The Victorian Government has indicated support for significant reforms to the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act). The reforms follow a Report of the Environment and Planning Standing Committee in late 2023, whose recommendations were all accepted (16 in full, 12 in principle or in part) in late 2024. A bill is expected in early 2025.
In this article we set out some of the key anticipated changes which aim to bring about a more straightforward approach to recovering payment and fairer adjudication of disputes.
Key Reforms
Removal of Excluded Amounts
The concept of ‘excluded amounts’ will be repealed, enabling contractors to claim for currently excluded costs such as disputed variations and delay costs (including prolongation costs). ‘Excluded amounts’ are novel to Victoria. By removing this concept, payment claims will be calculated in accordance with the contract or based on the work carried out, encompassing a broader range of costs and leading to improved cash flow to contractors.
Removal of Reference Dates
The concept of ‘reference dates’ will be excluded, in favour of allowing contractors to submit at least one payment claim each month, in respect of work performed in the last six months. The current SOP Act has a complex regime for identifying the date from which time starts to run to make a claim, which is difficult to navigate without legal advice. Simplifying the act will reduce unintentional non-compliance which would otherwise invalidate claims.
Unfair Time Bars May Be Nullified by Adjudicator
Adjudicators will be empowered to nullify a notice-based time bar clause if it considers that compliance would be unreasonably onerous or not reasonably possible. This reform operates in conjunction with existing statutory protection from unfair contract terms.
Support for Retention Trusts
Retention monies will be required to be held on trust, providing protection for subcontractors in the event of head contractor insolvency. The government has committed to undertaking further consultation with industry as to the precise trust structure to be implemented.
Maximum Payment Terms
Progress payments must be made within a maximum of 25 Business Days after a claim has been made, even if the contract provides a longer time frame before payment would otherwise become due. This reform improves the position of contractors who may have agreed to lengthy payment terms in contract negotiation and is unique to Victoria.
Blackout Period
The definition of ‘Business Day’ will exclude 22 December to 10 January, preventing respondents from being ‘ambushed’ during the usual shutdown period and aligning Victoria with the national standard.
What next?
Victoria’s willingness to correct irregularities in their SOP Act signals a move toward a more harmonised national security of payment scheme. Whilst the details of these reforms will become apparent once the bill is introduced, building and infrastructure industry participants should consider whether their current contractual arrangements and payment practices align with the proposed amendments, and should be aware of where the interstate SOP Acts continue to diverge. If you’d like to talk about what these reforms might look like for you, please contact our team.
