Blueprints for change: Is Victoria’s security of payment regime set for an overhaul?

Victoria’s Building and Construction Industry Security of Payment Act 2002 (Act) looks set for major reform, with the parliamentary inquiry into non-payment of subcontractors delivering a report making 28 broad-ranging recommendations (Report).¹ The recommendations, key aspects of which are discussed below, are intended to strengthen the statutory right to payment and improve the adjudication process in Victoria.

While many of the proposed changes would represent a significant shift for Victoria’s security of payment regime, the recommendations largely reflect existing features of security of payment legislation in other states, in particular NSW and WA.

If implemented, the changes will enhance protections for subcontractors and create greater consistency between Victoria's security of payment laws and those of other states. The proposed changes may also require principals or head contractors in Victoria to consider whether their processes for responding to statutory payment claims require change, particularly if the recommendations regarding ‘excluded amounts’ and ‘new reasons’ (discussed below) are adopted.

These proposals are part of a broader refresh of building laws in Victoria. These broader reforms include reviews of various laws governing domestic building and the ongoing Building System Review (which delivered its stage 2 report recently, and in its third and final stage will make recommendations regarding development of a new Building Act for Victoria).

Other notable recommendations include:

• extending the time limit for making a payment claim following the completion of works from three to six months;
• ensuring that contractual payment terms do not exceed 25 business days after the payment claim has been made;
• modernising how notices may be served, to allow for electronic service;
• extending the application of the Act to the residential building sector by encompassing construction contracts with homeowners; and
• enabling the claimant and respondent to agree to provide an adjudicator with up to an additional 20 business days to deliver their determination.

The Victorian government is expected to respond to the Report in June, potentially announcing the first amendments to the Act since 2006.

If the government implements some or all of the above recommendations, in particular the recommendation to abolish the concept of ‘excluded amounts’, we expect that the statutory payment and adjudication processes would become more appealing to claimants and result in an uptick in security of payment activity in Victoria.

1. Environment and Planning Committee, Parliament of Victoria, Inquiry into employers and contractors who refuse to pay their subcontractors for completed works (Final Report, November 2023).