Security of payment in Australia

Introduction

Security of payment (SOP) legislation was first introduced in New South Wales in 1999 and now exists in every State and Territory of Australia. The SOP laws and associated regulations offer protection for construction industry participants, including contractors, subcontractors, consultants and suppliers, who perform construction works or construction-related goods and services. These laws seek to protect cash-flow down the contract-chain and challenge poor payment practices by enshrining entitlements to make progress claims, payment timeframe obligations, payment dispute resolution and invalidating certain "unfair" payment terms.

 

Which statutes govern the payment regime in Australia?

Australia's SOP legislative landscape is not constituted by a single, national law, nor even by a national model law, but by a network of jurisdiction-specific laws each subject to their own body of case law. These laws share common objectives and are largely similar but contain important distinctions. By reference to each of Australia's States and Territories, the laws and regulations comprising the country's SOP regime are as follows:

• Australian Capital Territory: Building and Construction Industry (Security of Payment) Act 2009 (ACT)
• New South Wales: Building and Construction Industry Security of Payment Act 1999 (NSW) and Building and Construction Industry Security of Payment Regulation 2020 (NSW)
• Northern Territory: Construction Contracts (Security of Payments) Act 2004 (NT) and Construction Contracts (Security of Payments) Regulations 2005 (NT)
• Queensland: Building Industry Fairness (Security of Payment) Act 2017 (QLD) and Building Industry Fairness (Security of Payment) Regulation 2018 (QLD)
• South Australia: Building and Construction Industry Security of Payment Act 2009 (SA) and Building and Construction Industry Security of Payment Regulations 2011 (SA)
• Tasmania: Building and Construction Industry Security of Payment Act 2009 (TAS)
• Victoria: Building and Construction Industry Security of Payment Act 2002 (VIC) and Building and Construction Industry Security of Payment Regulations 2023 (VIC)
• Western Australia: Building and Construction Industry (Security of Payment) Act 2021 (WA) and Building and Construction Industry (Security of Payment) Regulations 2022 (WA)

 

Briefly, what is the effect of this legislation?

Australia's SOP laws give those performing construction work and associated services the statutory right to make progress payment claims. They also oblige those receiving payment claims to respond and/or pay such claims within the timeframes mandated in the relevant contract (and in certain jurisdictions, by a maximum timeframe for payment). The laws provide rights to have payment disputes resolved on an interim binding basis by statutory adjudication governed by specific rules and short timeframes.

Where non-payment or underpayment of undisputed or adjudicated amounts occurs, construction industry participants have the right to suspend work or supply, as well as to exercise certain statutory rights of security, depending on the jurisdiction (eg, liens or charges over unfixed plant materials supplied by the contractor in their performance of their contractual obligations).

Finally, the laws prohibit "pay when paid" provisions.

The SOP laws cannot be contracted out of – but the Northern Territory takes a unique approach in only implying specific payment and dispute terms where the underlying contract is otherwise silent on the subject matter.

 

To what types of contracts does the payment regime apply?

Australia's SOP laws apply to construction contracts for the undertaking of construction work or the supply of related goods and services, both of which are defined broadly in each jurisdiction, albeit each jurisdiction adopts different definitions.

Each jurisdiction carves-out the application of the regime to specific types of works and services, including:

• Drilling for, or extraction of, oil or natural gas (all jurisdictions).
• Extracting minerals, whether by underground (including tunnelling or boring) or surface (including pitting or quarrying) works (all jurisdictions).
• Constructing or fitting out the whole or any part of a watercraft (Western Australia).
• Any other construction work, or supply of related goods and services, prescribed by regulation in each jurisdiction as excluded.

Additionally, certain jurisdictions carve-out the regime's application to "domestic" building contracts as well as contracts valued under certain dollar thresholds or contracts forming parts of loan agreements, contracts of guarantee, or contracts of insurance.

 

What types of disputes can be referred to adjudication?

Each State and Territory SOP regime facilitates the adjudication of payment disputes relating to construction works and construction-related goods and services. The types of payment dispute that may be adjudicated include disputes resulting from non-payment or underpayment, disputed variations to contracts, and disputes over payment schedules.

