Understanding The Security Of Payment Act: A Guide For Australian Commercial Contracts

Cash flow is the lifeblood of any construction business. If progress payments stall, your timeline, team and margins can come under immediate pressure.

That’s exactly why Australia has Security of Payment legislation. These laws are designed to help people carrying out construction work (and supplying related goods and services) get paid promptly and fairly without needing to run lengthy court cases.

If you’ve heard the term “Security of Payment” but aren’t sure how it works in practice, you’re not alone. In this guide, we’ll break down who’s covered, how the process runs, key timeframes, and the practical steps you can take to protect your business when you’re negotiating and delivering commercial construction contracts.

With the right contracts in place and a clear handle on your rights, you can keep projects moving and focus on what you do best.

What Is The Security Of Payment Act In Australia?

“Security of Payment” (often shortened to SOP) refers to state and territory laws that promote prompt payment for construction work and related goods or services. While each jurisdiction has its own Act, the core idea is the same: a clear, quick process for claiming and recovering progress payments during a project.

Key legislation includes, for example:

• New South Wales: Building and Construction Industry Security of Payment Act 1999 (NSW)
• Queensland: Building Industry Fairness (Security of Payment) Act 2017 (QLD)
• Victoria: Building and Construction Industry (Security of Payment) Act 2002 (VIC)

The details differ between jurisdictions, but the framework is designed to:

• Enable contractors, subcontractors, consultants and suppliers to issue progress payment claims
• Impose strict timeframes for responses and payments
• Provide a fast-track adjudication pathway for disputed claims
• Void “pay when paid” clauses that unfairly shift risk down the chain

Importantly, the Acts apply broadly to “construction contracts” - not just large head contracts. Subcontracts and supply agreements connected to construction work are often covered, too.

Who Is Covered And What Contracts Are Included?

In most states and territories, Security of Payment laws apply to anyone undertaking construction work or supplying related goods or services under a construction contract. This typically includes:

• Head contractors and principal contractors
• Subcontractors and specialist trades
• Suppliers of materials, plant or equipment
• Consultants such as engineers, architects and project managers

Covered agreements commonly include:

• Head contracts between principals/developers and contractors
• Subcontracts between contractors and subcontractors
• Supply agreements for materials and equipment
• Professional services contracts tied to construction projects

Residential work directly for an owner-occupier is treated differently in some jurisdictions (and can be excluded), so it pays to confirm how your local Act applies to a particular project type.

If you’d like a legal eye over your agreement before work starts, a quick contract review can help you lock in clear payment terms and align your contract with SOP processes in your state.

How Does The Security Of Payment Process Work?

The SOP framework is designed to keep cash flowing as work progresses. Here’s the high-level process most jurisdictions follow.

1) Do The Work Or Supply The Goods/Services

You carry out construction work or supply related goods/services under a construction contract.

2) Serve A Valid Payment Claim

You issue a payment claim to the party liable to pay you (the “respondent”). This is usually done as an invoice that meets the Act’s requirements (see the section on valid claims below). Claims must be served within strict timeframes set out in each Act and/or contract.

3) Receive A Payment Schedule (If Required)

The respondent typically must provide a “payment schedule” within the legislated timeframe stating the amount they propose to pay and, if less than claimed, their reasons. If they don’t serve a payment schedule on time, serious consequences can follow.

4) Payment Or Dispute

If the claim is agreed, payment must be made by the due date. If the amount is disputed or no schedule is served, you can usually apply for adjudication or take other steps provided by the Act.

5) Fast-Track Adjudication

Adjudication is a quick determination by an independent adjudicator who reviews written submissions and decides what amount is payable.

6) Enforcement And Remedies

An adjudication determination can be enforced as a court judgment. In certain circumstances, you may also be entitled to suspend work after giving proper notice under the Act.

About Timeframes (They Vary By Jurisdiction)

Each state and territory sets its own deadlines. By way of example only:

• NSW: a payment schedule is generally due within 10 business days after a claim is served (unless the contract specifies a shorter period).
• QLD: a payment schedule is generally due within 15 business days (different timeframes can apply to complex claims).

Other jurisdictions have different rules and reference dates. Always check your local Act and contract. If in doubt, get tailored guidance from a construction lawyer before a deadline passes.

What Makes A Valid Payment Claim Or Payment Schedule?

Understanding what must go into your claim (and the respondent’s schedule) is essential.

Payment Claims

While requirements vary by jurisdiction, a compliant payment claim generally needs to:

• Identify the construction work (or related goods/services) to which the claim relates
• State the amount claimed
• Be served within the required timeframe and in the manner allowed by the contract or Act

Endorsement requirements differ. In some jurisdictions (for example, Victoria), the claim must state that it is made under the relevant Security of Payment Act. In others (including NSW and QLD), that endorsement is no longer required. The safest approach is to follow your local Act precisely and use a consistent template process across projects.

