Changes affecting construction contracts

Amendments and commencement

The Building and Construction Industry Security of Payment Act 2002 (SOP Act) has been amended by the Building Legislation Amendment (Fairer Payments on Jobsites and Other Matters) Act 2025.

The amendments take effect from 15 April 2026.

Application to construction contracts

Changes to the SOP Act will impact all construction contracts, including contracts entered into before the amendments came into operation on 15 April 2026.

This means that the items described below will apply to all construction contracts on and from 15 April 2026, save where transitional provisions of the SOP Act state otherwise. For example, where a payment claim is issued before the commencement date (15 April 2026), or where an adjudication application is made but not determined before the commencement date (15 April 2026).

Construction contracts

A construction contract is defined in the SOP Act as a contract or other arrangement under which one party undertakes to carry out ‘construction work’, or to supply ‘related goods and services’, for another party.

The terms construction work and related goods and services have detailed definitions in the SOP Act which are broadly defined to cover most construction work and related goods and services. However, some construction contracts are excluded from the requirements of the SOP Act, such as most domestic building contracts and all construction contracts dealing with work carried out outside Victoria.

If your construction contract is one to which the SOP Act applies, you should be aware of the changes made by the SOP Act which may impact your contract – even where it does not concern adjudication under the SOP Act.

Restrictions on minimum payment and release terms

The SOP Act will render any provision in a construction contract to have no effect to the extent that it provides for the payment of a progress payment or release of a performance security where it is later than 20 business days after:

• a payment claim is served in accordance with the SOP Act
  or
• a performance security claim is served in accordance with the SOP Act.

Parties will not be able to agree any longer period, and to the extent that they do, those terms will have no effect.

Further limitations on pay when paid provisions

The amendments further restrict the use of a pay when paid provision in a construction contract.

A 'pay when paid' provision includes a provision of the contract which makes any of the following contingent or dependent on the operation of another contract or contracts:

• the liability to pay money owing
• the due date for payment of money owing
• a person’s right to claim money owing
• a person’s right to claim the release of a performance security.

A provision of the contract will have no effect if any of the above are made contingent or dependent on the operation of another contract.

Unfair notice-based time bar provision

A notice-based time bar provision in a construction contract is any provision that makes any of the following contingent or dependent on the provision of notice by a party to the contract:

• an entitlement to be paid for construction work carried out or undertaken to be carried out, or related goods and services supplied or undertaken to be supplied
• an extension of time for doing a thing that affects an entitlement referred to above
• the release of a performance security.

The notice-based time bar provision may be determined to be ‘unfair’ by an adjudicator, a court, an arbitrator or an appointed expert if compliance with the provision:

• is not reasonably possible
  or
• would be unreasonably onerous.

The adjudicator, court, arbitrator or appointed expert must take into account the matters set out in the SOP Act when determining if a notice-based time bar provision is unfair.

If determined to be unfair, that provision will have no effect on the particular entitlement that is the subject of the adjudication or proceeding in which it was declared to be unfair, but continues to have effect in other circumstances or proceedings arising under the contract or a related contract.

Restrictions on when a payment claim can be served

Construction contracts will not be permitted to require a person to serve a payment claim after the earliest day on which they are entitled to serve a payment claim under the SOP Act, nor restrict a person’s right to serve a payment claim by reference to milestone payments.

A provision of a construction contract will have no effect to the extent it provides that the earliest day for service of a payment claim in respect of any type of progress payment must be on a day that is later than the last day of each named month in which construction work was carried out or related goods and services were supplied.

A provision of a construction contract will have no effect to the extent it provides that a payment claim for a milestone payment must be served less frequently than once a month. A milestone payment is a type of progress payment that is based on an event or date.

The only exception to the above is for work carried out or goods and services supplied between 22 December and 31 December, in which case the contract can provide that the earliest day for service of a payment claim relating to that work is 31 January in the following year.

Restrictions on when a person can have recourse to a performance security

A party to a construction contract will not be able to have recourse to the whole or any part of a performance security under the contract unless:

• that party has served a notice of their intention to have recourse to the performance security on the other party that provided the performance security
  and
• at least 5 business days have passed since the notice was served, or any longer period has passed if the construction contract provides a longer period.

A business day excludes Saturdays, Sundays, Victorian public holidays, and the period 22 December to 10 January.

The notice must:

• be in writing
• identify the construction contract and the relevant provision on which the party relies on to have recourse to the performance security
• if not having recourse to the whole of the performance security, state the amount of the performance security to which the party intends to have recourse
• describe the circumstances that entitle the party to have recourse to the performance security.

The requirement to provide a notice before having recourse to a performance security will form part of every construction contract.