July 2, 2021
On 25 June 2021, the Building and Construction Industry (Security of Payment) Bill 2021 (WA) (the Bill) received Royal Assent to replace the Construction Contracts Act 2004 (WA) (CCA).
The Bill introduces new protection measures to safeguard subcontractors and provide an effective rapid dispute resolution process. The reforms follow the administration of Western Australian Contractor, Pindan Group (and its subsidiaries) which owe $80 million to its creditors. Despite the Bill being more aligned with other ‘East Coast Models’, the challenge for industry stakeholders will be to navigate how previous case law made under the CCA will apply to new payment disputes under the Bill.
The Bill applies to ‘construction contracts’ entered into, after the date of commencement, to carry out ‘construction work’. The scope of ‘construction work’ under the new regime will now include works relating to the fabrication or assembly items of plant associated with mining activities, which was previously excluded under the CCA.
Key Developments
The new Western Australian security of payment regime will take effect on a date to be fixed by proclamation and will apply to construction contracts entered after commencement. Key changes include:
(1) Progress payments: A claimant is entitled to claim a progress payment at the end of each month, or a date under the contract. To facilitate rapid cash flow through the contracting chain, payment claims from:
(a) head contractors to principals must be paid within 20 business days of the payment claim (or any lessor period that is stipulated in the contract); and
(b) subcontractors to head contractor, or between subcontractors, must be paid within 25 business days (or any lesser period that is stipulated under the contract).
(2) Payment claims and schedules: Claims for progress payments may be made by the claimant up to 6 months after the day the works were last carried out or goods and services supplied (or such longer period provided in the contract). All claims for progress payment must be endorsed as being made under the Bill and provide adequate information to identify the basis of the claim and allow a response.
A key criticism of the CCA was that subcontractors who were not being paid, were not being informed as to why payments were being withheld or delayed. The Bill now requires the respondent to issue a payment schedule within 15 business days of receiving the payment claim if they do not intend to pay the full amount, and must identify the amount paid (if any) and reasons why payment is withheld.
(3) Adjudication process: The Bill introduces a rapid ‘pay now / argue later’ adjudication process, which is similar to the previous CCA regime however, the timeframes are significantly tighter:
(a) a claimant must now make an adjudication application within 20 business days of receiving the respondent’s payment schedule;
(b) if no payment schedule is received by the due date and no payment has been made, the respondents are provided a 5-day grace period to provide a payment schedule;
(c) the claimant can then make an application for adjudication within 20 business days after the end of that 5-day period; and
(d) the adjudicator must then make a determination within 10 business days after the response is provided or if no payment schedule is received, within 10 business days of the adjudication application.
(4) Review of adjudication decision: The Bill replaces the State Administrative Tribunal review process with a review of an adjudication determination by a ‘senior adjudicator’ who will either confirm the determination or quash it. If a respondent did not serve a payment schedule or adjudication response within the required time, it is barred from applying for adjudication review.
(5) Unfair time bars: Notice-based time bar provisions in a construction contact will be of no effect if declared ‘unfair’ (where compliance with the provision is either not reasonably possible or, would be unreasonably onerous). As time bar provisions are at the mercy of the decision maker, it is possible that end-of-project disputes will increase, particularly in circumstances where contractors and subcontractors think a time bar does not apply.
(6) Retention trust accounts: The Bill, introduces a new retention trust scheme to provide protections to contractors in the event of upstream insolvency. Retention monies are held in a trust account of an approved financial institution, for the benefit of providing the party withdrawal. The trustee will only be entitled to make a trust account to the extent they have a contractual entitlement to do so (e.g. to fix defective works) or as agreed between the parties. The money cannot be withdrawn to cover the other debts of the trustee (e.g. business overheads, wages etc.) or invested.
Contractors and subcontractors operating within Western Australia will likely require legal advice to navigate these changes and administrative burdens, before they take effect.
Our Team have the knowledge and experience to assist both Principals and Contractors with any security of payment dispute. If you would like to discuss any matters raised in the above article as it relates to your specific circumstances, please contact Lamont Project & Construction Lawyers.
The contents of this article is for information purposes only and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.