On 15 April 2026 the Building Legislation Amendment (Fairer Payments on Jobsites and Other Matters) Act 2025 came into effect[1] (SOPA Reform Act). The SOPA Reform Act makes significant changes to the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOPA).
In this article we examine the practical impact of the key changes in the SOPA Reform Act on construction contract drafting.
The legislation has retrospective application to contracts already on foot. Therefore, it is critical for counterparties to construction contracts in Victoria to prepare for this reform.
Payment Timing
A progress claim is due and payable 20 Business Days[2] after a payment claim is served, which may be served on and from either:
- the last date of the month (unless in December, in which case on and from 22 December)
- any earlier date specified in the contract.
Any provision requiring service later than the last day of the month is void.
Given many construction contracts include a payment schedule mechanism under which the payment amount is certified, this means that in practice there is a 10 business day payment window from the date of issue of such a schedule. Whilst this brings Victoria into line with NSW, it will be a significant operational change for many counterparties.
Drafters should take care to ensure that construction contracts do not link the timeframe for payment to the date of issue of the payment certificate, as the SOPA Reform Act deadline for payment is linked to the date the progress claim is validly served (irrespective of when or whether a payment certificate is provided). Drafters should also consider specifying an earlier December date for claims to manage the workload of multiple claims being made at this time.
Payment claim – timing for service and when amounts become “due and payable” A contractual provision which states that a payment claim:
- must be served on a day that is later than the last day of the month in which construction work takes place; or
- in the case of a milestone payment, may be made less frequently than once a month,
has no effect[3].
Separately, whilst the method for determining the “due date” for payment remains contract-driven in the first instance, the SOPA Reform Act introduces a statutory long-stop so that payment cannot fall due later than 20 business days after service of the payment claim, with a 10 business day default applying where the contract does not specify a due date.
Milestone Payments
The effect of the above-mentioned changes may create:
- a significant challenge for contracts which typically include milestone payments (e.g. contracts in the renewable energy sector); and
- a potential conflict of laws in relation to any domestic building work delivered by a developer (and so not subject to the SOPA carve out for domestic building work[4]) where the work is being delivered by reference to the milestones expressly envisaged in the Domestic Building Contracts Act 1995 (Vic) (DBCA) (base, fixing, lock up etc)[5].
It is unclear whether Parliament intended the SOPA Reform Act to potentially override the domestic building regime or to prevent the payment structures typically utilised on renewables projects.
Importantly, however, the SOPA Reform Act does not amend the contract-first approach to calculating entitlement to payment and valuing works and goods and services under sections 10 and 11 of the SOPA, but those provisions now need to be applied alongside the new monthly claiming settings and the anti-contracting out regime.
Accordingly, for construction contracts with milestone payment structures, it may be necessary to reconsider the pricing structure by reference to how construction work and related goods and services will be progressively performed and evidenced across the delivery programme, how they are valued under the contract, and which components should accrue value only on achievement of objective criteria.
For example, the parties may need to:
- revisit the contractual triggers for entitlement to payment; and
- allow for monthly payments, with “balloon” payments at key milestones in the project (for example, a separately priced completion/acceptance component (or withholding/retention) payable on achievement of clear criteria).
Preconditions
Careful consideration should be given to contractual “preconditions”. To the extent a requirement is drafted as a precondition to serving a payment claim, or as a condition that would delay when an amount becomes due and payable under the statutory scheme, it may be of no effect. It may be preferable to frame the issue as going to entitlement and/or valuation (noting the need to approach this carefully given the broader statutory scheme), and to ensure that the requirements of any such precondition are expressed as standalone contractual obligations, supported by separate remedies for non-compliance to the extent possible.
Time Bars – Invalidity
Notice based time bars[6] may be declared unfair by reference to specified parameters, namely if compliance[7]:
- is not reasonably possible; or
- would be unreasonably onerous
In construction contracts, EOTs and Variations are often subject to a time bar of some sort. The onus of establishing unfairness must be borne by the person making the allegation, and a determination must have regard to a range of matters including relative bargaining power, whether the parties have read and understood the contract and whether the party impacted by the time bar has the commercial and technical competence of a reasonably competent contractor. Those who are familiar with the unfair contract terms regime[8] will recognise some of these tests.
Security – Release and Recourse
The SOPA Reform Act introduces a statutory claim, schedule and adjudication pathway for the release of performance security (including retention money), which operates in parallel with contractual mechanisms. Among other things, the new regime gives a party who has provided security a right to issue a notice requiring release upon the occurrence of certain triggers and renders ineffective certain contractual provisions that purpose to override the statutory regime[9]. This creates a statutory pathway for recovery of performance security that is in addition to a party's contractual pathway.
Drafters should ensure that:
- the release mechanisms for security in the construction contract are clear; and
- the construction contract clearly articulates what obligations the performance security secures (and when they are to be performed), with any preconditions to the release of security expressed as standalone contractual obligations,
so that the statutory pathway does not inadvertently cut across a party's contractual basis to retain security for defects and completion risk.
Separately, a party who holds security is now required to provide 5 business days’ notice of any intention to have recourse to security[10]. The notice must satisfy certain statutory requirements. The notice requirement is deemed to form part of every construction contract even if there are provisions to the contrary.
Financiers, who usually require the removal of notice prior to a call on security, will need to take account of this new statutory right and consider what other protections might be necessary.
Business Days
The SOPA Reform Act creates a new business day definition for the purposes of payment claims and return of security which excludes the period between 22 December and 10 January. If a party wants time to keep running for other purposes under the contract (for example, notices of default triggering termination rights) then there may need to be two business day definitions to avoid inadvertent capture.
Conclusion
As with all SOP regimes, the legislation combines prohibited contractual terms with a regime providing a statutory right to payment in specified circumstances. The approach most contract drafters have taken to compliance is to align the contractual payment mechanisms with the statutory rights to eliminate the risk of a counterparty receiving two payment claims for the same period. This approach needs to be re-tested and re-assessed in light of the new reforms.
We recommend:
- reviewing contract templates and updating where necessary to account for new payment claim service dates, payment schedules, and the performance security regime.
- auditing all notice timeframes to assess potential unfairness.
- if third party finance is used in project delivery, auditing the provisions typically sought by financiers and identifying a pathway to compliance.
For contracts that do not align with the SOPA Reform Act but nevertheless fall under its retrospective application, contract administrators should take heed of the changes implemented by the reforms to ensure compliance to the extent of any conflict between the provisions of their contract and the SOPA Reform Act.
As parties cannot contract out of SOPA, knowledge and understanding of its operation is crucial in ensuring compliance.
With the exception of Section 25(4) (which added s 23(2)(da) to SOPA (adjudicator considerations in determining performance security claim disputes), and Section 45(3) (which amended s 45(5) of SOPA (specifying when adjudicator fees are payable even if determination not made in specified time).
Section 14A. This timing brings Victoria into line with NSW
Section 14B(1).
Section 7(b)
Section 40(1) of the DBCA limits the amount which can be claimed as progress payments to specified percentages and clearly envisages these payments can be made on a milestone basis by reference to particular work stages
Defined as provisions making payment for work or services, and EOT or release of security dependent on provision of a notice (section 13A(8))
Section 13A(1)
Schedule 2 of the Competition and Consumer Act 2010 (Cth)
Section 17B
Section 17H(1)
