Victoria’s security of payment system is expanding significantly, commencing 15 April 2026 (with some limited exceptions). Importantly, the changes will apply to existing construction contracts, as well as new contracts.
At a high level, the reforms aim to improve cash flow, broaden the types of claims that can be pursued, and introduce new statutory rights that will reshape how payment disputes are managed in Victoria.
A broader system
The Building and Construction Industry Security of Payment Act 2002 (Vic) was designed to provide a fast, interim process for recovering progress payments. In practice, however, its impact has been limited as key categories of claims (including variations, latent conditions, and delay costs) have historically been excluded or heavily restricted.
The reforms remove those limitations entirely. Under the new laws, claimants will be able to include the full suite of typical construction claims in a payment claim. This includes variations, delay costs, and other entitlements that were previously carved out.
Payment claims and schedules
The new laws introduce several changes to how payment claims and payment schedules operate, many of which will feel familiar to those working in Queensland or New South Wales.
First, the concept of “excluded amounts” disappears. This significantly broadens what can be claimed and adjudicated.
Second, the system tightens the relationship between payment claims, payment schedules, and adjudication. Respondents must include all reasons for withholding payment in their payment schedule. They will not be able to raise new reasons later in an adjudication response.
This change alone increases the risk profile for principals and head contractors. A poorly prepared payment schedule can no longer be “fixed” later. Instead, it effectively defines the scope of the dispute.
Third, strict timeframes continue to apply, with serious consequences for non-compliance. If a respondent fails to serve a payment schedule within time, they may become liable to pay the full claimed amount, regardless of merit, and lose the ability to raise substantive defences.
Timing rules have also been refined. If a contract does not specify a reference date, the default will be the last day of each month. Payment terms cannot exceed 20 business days, and if they do, they will be overridden by the legislation.
There are also new rules dealing with early claims. For example, an early payment claim will not be invalid but will instead be taken to have been served on the earliest permissible date, which then affects the timing for any response.
These changes collectively place greater emphasis on contract administration. Every payment claim must be treated as a potential adjudication, and every payment schedule must be prepared with that in mind.
A new statutory right to recover performance security
One of the most significant reforms is the introduction of a statutory right to claim the return of performance security, including retention and bank guarantees.
Under the new system, a party will be able to make a formal claim for the release of security. That claim will follow a process similar to a payment claim, requiring a response within a defined timeframe.
If the respondent fails to issue a valid response, they may be required to release the security, and their ability to resist that outcome will be limited.
The timing of these claims is linked to the defects liability period. The new legislation also introduces a default defects liability period where the contract is silent, running from practical completion until all defect rectification is complete.
In addition, the reforms impose new requirements for recourse to security. A party seeking to draw on security must give at least five business days’ prior notice, including details of the contractual basis and the amount to be drawn.
Unfair time bars under scrutiny
Another major reform targets notice-based time bar provisions, which are common in construction contracts.
These provisions typically require contractors to give notice of claims (for example, extensions of time or variations) within a specified period, failing which the entitlement is lost.
Under the new laws, a time bar may be declared void if it is “unfair”. This will occur if:
- it is not reasonably possible to comply with the notice requirement; or
- compliance would be unreasonably onerous.
The legislation sets out a range of factors to assess fairness, including when the claimant became aware of the relevant event, the time allowed for compliance, the complexity of the required information, and the parties’ relative bargaining power.
Importantly, a wide range of decision-makers, including adjudicators, courts, arbitrators, and experts, can determine whether a time bar is unfair.
If a provision is declared unfair, it will have no effect for the relevant entitlement. That creates real risk for principals and head contractors who rely heavily on time bars to manage claims.
Practical implications for the construction industry
The new laws will apply to construction contracts entered into before, on, or after commencement of the new laws.
This means existing contracts will be affected, even if they were negotiated under the previous system.
There are limited transitional exceptions, such as for payment claims or adjudications already underway. However, for most live projects, the new rules will apply from 15 April 2026.
For contractors and subcontractors, the changes expand access to fast, interim recovery. Claims that were previously excluded can now be pursued, and adjudication becomes a far more viable option.
For principals and head contractors, the reforms increase exposure. Payment claims carry greater weight, payment schedules require greater care, and contractual protections (particularly time bars) may no longer be reliable.
Across the board, strong contract administration becomes essential. Companies in the construction sector should:
- review and update template contracts to ensure compliance with the new requirements;
- reassess time bar provisions in light of the new fairness test;
- implement systems to manage payment claims and schedules within strict timeframes; and
- train project teams to ensure compliant payment claims and payment schedules are issued.
We can work with you to ensure your contracts and processes align with the new system and minimise the risk of unintended exposure. We can also assist with tailored training to your project and contract administration teams to assist with compliance.
