Security of payment reform in Western Australia


As part of its policy to provide further protection to subcontractors in the construction industry, the Western Australian Government has introduced two major items of reform to the security of payment regime in Western Australia, being:

  • proposed amendments to the Construction Contracts Act 2004 (WA) (Act); and
  • mandatory use of project bank accounts (PBAs) on state government-funded projects with a value between $1.5 million and $100 million, which applies from 30 September 2016.

Construction Contracts Amendment Bill 2016 (Bill)

The amendments are aimed at improving the operation of, and access to, the rapid adjudication process for resolving payment disputes under construction contracts.

The Bill is currently awaiting the assent of the Western Australian parliament, but is proposed to commence from 15 December 2016.

The most significant amendments are as follows:

  • the types of construction work excluded from the operation of the Act have been narrowed;
  • a party now has a significantly greater period of time to lodge an adjudication application in relation to a payment dispute, from 28 calendar days to 90 business days;

    the prohibition on ‘recycled’ payment claims has been removed;


    the maximum payment period for progress period for progress payments under a construction contract has been reduced from 50 calendar days to 30 calendar days; and

  • amending timeframes to business rather than calendar days, and including a shutdown period over Christmas/New Year.

The mining exclusion

The mining exclusion, in its current form in the Act, is broad in its application, and arguably prevents a party from having recourse under the Act to obtain a progress payment for any construction work on an oil, gas or mineral extraction or processing plant.

The Bill confines the mining exclusion to the fabrication or assembly of plant used for extraction or processing. Other construction work carried out on an oil, gas or mineral extraction or processing plant project will not be excluded from the Act.

Payment disputes and adjudication applications under the Act

Currently, the Act requires that a party submit its adjudication application within 28 calendar days after the payment dispute arises. After the 28th day, the party will have lost its right to adjudicate that payment dispute. This effectively means that a party has one chance only, within 28 days of the dispute first arising, to go to adjudication.

In order to increase the flexibility and applicability of the Act, the Bill proposes to expand the definitions of ‘payment claim’ and ‘payment dispute’ such that a payment dispute will arise each time a payment claim is rejected or partly disputed, even if the payment claim includes amounts that were claimed in a previous payment claim.

Once a payment dispute arises, a party will have 90 business days (increased from 28 calendar days) to submit its adjudication application under the Act.

Maximum payment period

The maximum payment period has been reduced from 50 calendar days from the date of the payment claim to 30 calendar days. Any clause in a construction contract providing for payment to be made more than 30 days after the date of the claim will be read down to require payment within 30 days.

Business days and shutdown period

The amendments also provide a shift from ‘calendar days’ to ‘business days’ for all time limits relating to the adjudication of a payment dispute. The definition of business day also excludes the period from 25 December to 7 January.

Transitional period

Importantly, the Bill provides that if a payment dispute arises prior to commencement of the Bill, the applicant will have the benefit of the extended 90 business day timeframe to submit an adjudication application, even if the original 28 day timeframe had already expired.


Project Bank Accounts

From 30 September 2016, PBAs will be mandatory on all state government construction projects valued between $1.5 and $100 million.

In summary, the PBA involves the establishment of a trust account by the principal and the head contractor. While the head contractor claims payment against the principal in accordance with normal practice, all payments made by the principal under the head contract are made into the PBA. The bank then makes direct payment to the head contractor and the subcontractors after receipt of a payment instruction from the head contractor.

The purpose of the PBA is to eliminate the contractual chain of payment, and to protect money owed to subcontractors from creditors of the head contractor should the head contractor become insolvent during construction.

Conclusions and takeaways

These reforms represent the most substantial changes to Western Australia’s Security of Payment regime since the enactment of the Act in 2004. The key takeaways for participants in the construction industry are as follows:

  • the ability to re-submit or recycle payment claims and the extended timeframe to apply for adjudication is expected to result in an increase in the number of adjudication applications;
  • participants in the industry should be wary of ‘ambush’ claims, as the timeframe for responding to an application remains limited (10 business days);
  • as the Act permits claims both up and down the contractual chain (i.e. a claim or counterclaim can be made by a principal against a contractor for moneys allegedly owed to the principal), all industry members are encouraged to review and update their contract documentation to ensure they are adequately protected from the increased risk of adjudication under the Act; and
  • from 30 September 2016, contractors who tender for State government funded construction work should ensure any increased administrative cost of a PBA is taken into account when submitting their price.



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