On 15 April 2026, important changes to Victoria’s Building and Construction Industry Security of Payment Act 2002 came into effect as part of a broader reform package aimed at improving payment practices across the construction sector.

New maximum payment timeframe of 20 business days

The key change is a new maximum payment timeframe of 20 business days after a valid payment claim is served.  The changes may also apply to contracts entered into before 15 April 2026. However, they generally do not apply where the payment claim was served, or an adjudication application was made before that date.

Contract terms extending payment beyond 20 business days will be overridden by the legislation. While parties may have historically agreed to longer terms (such as 60 or 90 days), those provisions will generally not be enforceable to the extent they exceed the statutory cap. If a construction contract does not specify payment terms, a shorter default timeframe of 10 business days applies.

Other important changes to construction contracts

 The reforms also introduce several broader changes that affect how construction contracts, payment claims and dispute processes operate in practice, including:

• Limits to “pay when paid” clauses by making any terms invalid that link payment obligations, timing, or rights to payment or security to another contract
• A party can only use the performance security if they first give notice to the other party and then wait at least 5 business days (or longer if the contract says so)
• Any contract term that requires milestone payment claims to be made less often than once a month is invalid
• The changes remove limits on what can be claimed, meaning both parties can now include variations, damages, and other previously excluded amounts in payment claims and responses
• You no longer need a reference date to make a claim, early claims are automatically treated as valid when due, and claims can still be made even if the contract has ended.

A business day excludes Saturdays, Sundays, Victorian public holidays, and the holiday period 22 December to 10 January.

Who do the changes apply to?

These reforms are specific to the building and construction industry and do not apply broadly across all sectors.

The legislation applies to construction contracts, which may include areas such as:

• Builders and head contractors
• Subcontractors and trade contractors
• Consultants such as engineers, architects, and surveyors
• Suppliers providing goods or services connected to construction projects.

Outside of the construction industry, standard commercial payment terms such as 30, 60 or even 90 days may still apply, subject to normal contract law and commercial negotiation.

Why were the reforms introduced?

Late payment has long been a problem in the construction industry, with subcontractors and smaller operators often waiting 60 to 120 days to be paid for completed work.

The intent of the April 2026 reforms is to:

• Improve cashflow for contractors and subcontractors
• Reduce the frequency and severity of payment disputes
• Prevent larger businesses from imposing excessive payment terms on smaller operators.

For many small businesses, faster access to cash can make a material difference to their ability to meet wages, tax obligations and supplier commitments.

Enforcing the change

The reforms are primarily enforced through Victoria’s existing security of payment framework rather than direct government intervention.

Under this system:

• Contractors can issue formal payment claims
• Respondents must provide payment schedules within strict timeframes
• Disputes can be referred to adjudication, which is designed to be a fast‑track dispute resolution process.

If payment is not made within the required timeframe, contractors have statutory rights to pursue recovery through adjudication and related enforcement mechanisms.

Practical observations for businesses

While the rules are now clearer and stricter, a few practical points are worth noting:

• Enforcement still relies on the party owed money taking action
• Some larger businesses may continue to push payment boundaries unless challenged
• Where disputes arise, the legislation provides a clearer and faster pathway to enforce payment compared to traditional court processes.

For builders and subcontractors, understanding how and when to issue compliant payment claims is critical. For principals and developers, contract templates and internal payment processes may need review to ensure they align with the new requirements.

Actions to take now

If you operate in or around the construction industry, it may be timely to:

• Review construction contracts and payment terms
• Update internal processes for issuing or responding to payment claims
• Consider cashflow forecasting under shorter payment cycles
• Seek advice before disputes escalate into adjudication.

We work closely with construction businesses across Central Victoria to help them understand how legislative changes affect cashflow, tax planning and risk management. If you would like practical, tailored advice, contact our team today.