WA set to adopt the East Coast security of payment model

Recently, the Western Australian parliament reintroduced the Building and Construction Industry (Security of Payment) Bill 2021 (WA) (Bill). If passed, the following reforms will come into effect in WA:

    1. The introduction of security of payment laws that are more consistent with the East Coast model (i.e. QLD, NSW, and Vic).
    2. A retention trust scheme, powers for unfair time-bars in contracts to be declared void, and a general obligation to give notice before having recourse to security.

A near identical version of the Bill was introduced on 23 September 2020 but lapsed over a failure for both major political parties to agree. The reintroduction of the Bill comes shortly after the announcement that WA contractor Pindan had collapsed owing approximately $80 million to more than 500 subcontractors and leaving its 68 ongoing projects in limbo.

New Security of Payment laws
The Bill will change the security of payment and adjudication regime in Western Australia to be more consistent with the East Coast model. Key aspects of the new regime include:

    1. Statutory rights to progress payments and changed timeframes for making payment: A party who carries out construction work in WA will have a statutory right to receive payment and to make a claim for payment every month, or more frequently if provided for in the contract. A party must make progress payments within at least 20 business days (for payments due to a head contractor) or 30 business days (for payments due to a subcontractor) after a payment claim.
    2. Payment claims and schedules: Unless an earlier date is agreed, a party to a construction contract can make a payment claim on the last day of each month up to 6 months since the works the subject of the claim were carried out. The payment claim must be in writing and state that it is made under the SOP Act. Upon receipt of a payment claim, the respondent may pay the claim in full or issue a payment schedule within either 15 business days or an earlier period if specified in the contract. The payment schedule must be in writing, indicate the amount the respondent proposes to pay (if any), and the reasons for any non-payment. If no payment schedule is issued, then the full claimed amount falls due.
    3. Shorter adjudication process: Under the Bill, a claimant would have around 20 business days after the payment schedule or the due date for payment to make an application. This is much shorter than the 90 business days allowed under the current Act.
    4. No new reasons: If a respondent issues a payment schedule indicating that it proposes to pay the claimant less than the full amount claimed, the respondent is limited to the reasons for non-payment given in the payment schedule when responding to the adjudication application.
    5. No adjudication down the chain: Unlike the current regime, the Bill does not allow a principal to make an adjudication application against their contractor, or a contractor to make an application against their subcontractor.

The Bill goes further than the current legislation in East Coast states and addresses a number of issues that have arisen recently under the East Coast model. This includes:

    1. Unfair time bars: The Bill provides that a notice-based time bar in a contract can be declared to be unfair. If this happens, the time bar has no effect. However, this declaration can only be made in the case of a “particular entitlement” under the contract. Therefore, an adjudicator could find that a time bar is unfair in relation to a particular claim under the contract, but not unfair in relation to a different claim. Despite this, the Bill provides significant relief to contractors who regularly face harsh and impractical time-bars.
    2. Recourse to security: The Bill provides that a party cannot have recourse to security unless it has given the other party 5 business days’ notice of its intention to have recourse. The Bill also requires the up the chain party to set out, in the notice, the reasons why it says it is entitled to have recourse.
    3. Retention trust scheme: The Bill introduces a new retention trust scheme which aims to reduce the risks to builders, subcontractors and suppliers where the up the chain party becomes insolvent. Under the scheme, where a party to the construction contract is withholding retention money or cash security, they will be obliged to hold those funds in a dedicated trust account with an approved financial institution. Money can only be withdrawn from the trust account when there is a contractual entitlement to have recourse to the retention and the money cannot be withdrawn for other reasons (i.e. to cover other debts or invested).
    4. Claimants in liquidation will be unable to make a payment claim or go to adjudication. This is clearly set out in the Bill. This will avoid the doubt that has seen different approaches endorsed under similarly worded legislation in NSW and Victoria: In NSW, the Courts found that its SOP legislation could operate for the benefit of a builder in liquidation.[1] In Victoria the Courts reached the opposite conclusion.[2] The legislation in NSW has since been amended to bar companies in liquidation from claiming under the legislation.

Status of the Bill
The reintroduction of the Bill comes as a timely response to a rattled construction industry, following the collapse of a major contractor. The reforms will provide substantial rights for contractors claiming payment and impose more stringent obligations on up the chain parties. However, contractors must ensure they are aware of the shorter timeframes for enforcing their rights. Given the government’s majority in both houses of the WA parliament, the Bill is expected to be passed, possibly as soon as the third quarter of 2021.

[1] Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) [2019] NSWCA 11.

[2] Façade Treatment Engineering Limited (in liquidation) v Brookfield Multiplex Constructions Pty Ltd [2016] VSCA 247.

Key Contacts:

Thomas Law- Senior Associate

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