Repairing the Flow: Victoria’s Big Fix for Construction Payments

Cash flow pressure and poor payment practices are widely recognised as major strains on Australia’s building sector. And while construction sector insolvencies have fallen over the past three months, the first quarterly decline in the volume of builders collapsing since 2021, according to Equifax data released this week, the industry is still facing an ongoing crisis. In response, the Victorian Government has introduced legislation to smooth the pathway for payment disputes in the sector. The Building Legislation Amendment (Fairer Payments on Jobsites and Other Matters) Bill 2025 has come into law after being enacted by the Victorian Parliament and securing Royal Assent this month. The most significant changes will come into effect from September 1, 2026, as part of a suite of reforms focusing on the building sector and improving outcomes for consumers, Holding Redlich Melbourne partner Dado Hrustanpasic says. “It’s expanding the arsenal which contractors have to make claims,” Hrustanpasic says. “It aims to combat persistent problems with insolvencies and poor payment practices in the building sector, which is notorious for people being paid late and not being paid a full entitlement, and just generally a culture of disputes and poor outcomes for end users.” Adjudication process Up until now, the “restrictive” Victorian payment adjudication process wasn’t used for large claims, but the new Bill heralds a shift. “But in Queensland in particular we have seen some extraordinarily large claims go through the adjudication process, into the tens of millions of dollars,” Hrustanpasic says. “That is now, in theory, available in Victoria for very large projects for contractors making use of the Act.” In Queensland in the 2024-25 financial year, 273 standard and 51 complex adjudication applications were received. ▲ Holding Redlich Melbourne partner Dado Hrustanpasic: the building sector is notorious for people being paid late and not being paid a full entitlement. The largest was for $80.96 million, and the lowest for $234.09, with a value of claims total standing at $516.7 million. A total of $81.9 million was awarded under the Queensland adjudication processes. In NSW, 990 adjudication applications were lodged during the 2024-25 year, with a total claimed of $546.2 million. Of those, 493 determinations were released and the value of the adjudicated amounts was $170 million, with claims between $17.6 million and $2200. By contrast, the most recent available data for Victoria for 2023-24 shows 325 cases submitted to its SOP Act adjudication process, of which 189 were determined, with an adjudicated amount total of $40.93 million. What’s new The previous SOP Act significantly restricted what claims could be brought and how much could be claimed. “Now, those restrictions have largely been removed,” Hrustanpasic says. Previously, things like cost of delays could not be claimed. “Now, you can also ask for damages for breach of contract as well as delays and, from the respondent’s side, you can bring in defective work or other reasons to withhold payment.” Other changes include extended timeframes to make a claim, doubling it from three months to six months after practical completion, excluding the Christmas shutdown period from timelines, and importantly, the Bill brings in a 20-business-day limit on payment terms. ▲ The construction industry is also faced with material costs, productivity and labour shortage issues. “While NSW had maximum payment terms, prior to this, Victoria did not, so it was down to market practice and you saw some very long payment terms in certain types of contracts which will now be standardised.” Another significant change that is important for industry participants to be aware of is changes to performance security, Hrustanpasic says. While under the previous Act, claimants have no ability to seek the return of performance bonds such as bank guarantees, the amendments allow this performance security to be claimed in an adjudication process. “It’s often a large point of leverage at the end of projects, the principal is holding on to potentially 10 per cent of the whole contract price,” Hrustanpasic says. “Now, the principal needs to provide notice before they call on these performance securities, including bank guarantees, which was not necessarily required in Victoria before this Act.” Preparing for the new landscape The first step in an adjudication process is for a claimant to make a payment claim, then the respondent provides a payment schedule within 10 business days unless they pay the claim in full. “If a respondent is disputing the claim, they now need to provide all of the reasons they dispute the claim in that first payment schedule. It means if they think of something later, it’s too late,” Hrustanpasic says. “So you only have two weeks to come up with all of the reasons you have to dispute the payment schedule. “Now, there’s a much wider scope of what can be disputed, and they could be higher value claims with short timeframes to respond. ▲ Probuild went under in 2022. “So it’s really important for respondents, normally principals and head contractors, to be on top of what the issues are in a project, keep good records and be aware of when claims are being made and be ready to respond to them. “And fundamentally, just keep in frequent communication with the other party.” At the end of the day, while not as expensive as the courts, the adjudication process is considered a relatively “aggressive mechanism” for this kind of dispute. “Having to go through this process can be very destructive of a relationship, but organisations that are in stress and have no other option will do what they need to do,” Hrustanpasic says. ‘Significant uptick’ It might take some time for contractors to start using the new avenues available in the legislation, given that it will take some time for contractors to become familiar with the wider scope of recovery, Hrustanpasic says. But while there is now a new and ostensibly clearer path to making claims, it remains to be seen whether there will be an influx of applications to the adjudication process. “There won’t be an immediate explosion in the sorts of claims we’re seeing, but over time, I think using adjudication processes will become more an accepted part of how a range of construction disputes are resolved,” Hrustanpasic says. ▲ The Amazon warehouse at north Melbourne. Roberts and Co was building the facility before going into administration in 2022. “I would expect a significant uptick in how many claims go to adjudication in Victoria, and an increased scope of what is included in those adjudications.” But whether it will impact the issues facing the construction sector is another matter altogether. “It might not fundamentally shift the industry a great deal, because much of its issues are down to availability and cost of trades and the escalating cost of materials which have driven the uptick in insolvencies, but it could and probably will help,” Hrustanpasic says. “But it might help relieve the stress for some companies and further facilitate cash flowing through the industry.”

Repairing the Flow: Victoria’s Big Fix for Construction Payments

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