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WA Parliament has fast-tracked legislative reforms for securing payments under construction contracts in the building and construction industry.
The renewed focus on securing payment for subcontractors comes after the collapse of the Pindan Group last month. The Building and Construction Industry (Security of Payment) Bill 2021 (WA) (the new Act), seeks to overhaul the current WA approach in favour of the East Coast model and provide more robust protections for subcontractors. The new regime also introduces a retention trust scheme designed to prevent subcontractors’ retention money from being misappropriated or lost should an insolvency event occur.
In this Insight we outline each of the key changes, discuss their likely impact and highlight the requirements for compliance.
- The new Act has passed through WA Parliament (without any further consultation process or significant amendments) after the collapse of the Pindan Group pushed the protection of subcontractors to the top of the McGowan Government’s agenda.
- The new regime introduces a legislative model based on the East Coast security of payment laws (specifically, the security of payment regimes in New South Wales, Victoria, Queensland, Tasmania, South Australia and the Australian Capital Territory).
- The statutory right to make payment claims, receive progress payments and employ the rapid adjudication process, amongst other changes introduced by the new Act, will govern construction contracts entered into after its proclamation.
- The new Act is expected to receive Royal Assent within 5-10 days, with the lion’s share of operative provisions coming into force upon proclamation, which may take up to 12 months. Associated regulations are also contemplated and are awaited.
- Building and construction contracts entered into prior to assent and proclamation of the new Act will continue to be governed by the security of payment provisions in the Construction Contracts Act 2004 (WA) (CCA).
As we reported last year, these reforms were previously tabled and advanced to the Legislative Council before being put on ice when the state election was called in December 2020. The new Act is largely the same as the bill previously introduced (with some minor drafting changes), and has been fast-tracked through WA Parliament after the collapse of the Pindan Group pushed the protection of subcontractors to the top of the McGowan Government’s agenda.
The new Act incorporates many of the recommendations of John Fiocco in his Final Report to the Minister for Commerce, ‘Security of Payment Reform in the WA Building and Construction Industry’ (October 2018) (Fiocco Report). The Fiocco Report set out 44 recommendations to improve security of payment for subcontractors in WA’s building and construction industry. The new regime will provide more consistency of security of payment laws across Australia since – in addition to other key changes (set out below) – it introduces a statutory payment process similar to that of the East Coast model.
New security of payments regime
The new security of payment regime includes the following key features:
- Rapid adjudication process: the new Act provides for a ‘pay now – argue later’ adjudication process in circumstances where the respondent is not entitled to provide an adjudication response (where it has not given the claimant a payment schedule).
- Time reduced for adjudication application: the time period for bringing an adjudication application is reduced from 90 business days under the CCA to 20 business days. This time period starts from when the claimant receives a payment schedule or after the due date for payment passes.
- Christmas ‘blackout’ extended: the exclusion of the Christmas period from the definition of ‘business day’ is expanded, with any day that falls between 22 December in a year and 10 January in the following year (inclusive) being excluded.
- Recourse to performance security: a party to a construction contract will only be entitled to have recourse to performance security under the contract if it gives the other party five business days’ written notice of its intention to have recourse to the security.
New retention trust money regime
The new Act also introduces a deemed trust scheme. Under this scheme, retention money is to be held on trust by the party to a construction contract who retains the money. That party must ensure the money is paid into a trust account within 10 business days of contract formation and only withdrawn in limited circumstances.
If a party fails to fulfil its obligations as a trustee of the retention money, general law remedies can be pursued and, in some cases, a statutory right to suspend ongoing construction work may apply.
The new retention trust money regime is a diluted version of the initially proposed cascading trust scheme – which would have required most of the value of a contract to be held in trust – but faced backlash from stakeholders.
The new Act will become law once it receives Royal Assent (usually within five to ten days of being passed), however commencement of the substantial provisions such as the security of payment and retention trust money schemes will be staged for a later date. The CCA will continue to apply to contracts entered into before commencement of the new Act.
Parties should consider:
- which legislative regime, the new Act or the CCA, will cover their construction contracts;
- whether the activities under their contract will be construction work for the purposes of the new Act;
- whether changes to payment and notice protocols are needed for contracts under negotiation;
- in the case of a principals, ensuring responses to payment claims meet the requirements of a ‘payment schedule’ under the new Act; and
- if other contractual risk management strategies should be provided for in their contracts.
Allens will monitor the new Act’s assent, proclamation and Regulations implementation. We can help you navigate the changes to ensure your compliance under the new regime as they take effect.