Western Australia updates its security of payment regime

On 25 June 2021, the Building and Construction Industry (Security of Payment) Act 2021 (WA) (the “Act”) received Royal Assent and the operative provisions of the Act now await commencement by proclamation.

The Act follows the recent collapse of a major construction company in Western Australia and will overhaul the current security of payment regime operating in Western Australia, replacing the Construction Contracts Act 2004 (WA) (“CCA”).

Background to security of payment in Western Australia

In Australia, there are effectively two security of payment regimes known as the “West Coast” model (comprising the Northern Territory and until the operative provisions of the Act commence – Western Australia) and the “East Coast” model (comprising all other States and Territories), which operate with significant differences between the two regimes (in addition to many differences between jurisdictions within the same model).

The new security of payment system will move Western Australia to a system that is more closely aligned to the East Coast model.

The Act implements some of the recommendations from the Commonwealth Government’s national review in 2017 by John Murray AM[1] and the report by John Fiocco to the Western Australia Government in 2018[2] and is in substantially the same form as an earlier 2020 version of the Act that lapsed when Parliament was prorogued on 7 December 2020.

The Act

The Act will apply to construction contracts entered into after the date of commencement of the operative provisions of the Act. In the meantime, the CCA will continue to apply.

The Act provides a right to a progress payment to a person who, under a construction contract, has undertaken to carry out construction work or to supply related goods and services (the “claimant”).

Residential construction work under the Act will also be captured in certain circumstances where the value of contract works is greater than $500,000.

The process for adjudication of payment disputes pursuant to the Act will be as follows:

• A payment claim may be made on the last day of each month (or an earlier date if that is provided for in the contract).
• The due date for payment is:
  • 20 business days after a payment claim is made by a head contractor to an employer; or
  • 25 business days after a payment claim is made by a subcontractor to a head contractor.
• A party that receives a payment claim (the “respondent”) may either pay the amount claimed or issue a payment schedule (within 15 business days after the payment claim is made or an earlier time required by the contract) indicating the amount to be paid and reasons why payment is being withheld.
• If payment is not made or a payment schedule is not given, a claimant must provide the respondent with a second chance notice to issue a payment schedule before the claimant proceeds to adjudication.
• A claimant may apply for adjudication within 20 business days after a payment schedule is given or after the expiry of the timeframe in the second chance notice.
• An adjudication application is made either to the person nominated under the construction contract to be the adjudicator or an authorised nominating authority chosen by the claimant.
• A respondent may only provide an adjudication response (within 10 business days of receiving an adjudication application) if a payment schedule has been given within the time permitted.
• The adjudicator has 10 business days to determine the application unless the parties agree to extend the time.
• An adjudication decision may be reviewed by a senior adjudicator in certain circumstances.

Differences between the East Coast model and the Act

As noted at the outset, there are still significant disparities between the security of payment systems within the jurisdictions following the East Coast model. For example, depending upon the jurisdiction, different timeframes will apply to the various steps throughout the process.

Further, some of the provisions that will be different in Western Australia under the Act include:

Time bars

Section 16 of the Act empowers an adjudicator (as well as a court, arbitrator or an expert) to determine a contractual time bar is of no effect if it is “unfair” because compliance with that provision is not reasonably possible or would be unreasonably onerous.

Retention trust scheme

Part 4 of the Act introduces a new retention trust scheme whereby retention money (including subcontractor’s retention money) which is captured by the relevant provisions is held on trust and is not able to be withdrawn unless it is for a purposed specified by the Act. In the event of insolvency, the retention money is ring fenced and not available for distribution to general creditors.

Conclusion and implications

The security of payment regime in Western Australia will be fundamentally overhauled when the operative provisions of the Act commence. While Western Australia’s new security of payment regime is more closely aligned with the East Coast model than previously, we still do not have a harmonised security of payment system in Australia over three and a half years after the recommendations of the Murray Report[3] and despite the clear compliance burden that multiple security of payment regimes imposes on all in the industry.

Some action items for contractors and employers in to ensure readiness for the new system in WA include:

• Construction contract issues:
  • The timing of execution of contracts may need to be considered given that whether the CCA or the Act will apply will depend on when the relevant construction contract is executed.
  • In-house or standardized forms of construction contracts may require amendment to reflect the requirements of the new Act.
• Compliance issues:
  • Employees may need training in relation to the new documentation requirements and timeframes that will apply under the new Act.
  • Precedent forms such as payment claims and payment schedules may require updating.

[1]Review of Security of Payment Laws: Building Trust and Harmony (December 2017) by John Murray AM

[2]Final Report to the Minister for Commerce: Security of Payment Reform in the WA Building and Construction industry (October 2018) by John Fiocco

[3]Review of Security of Payment Laws: Building Trust and Harmony (December 2017) by John Murray AM