28 April 2026

Victorian Security of Payment – New regime is in effect

Executive Summary

The much-anticipated reforms to Victoria's Building and Construction Industry Security of Payment Act 2002 (the Act) came into effect on 15 April 2026.¹The regime continues to operate primarily for the benefit of contractors and suppliers to protect cash-flow down the contract-chain and challenge poor payment practices. These protections have now been strengthened and expanded to capture performance security entitlements. The key changes include:

expansion of the regime to include a statutory entitlement to claim return of performance security;
a new mandatory 5 business day minimum notice period prior to having recourse to a performance security;
a new maximum 20 business day time cap for payment of a progress claim and release of performance security;
the removal of the 'reference date' concept and introduction of a default entitlement to submit monthly progress payment claims;
new protections against unfair notice-based time, bar clauses relating to payment entitlements and release of performance security;
changes to the adjudication process, including a prohibition on respondents including new reasons in their response to an adjudicator that were not previously included in the payment schedule;
removal of the "excluded amount" and "non-claimable variations" regime; and
changes to the definition of 'business day' to recognise an end-of-year shutdown period.

These changes apply to both future and existing construction contracts. Participants in the Victorian construction industry must familiarise themselves with the changes to ensure they are aware of the new rights and entitlements. We recommend that both new and existing construction contracts are reviewed to ensure compliance.

Expansion to recovery of performance security

The amendments expand the application of the Act to now include a statutory entitlement to claim the release of all or part of a performance security, and introduces a new process of:

the serving of a performance security claim by the person claiming release of a performance security;
the serving of a performance security schedule by the person who must release the performance security;
the release of the whole or part of a performance security determined by the adjudicator; and
the recovery of the whole or part of a performance security in the event of a failure to release the performance security.

The definition of 'performance security' extends to 'performance bonds' and 'retention money'. A 'performance bond' is in turn defined as "a security issued to or executed in favour of a party to a construction contract to secure the performance by another party of obligations under the contract and includes… a guarantee… and… a bond".²

We expect that these terms will be broad enough to capture typical bank guarantee security arrangements in Australian construction contracts governed by Victorian law.

The Act sets the earliest and latest dates on which a performance security claim may be made under the Act.

The changes also introduce the possible payment of interest for performance security amounts that have failed to be released when due.

Mandatory notice period prior to recourse to performance security

The amendments introduce a new mandatory requirement for a party to provide a minimum 5 business days' prior notice to having recourse to the whole or part of a performance security.³

This is a significant change and one which will contradict express contractual entitlements in many existing construction contracts that give principals recourse rights against performance security without prior notice.

Time cap for payment of a progress claim and release of performance security

The Act now provides that a clause in a construction contract will be ineffective if it provides for the payment of a progress payment or the release of a performance security later than the day that is 20 business days after:

service of a payment claim in relation to a progress payment in accordance with the Act; or
service of a performance security claim in accordance with the Act.⁴

If a construction contract does not expressly provide for when a progress payment is due or when a performance security must be released, or if the relevant clauses are deemed ineffective due to falling afoul of the limits mentioned above, then default payment and release timeframes under the Act will apply (for progress payments, the day that is 10 business days after the earliest day on which a payment claim may be served⁵).

In practice, this means that principals should now be reviewing their construction contracts, including construction contracts already on-foot, to understand whether the timeframes in their payment clauses and performance security clauses are 'compliant' with the maximum timeframes in the Act.

Time for making payment claims for progress payments and removal of 'reference dates' concept

Victoria's unique 'reference date' concept has been removed from the Act. This 'reference date' previously set the date on which a person was entitled to a progress payment and when a payment claim could be made.

The new amendments introduce a general entitlement to submit monthly progress payment claims, notwithstanding the terms of the contract.

The new sections 14A, 14B, 14C and 14D of the Act now generally provide that:

a. clauses in construction contracts will be deemed ineffective if they provide that:

the time for serving payment claims for a progress payment is later than the last day of the month in which the construction work was carried out or the related goods and services were supplied; or

b. a payment claim for a milestone payment must be served less frequently than once a month.⁶

the earliest time at which a payment claim for a progress payment can be made is the last day of the relevant calendar month, unless:⁷
the construction contract provides for an earlier date;
a notice of termination is served on a party to a construction contract or a construction contract is terminated by agreement, in which case a payment claim may be served on a person on and from the day on which the contract provides is the day on which the contract is terminated; or
the works and services were carried out in December, in which case specific rules apply;⁸

c. a claimant's entitlement to serve a payment claim for a progress payment is not affected by termination or expiry of the construction contract;⁹

d. payment claims may be served no later than 6 months (previously 3 months from the relevant 'reference date') after practical completion or completion of supply of goods and services (as applicable), unless the construction contract provides a later date;¹⁰ and

e. unless the contract provides otherwise, a claimant may only serve one payment claim per month.¹¹

Protection from unfair notice-based time bar clauses

Section 13A of the Act is a new provision that empowers an adjudicator, a court, an arbitrator or an expert appointed by the contracting parties to determine a matter under the contract, to declare a notice-based time bar clause 'unfair' if compliance with the clause:

is not reasonably possible; or
would be unreasonably onerous.

