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Major reforms to the Building and Construction Industry Security of Payment Act 2002 (Vic) came into effect on 15 April 2026. The reforms overhaul key aspects of the security of payment regime and represent the most significant changes to the legislation in nearly 20 years.
The impacts are substantial and will cause a significant increase in use of the legislation by contractors seeking to recover unpaid amounts, including contested claims. There are also significant changes relating to performance security, that will increase litigation risk. Importantly, the changes will apply to contracts agreed before the revised legislation came into effect as well as to new agreements.
Key Changes:
Abolition of Excluded Amounts: Principals will no longer be able to rely on the exclusion of claims for disputed variations, delay costs, latent conditions, and legislative changes. This will increase exposure to complex disputes in adjudications in Victoria, as has been the case in other States. Principals can expect to experience a significant increase in the number of adjudications commenced, particularly where disputed issues arise on a project.
Limits on Defences: Principals cannot introduce new reasons during adjudication beyond those stated in the payment schedule. This heightens the importance of initial responses as any omissions or poorly articulated reasons in the payment schedule may limit a Principal’s ability to resist payment.
Unfair Time Bars: Contractual notice-based time bars may be declared unenforceable where the adjudicator, or other decision maker, considers compliance was not reasonably possible or would be unreasonably onerous.
Monthly Payment Claims: The removal of reference dates means contractors can issue monthly claims, regardless of contract milestones.
Shorter Payment Timeframes: Progress payments must be made within 20 business days of a claim.
Recourse to Performance Security: The new statutory framework restricts recourse to performance security, requiring five business days’ notice before drawing on security. Importantly, this notice requirement applies retrospectively to construction contracts entered into before commencement, meaning Principals must comply with the notice regime even where existing contracts permit immediate recourse.
Release of Performance Security: Contractors have a new statutory right to serve claims for release of performance securities (including bank guarantees and retention monies) and commence adjudications where security is not released.
These reforms represent substantial changes for the construction industry in Victoria. It is important for parties to be alive to the amended regime and to ensure operational readiness so as to avoid being caught out. For Principals, this will involve reviewing contract administration processes, including internal payment and security processes. Given the ‘pay now argue later’ policy of the legislation, and the compressed decision making in early stages of the payment process, an increased focus on risk and claims management is recommended.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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