Performance security has long been one of the most contested aspects of construction projects.
Retentions and bank guarantees regularly remain in dispute well after completion. Security release can then be tied up in contractual arguments about defects, delay, or final accounts.
The reforms to Victoria’s security of payment regime change that, by giving claimants a clear statutory pathway to recover performance security.
These reforms introduce a new, standalone, statutory right. They create a structured process with strict timeframes and meaningful consequences for non-compliance.
A new Statutory Right to Claim Release of Security
The reforms introduce a statutory right to claim the release of performance security. This includes retention money, performance bonds, bank guarantees, and insurance bonds.
A claimant who considers itself entitled to release can now serve a “performance security claim” on the party holding that security.
Importantly, entitlement does not depend on the contract remaining on foot. Termination, expiry, or disputed termination will not prevent a claimant from pursuing release.
This removes a common point of leverage, where upstream parties delay release by linking it to broader contractual disputes.
A Structured Claim Process
The reforms require claimants to follow a formal process.
A performance security claim must identify the relevant construction work or services, specify the type and amount of security sought, and state that it is a claim made under the Act.
This approach mirrors the existing payment claim regime. It ensures that claims are clear, identifiable, and capable of triggering a statutory response. Claimants and respondents will need to treat these claims with the same discipline as progress payment claims.
Timing Rules
Timing plays a central role in how claimants exercise their rights. The legislation prevents premature claims, while also ensuring claimants are not left waiting indefinitely.
A claimant cannot serve a performance security claim before the earlier of 20 business days after the end of the defects liability period, or the date specified in the contract.
If a claimant serves a claim too early, the legislation will not invalidate it. Instead, it treats the claim as served on the first day it could validly be made. This approach avoids technical disputes about timing, and keeps the focus on entitlement.
The reforms also impose an outer limit on claims.
In practical terms, if the defects liability period ends in a given month, the claimant must generally serve its claim by the end of the following month, unless the contract provides otherwise.
Where a contract does not include a defects liability period, the legislation introduces a statutory version that runs from practical completion until defects are rectified. This ensures that the claim process always has a defined trigger point.
Respondents must Respond, or Release
Once a claimant serves a performance security claim, the respondent must act quickly. The respondent can serve a performance security schedule, but must do so within 10 business days, or earlier if the contract requires.
If the respondent proposes to release less than the amount claimed, it must set out its reasons in that schedule. The respondent cannot improve its position later. The schedule therefore effectively defines the dispute, similar to the regime on payment claims.
If the respondent fails to serve a schedule within time, the consequences are immediate. The respondent becomes liable to release the claimed security.
This reflects the broader structure of the security of payment regime, where silence or delay carries significant risk.
Enforcement and Defences
If the respondent does not release the security when required, the claimant CAN apply to a court for release, or pursue adjudication under the Act.
In those proceedings, the respondent faces strict limitations. It cannot bring a cross-claim, and it cannot rely on broader contractual defences. The focus remains on compliance with the statutory process, rather than the full merits of the underlying contract.
Greater control over recourse to security
The reforms also regulate how parties call on performance security.
A party intending to have recourse must give at least five business days’ prior notice, identify the contractual basis, state the amount to be drawn, and explain the justifying circumstances.
Parties cannot contract out of this requirement. This introduces greater transparency and reduces the risk of surprise calls on security.
A Shift in Approach to Security
These reforms reposition performance security within the broader security of payment framework.
They give claimants a direct, enforceable pathway to recover security and avoid game-playing and delays by upstream contracting parties.
For contractors and subcontractors, this creates a faster and more certain route to recover funds. For principals and head contractors, it increases the importance of contract administration, timely responses, and carefully prepared responsive schedules.
Performance security in Victoria has now become an active part of the statutory payment regime. Parties who ignore this change or treat things as “business as usual” will not do well.
If you require assistance in recovering performance security, or resisting a claim for return of security, our team can assist.
