Building and Construction Industry Update: Proposed Reforms to The Security of Payment Act (Victoria)

What You Need To Know About the Proposed Changes To the SOPA Act

The Victorian Government is considering several reforms to the Building and Construction Industry Security of Payment Act 2002 (Vic) (the “Act”) as part of ongoing efforts to improve payment practices and resolve disputes more efficiently in the construction industry. These proposed changes are aimed at addressing existing gaps in the legislation, enhancing fairness, and strengthening protections for contractors and subcontractors. The recommendations also aim to align Victoria’s legislation with other Australian jurisdictions leading towards a national standard.

Key Proposed Changes

1. Abolishing the ‘Excluded Amounts’ Regime

   Currently, certain claims—such as those for project delays, disputed variations, and latent conditions—are classified as ‘excluded amounts’ and cannot be claimed under the Act. The proposed reforms suggest removing this regime, allowing for a broader range of claims to be adjudicated and simplifying the payment claim process. This will also facilitate contractors being able to make genuine claims for the works that they have carried out or been instructed to, including those which are outside the original scope of the contract.

2. Removing the Concept of ‘Reference Dates’

   The Act presently uses ‘reference dates’ to determine when a payment claim can be made, a concept that has led to confusion and invalid claims due to miscalculations. The reforms propose eliminating reference dates, permitting contractors to submit one payment claim per month or as specified in the contract, including after contract termination.

3. Extending the Time Limit for Submitting Payment Claims

   The current timeframe for submitting payment claims is three months after the relevant reference date, the shortest period in Australia. The proposed reforms would extend this period to six months, or longer if a written contract provides for it, providing contractors with additional time to prepare and submit claims,

4. Implementing Uniform Payment Terms

   The proposed changes would establish a maximum payment term of 25 business days after a payment claim is submitted, or 10 business days if the contract is silent on payment terms. This initiative seeks to prevent the imposition of lengthy payment terms on subcontractors and promote prompt payments.

5. Empowering Adjudicators to Declare Time Bars ‘Unfair’

   The reforms suggest allowing adjudicators to set aside notice-based time bar clauses deemed unfair—specifically, those where compliance is not reasonably possible or is unreasonably onerous. This measure aims to protect parties with less bargaining power from being unjustly prevented from making legitimate claims.

6. Introducing a Christmas Shutdown Period

   To accommodate industry downtime, the reforms propose amending the definition of ‘business day’ to exclude the period between 22 December and 10 January. This change would pause the strict timelines for payment claims and adjudications during the holiday season and avoid a common tactic employed by unruly parties trying to make or avoid claims in the Christmas period.

Other more general recommendations

Stronger Protections for Subcontractors

One of the primary focuses of the proposed reforms is to ensure subcontractors are paid promptly and fairly. The changes aim to strengthen payment systems and make it harder for head contractors or developers to delay or to streamline the adjudication process, making it more accessible and efficient. This includes simplifying the procedural requirements for making and responding to payment claims, ensuring disputes are resolved quickly to minimize disruption to projects.

Improved Clarity and Transparency

Another key aspect of the proposed reforms is enhancing clarity in contractual terms and obligations. This includes addressing ambiguities in payment schedules, timelines, and processes under the Act. Clearer rules will help all parties—whether contractors, subcontractors, or developers—better understand their rights and responsibilities, reducing the risk of disputes arising in the first place.

Penalties for Non-Compliance

The reforms also suggest introducing stricter penalties for non-compliance with the Act. These penalties are designed to deter unfair practices such as withholding payments without valid reasons or failing to adhere to the adjudication outcomes.

Mandatory Trust Accounts

Another significant recommendation is the potential introduction of project trust accounts. These accounts are designed to safeguard funds intended for subcontractors, ensuring they are paid even in cases where a head contractor or developer faces insolvency.

Alignment with National Standards

Victoria’s proposed changes aim to align its Security of Payment laws more closely with national reforms being adopted in other Australian jurisdictions. This alignment seeks to create greater consistency across state borders, which is particularly important for contractors and businesses operating in multiple jurisdictions.

Why These Changes Matter

The construction industry in Victoria is a significant contributor to the state’s economy, but payment delays and disputes have long been a pain point for industry participants. The proposed reforms are a step toward creating a more equitable, transparent, and efficient system that ensures payments flow down the contracting chain as intended.

For subcontractors, the reforms provide an opportunity for greater security and confidence that they will be paid for their work. For head contractors and developers, the changes encourage better financial management practices and reduce the risk of prolonged disputes that can impact project timelines.

What Happens Next?

The proposed reforms are still under review, with further consultation expected before any amendments to the Act are finalized. Industry stakeholders are encouraged to engage in the consultation process to ensure their views are considered.

Final Thoughts

While these reforms promise to address many challenges faced by the construction industry, it is important to note that they are not yet law. Businesses operating in the building and construction sector should stay informed about developments and prepare to adapt their practices if and when the changes are implemented.

At PCL Lawyers, our team of building and construction lawyers is closely monitoring these proposed reforms and their potential impact on the industry. We are committed to keeping our clients informed about significant legal and regulatory developments affecting their businesses.

If you are unsure how the proposed reforms may affect your business, or are seeking guidance in relation to the Security of Payment regime at this time, please contact our building and construction lawyers.

About The Author - Emma Restall

As a Partner in PCL Lawyers' Building & Construction team, Emma delivers tailored legal solutions grounded in both technical expertise, solutions focused support and a deep appreciation of her...