Payment Schedules

A respondent’s payment schedule should set out the scheduled amount (which may be less than claimed) and the reasons for any withholding. If a schedule isn’t served on time, the respondent can become liable for the full claimed amount and lose certain rights to dispute it at adjudication.

Because content and timing are critical, many businesses build SOP steps into their internal billing workflow and contract templates. If you’re setting up or refreshing your project documents, consider a subcontracting framework using a tailored Sub-Contractor Agreement and consistent customer-facing terms like a Goods & Services Agreement.

Adjudication, Enforcement And Penalties

One of the biggest advantages of Security of Payment is adjudication - a quick dispute resolution pathway specifically for progress payment disputes.

Adjudication At A Glance

• You apply to an authorised nominating authority or registry (as required in your jurisdiction) within strict time limits.
• Both sides make short written submissions. The adjudicator reviews the material and decides the payable amount, often within a matter of weeks.
• The determination can be enforced as a court judgment if payment isn’t made.

Consequences For Non-Compliance

• Failing to provide a payment schedule on time can expose the respondent to liability for the full claimed amount.
• “Pay when paid” provisions are void under SOP - payment cannot be made conditional on someone else up the chain being paid.
• Ignoring an adjudication determination can lead to court enforcement and recovery action.

If adjudication becomes necessary, having clean, consistent paperwork will help. Many teams standardise their scopes, claims, schedules and notices with help from a contract lawyer so evidence is easy to compile.

Practical Compliance Checklist And Essential Documents

Proactive compliance is the easiest way to avoid payment headaches. Use this quick checklist across projects.

Compliance Checklist

• Confirm the applicable Act and any exclusions for your project type and location.
• Map your claim dates and deadlines (including reference dates) into your project calendar.
• Embed SOP requirements into your invoicing and accounts processes.
• Train project managers and accounts staff to issue and respond to claims on time.
• Keep thorough records: scopes, variations, delivery dockets, photos, correspondence and meeting notes.
• Escalate early if a dispute emerges so you don’t miss adjudication time limits.

Key Documents To Have In Place

• Construction Contract/Head Contract: Clear milestones, reference dates, payment terms and variation procedures reduce disputes.
• Sub-Contractor Agreement: Ensures your downstream terms (payment, variations, notices and SOP obligations) are aligned and enforceable. Consider a tailored Sub-Contractor Agreement rather than reusing ad hoc forms.
• Goods & Services Agreement: For supply arrangements tied to projects, set out delivery, risk, title and payment. A standardised Goods & Services Agreement helps keep terms consistent.
• Deed Of Assignment/Novation: Where obligations or rights need to move between entities during a project, use clear instruments rather than informal emails.
• General Security Agreement (GSA): If you’re supplying high-value goods on credit, a GSA lets you register a security interest to improve your position if there’s non-payment. Pair this with a PPSR registration or use a fixed-fee service to register a security interest.
• PPSR Strategy: If you’re retaining title in supplied goods, build a process to register on the Personal Property Securities Register. For background, see how the PPSR works.

Not every project needs every document, but having the right suite - drafted to reflect your actual workflows - is one of the best risk controls you can invest in.

Related Contract And Compliance Issues To Watch

Security of Payment operates alongside your wider contractual and compliance framework. Keep these areas on your radar:

• Contract Consistency: Align head contracts and subcontracts so timeframes, reference dates and notice rules don’t conflict down the chain.
• Variations And Scope Control: Embed clear variation processes. Poorly documented scope changes are a common source of disputes.
• Payment Terms: Use plain, consistent language on when claims can be made, what supporting documents are required, and how disputes will be handled.
• Consumer Law (if applicable): Where you deal directly with residential clients, the Australian Consumer Law (ACL) applies - including rules around representations, guarantees and refunds. Simple measures like accurate advertising and well-drafted terms will help you stay compliant.
• Project Governance: Keep signed copies of contracts, insurance certificates, licences and statutory declarations in one place so you can respond quickly if an issue arises.

If you’re refreshing your templates or stepping into a new role on a project (for example, moving from subcontractor to head contractor), a short consult with a construction lawyer can help you reset your documents and internal processes with SOP in mind from day one.

Key Takeaways

• Security of Payment laws give construction businesses a clear pathway to claim and recover progress payments quickly, with strict timeframes and a fast adjudication option.
• Who’s covered and the exact deadlines vary by state and territory, so always check your local Act and lock those dates into your project calendar early.
• Valid payment claims and timely payment schedules are critical - missing a deadline can shift the legal position dramatically for both parties.
• “Pay when paid” clauses are void. Your contract and downstream subcontracts should reflect compliant payment processes across the chain.
• Standardising your contracts and workflows reduces disputes. Consider a tailored Sub-Contractor Agreement, a consistent Goods & Services Agreement and a PPSR strategy supported by a General Security Agreement.
• If a dispute arises, act quickly. Adjudication has tight time limits and can deliver a binding, enforceable determination in weeks rather than months.

If you would like a consultation on setting up your construction contracts in line with the Security of Payment laws, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.