1A.
5. Train contract administrators. The removal of excluded amounts will significantly expand the scope of valid payment claims. Project managers and contract administrators need to understand the new landscape.
6. Seek legal advice before the reforms commence. The retrospective application of the 2025 Act means it will apply to your existing contracts the moment it is proclaimed.

Frequently Asked Questions

How We Can Assist

Security of payment claims require careful compliance with strict statutory timeframes and procedural requirements. An error at any stage — from the form of a payment claim to the timing of an adjudication application — can defeat an otherwise valid claim or expose a respondent to an uncontested judgment. The incoming reforms substantially expand the scope and complexity of the regime.

Our building and construction team advises builders, subcontractors, principals and developers across Victoria on all aspects of the security of payment regime, including:

• Preparing and serving valid payment claims
• Responding to payment claims and preparing comprehensive payment schedules
• Adjudication applications and responses
• Judicial review of adjudication determinations
• Performance security claims and disputes over bank guarantees and retention money
• Audit and advice on existing construction contracts ahead of the 2025 Act reforms