 

What is the format of an adjudication?

There are differences in the adjudication process across Australia. For example, each State and Territory has its own timelines for each step of the adjudication process. Broadly speaking for each State and Territory, where a payment dispute arises, the claimant (eg, contractor or subcontractor) can apply for adjudication and an independent adjudicator will be appointed. The parties will then have the opportunity to submit written submissions which the adjudicator will assess. The adjudicator may also conduct inspections, site visits, and conferences where necessary. The adjudicator will subsequently provide a written determination on the amount to be paid, and the adjudicated amount must be paid within a specified time. Each party will generally bear its own legal costs.

 

How are adjudicator's decisions enforced?

The process of enforcing adjudication determinations in each State and Territory in Australia is similar. In summary, if the losing party does not pay the adjudicated amount, the winning party can register the adjudication determination as a judgment in court to recover the adjudicated amount. In certain jurisdictions such as Victoria and New South Wales, the adjudication determination must be certified in the form of an adjudication certificate before it can be registered and enforced via the courts.

 

What impact has the payment regime had on Australia's construction industry?

Notwithstanding the variances across the Australian jurisdictions and a number of perceived flaws in the current regimes (see section below on expected reforms), the SOP legislation in Australia has seen acceptance and use in the past 25 years across Australia, particularly in New South Wales, Queensland and Victoria.

Despite the protections offered by the SOP regimes, Australia has seen an upward trend of construction contractor insolvencies in recent years, including big name players like Probuild, Grocon and Condev. It is difficult to discern the impact of poor payment practices on this insolvency trend, noting the broader challenges faced by the industry due to global supply chain issues, labour shortages and soaring raw material costs.

 

What trends are you seeing in adjudications?

New South Wales, having introduced the first SOP legislation in Australia, continues to have the highest use of adjudications out of all Australian jurisdictions. The disjointed nature of SOP regimes across Australia is likely in part responsible for this. Key trends in adjudications in recent years relate to Australia's gradual move towards enacting harmonious SOP laws (see below). We anticipate further streamlining of the statutory adjudication processes in years to come, and that this will lead to more effective and greater use of adjudications across Australia.

 

What reforms do you expect to the regime?

In 2017 a national review of Security of Payment Laws was commissioned at the Commonwealth level¹ (the Murray Review) and highlighted a number of issues with the existing regime, including the desire for a nationally consistent model.

On 14 March 2025, the Commonwealth Government released its response to the Murray Review.² The Commonwealth indicated its support for a nationally aligned security of payment regime, but noted the States and Territories' ultimate role in legislating on security of payment matters in their own jurisdictions. The Commonwealth response instead focussed on other practical policy interventions to support the payment outcomes identified in the Murray Review. It identified current actions being undertaken by the Commonwealth including mandating prompt payment requirements in Commonwealth construction projects, setting payment expectations in the Commonwealth Supplier Code of Conduct and exploring options to further protect contractors against unfair contract terms, including regarding payment.

The Commonwealth also established the National Construction Industry Forum (NCIF) comprising representatives from the Government, construction employers and construction employees. The NCIF is currently developing a Building and Construction Industry Blueprint (Blueprint), which is expected to have security of payment as a key priority. The Blueprint is due in April 2025.

In October 2024, the Victorian Government indicated its broad support for sweeping recommendations to reform Victoria's SOP regime. The recommendations came from Victoria's Legislative Assembly’s Environment and Planning Committee's 2023 report which followed an inquiry into Employers and Contractors who refuse to pay their subcontractors for completed works. The Government's response foreshadows fundamental changes to the operation of the SOP Act in Victoria, including in relation to what amounts can be claimed in a progress claim, the date for making payment claims, limits on the timeframe for payment of those claims, as well as to the statutory adjudication process, amongst other things. Our article on the topic is available here.

The most "unique" or "non-uniform" security of payment regime now exists in the Northern Territory, though we are not aware of any current proposed reforms.

 

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¹ Review of Security of Payment Laws report | Australian Government
² Government Response to the Review of Security of Payment Laws