A provision declared unfair would have no effect in relation to the particular entitlement that is the subject of an adjudication or proceeding in which it was declared to be unfair. It would however continue to have effect in other circumstances arising under the same or a related contract.

This section extends to time bar clauses relating to:

an entitlement to be paid for:
1. construction work carried out or undertaken to be carried out; or
2. related goods and services supplied or undertaken to be supplied, under the contract;
an extension of time for doing a thing that affects an entitlement referred to in paragraph (a); or
the release of a performance security;¹²

In practice this means that principals should be reviewing any time bars in their construction contracts, including construction contracts already on-foot, to the extent they relate to payment entitlements and release of security.

Adjudication process changes

A number of important changes have been made to the adjudication process. This includes, but is not limited to:

the expansion of the adjudication process to performance security claims;
an allowance for a respondent to provide a payment schedule within 5 business days after receiving the claimant's notice under section 18(2) that it intends to apply for adjudication of a payment claim; and
prohibition on respondents including reasons in their response to an adjudicator that were not previously included in the payment schedule.¹³

Removal of the 'excluded amounts' and 'non-claimable variations' regime

Victoria's unique 'excluded amount' regime has been removed. This regime previously excluded certain amounts from being included in a contractor's progress claims – including amounts related to latent conditions, time-related costs, changes in regulatory requirements and certain non-claimable variations.

This change will limit principals in Victoria from being able to argue for the exclusion of these 'excluded amounts' from claims (and adjudication processes) under the Act. The removal of 'excluded amounts' will generally benefit contractors and provide much-desired consistency for those operating in multiple Australian States and Territories.

Amended business day concept to introduce end-of-year shutdown period

The definition of 'business days' was amended to exclude the period between 22 December and 10 January inclusive. This means key timeframes under the Act, including the time to respond to a payment claim, would exclude the dates above.

Next Steps

We recommend that all Victorian construction industry participants carefully consider the impacts of the amendments on their new and existing construction contracts.

Please reach out to our experienced construction team at DLA Piper below if you need assistance understanding the changes or reviewing your contracts.

¹https://www.gazette.vic.gov.au/gazette/Gazettes2026/GG2026S189.pdf. For completeness, we note that two relatively minor sections of the amending Act are excluded from the commencement proclamation.
²Section 4, Building and Construction Industry Security of Payment Act 2002 (Vic).
³Section 17H(1)(b) requires that "at least 5 business days have passed since the party served that notice or, if the contract provides for a longer period, that period has passed". The contract may therefore specify a longer notice period, which the Act respects.
⁴Section 12(1B), Building and Construction Industry Security of Payment Act 2002 (Vic).
⁵Sections 12(1)(b) and 12(1A)(b), Building and Construction Industry Security of Payment Act 2002 (Vic).
⁶Section 14B, Building and Construction Industry Security of Payment Act 2002 (Vic).
⁷Section 14A, Building and Construction Industry Security of Payment Act 2002 (Vic).
⁸Sections 14A(2) and 14B(2) provide that, for work carried out between 1 and 21 December, the payment claim may be served on and from 22 December of the same year, and for work carried out between 22 and 31 December, the payment claim may be served on and from 31 January of the following year.
⁹Section 14A(6), Building and Construction Industry Security of Payment Act 2002 (Vic).
¹⁰Section 14A(6), Building and Construction Industry Security of Payment Act 2002 (Vic).
¹¹Section 14D, Building and Construction Industry Security of Payment Act 2002 (Vic).
¹²Section 13A, Building and Construction Industry Security of Payment Act 2002 (Vic).
¹³The prohibition operates at three levels: The adjudication response itself — section 21(2)(d) prevents reasons being included in the response if they were not in the payment schedule; Subsequent submissions during the adjudication — sections 22(5AA) and 22(5AB) extend the same prohibition to any further written or oral submission; The adjudicator's determination — section 23(2A) requires the adjudicator not to take such reasons into account, and section 23(2B) renders any determination void to the extent it does so. The prohibition also applies equally to performance security schedules.

Key Contacts