Victorian Payment Shake-Up Misses Mark, State Warned

Key stakeholders are warning Victoria’s most comprehensive construction payment reform in nearly two decades has left crucial issues unaddressed. The Victorian Government has endorsed all 28 recommendations from a parliamentary inquiry into the Building and Construction Industry Security of Payment Act 2002 (SOP Act), with 16 supported in full and 12 in principle or in part. The sweeping changes are the biggest shake-up to the state’s payment legislation since 2006. Australian Property Developers Association (APDA) president Alex Huang acknowledges the steps toward efficiency but warns of persistent systemic issues. Huang says that while the APDA supports the changes “that promote the efficiency and fairness of the industrial payment system”, the association does not think the reforms go far enough to address what’s often at the heart of the issues—“the frequent misuse and misdirection of funds away from whom they are due”. Huang is particularly concerned about “phoenixing activities that are quite rampant in certain sectors of the industry”. According to the Australian Taxation Office, “illegal phoenix activity is when a company is liquidated, wound up or abandoned to avoid paying its debts”. Huang says technology could provide better safeguards against these practices, pointing to payments security platforms such as IPEX that add controls to legal protections. “These systems aren’t dependent on a builder being willing to do the right thing, they remove the option not to—this is the key to meaningful industry change,” Huang says. ▲ Australian Property Developers Association president Alex Huang. The reforms, due to take effect this year, introduce significant changes to payment practices. Contractors will now be able to claim for previously excluded amounts such as variations, latent conditions, time-related costs and damages for breach of contract. The timeframe for payment claims will extend from three to six months after work completion. According to government response documents, “Victoria is unique among Australian jurisdictions in having the shortest time frame—three months—for bringing a payment claim under the SOP Act; other states and territories allow payment claims to be made either within six months or 12 months”. Housing Industry Association Victoria executive director Keith Ryan says while prompt payment for head contractors and subcontractors is critical, significant gaps remain in the reform package. “The current legislation for resolving payment disputes between builders and consumers is badly out of date and must be reformed at the same time as any SOPA legislation,” Ryan tells The Urban Developer . He’s critical of the existing dispute resolution mechanism, saying “the flawed Domestic Building Dispute Resolution Victoria process in particular is an embarrassment that needs to be repealed and replaced with a process that delivers on the free, fair and fast promise made by the Victorian Government when [the process] was first introduced”. Ryan says the ongoing disparity between dispute resolution timeframes makes it “unacceptable that home builders who have completed their work can be made to wait months or years for their payment disputes with consumers to be resolved while other parties involved in the home building process, including subcontractors and suppliers, have access to dispute resolution processes that are much quicker and reliable”. The reforms introduce several practical measures, including a Christmas shutdown period between December 22 and January 10, during which payment claims and adjudications will be suspended. For larger commercial projects, uniform payment terms will be established with a maximum period of 25 business days after submission of a payment claim, defaulting to 10 business days if contracts don’t specify terms. ▲ HIA Victoria executive director Keith Ryan. The state is considering implementing a retention trust scheme or a cascading deemed statutory trust scheme to better protect subcontractors from head contractor insolvency, though further examination of competing models is needed before specific legislative amendments can be made. “The government has carefully considered the report’s nine factual findings and 28 recommendations for reform,” the October 2024 government response says. “Most other recommendations propose changes to the SOP Act that modernise aspects of its operation, bring it into closer alignment with other states’ and territories’ security-of-payment legislation, or propose broader issues for further consideration by the government.” The reforms follow extensive industry consultation, with the committee receiving 44 public submissions from building practitioners, construction-related suppliers, consultants, trade associations, legal practitioners and other stakeholders. Industry participants are advised to review their processes for making and receiving progress claims before the changes take effect. The tight timeframes under the SOP Act will remain in place and with a wider application than previously applied and a simpler process overall, respondents could face unexpected outcomes if they are not prepared. As the industry prepares for these changes in 2025, HIA and APDA warn that additional reforms are crucial. While Ryan is calling for an urgent overhaul of the “flawed” domestic dispute resolution process, Huang argues that without addressing fund misuse, these reforms may fall short of meaningful industry change. “Risks need to be identified, managed well and everyone needs to be paid on time, however misuse of funds will ultimately be the single largest detriment to all participants in this industry, not to mention the end consumers,” Huang says. The Urban Developer also sought comment from Master Builders Victoria, which is “in ongoing discussions with the government and keen to remain part of the industry consultation process and won’t be commenting publicly at this point”. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

Victorian Payment Shake-Up Misses Mark, State Warned

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