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08 Sep 2022

WA's new Security of Payment laws toolkit

WA's new Security of Payment laws at a glance

Any construction contracts entered into on or after 1 August 2022 will be subject to Stage 1 of Western Australia’s new security of payment regime under the Building and Construction Industry (Security of Payment) Act 2021 (WA).

This resource kit will help you to navigate the significant changes to the legislative landscape introduced by the SOPA, including providing you with practical insights into the application of the SOPA and tools to help you ensure that you and your organisation are aware of and compliant with the changes which have come into force with the first stage of the Act.

To help inform your priorities:

  • Recommendations as to how your business can go about adapting to the new security of payment regime changes, including suggested changes to your template contracts, payment protocols and processes and internal education programs.
  • Insights into the operation of new and bolstered provisions – including a bolstered provision which enables contractors to suspend work or supply in certain circumstances and a new provision which will enable them to exercise a lien over unfixed plant and material in certain circumstances.

Stage 1 commenced 1 August 2022 – implementation of new security of payment regime

Introduction of statutory rights to payment, adjudication & recovery processes

Crucially, the New Act introduces a statutory payment process, meaning particular parties will have a statutory right to receive payment & to make a claim for payment that will operate independently of their contractual rights & entitlements.

The adjudication process under the New Act differs considerably to the Construction Contracts Act 2004 (WA) process.

Prohibition of certain contract terms – including "pay when paid" provisions

  • Contains a broader prohibition on "paid when paid" provisions – it prohibits clauses that: (a) make the liability of Party A to pay an amount owing to Party B contingent on Party A receiving payment from a third party; (b) makes the due date for payment of an amount owing dependent on the date Party A receives payment from the third party; & (c) makes any of the following contingent on the operation of another contract: liability to pay an amount owing, the due date for payment of an amount owing, the making of a claim for an amount owing & / or the release of retention money or performance security.
  • Prohibits provisions that purport to exclude, modify or restrict the operation of the New Act.
  • Prohibits any purported waiver of an entitlement under the New Act.
  • Prohibits provisions if they require a person who is entitled to make a claim under the New Act to engage in a dispute resolution process with the other party to the contract or with a third party as a precondition to: (a) the making of a payment claim by the person; (b) making of an adjudication application or adjudication review application by the person; (c) the exercise of any other right, or discharge of any obligation to, the person under the New Act.

Unfair time bars may be declared void

A party may apply for a notice-based time provision / bar to be declared "unfair" in the case of a particular entitlement under a construction contract – in which case, the time bar will be found to be of no effect or force. This is the first time such a provision has been included in security of payment laws in Australia.

A notice-based time provision will be declared "unfair" where compliance was not reasonably possible" or would be unreasonably onerous. The decision maker (the Court, an arbitrator, an adjudicator or an expert appointed by the parties) will have regard to particular considerations outlined in the New Act when making this assessment.

Right for contractors to suspend work in event of non-payment

A contractor may be entitled to exercise a statutory right to suspend work when an amount owed to it by a principal or owner is not paid & where certain requirements under the New Act are fulfilled.

Introduction of right to exercise a statutory lien over unfixed plants & material in respect of unpaid progress payments

When progress payments become payable, claimants (such as contractors) may be entitled to exercise a statutory lien in relation to the unpaid amount over any unfixed plant or materials supplied by the contractor for use in connection with the carrying out of the construction work for the principal or owner.

Improvements to administration of adjudicators, "review adjudicators" & nominating authorities

The changes include specifications as to the experience & qualifications parties will need to have in order to qualify as "adjudicators" or "review adjudicators" & the introduction of detailed codes of practice which nominating authorities & adjudicators will be expected to comply with.

Introduction of new Regulations to support operation & administration of the new legislation

The Building and Construction Industry (Security of Payment) Regulations 2022 also came into operation on 1 August 2022 & serve to clarify various key operational aspects of the New Act.

Stage 2 to come into operation on 1 February 2023

Minimum 5 business days' notice to be given before a party may have recourse to performance security (including bank guarantees & retention moneys)

If a party wants to call on performance security, they will need to (amongst other things) give the other party 5 business days' prior written notice of their intention to do so. If no such notice is given, that party will not be entitled to have recourse to the performance security (despite any term to the contrary in the underlying construction contract. This is a statutory requirement which will override any contrary position in a construction contract.

First phase of new retention money trust scheme – will apply to construction contracts over $1m

The New Act will introduce a deemed retention trust scheme into WA's security of payment regime. These provisions will require retention money to be held on trust in a "retention money trust account" by the party under the construction contract who retains such money, with limited access rights, until the "retention money trust end date" (with some limited exceptions). The first phase of the scheme will commence on 1 February 2023 & will apply to construction contracts over $1 million.

Introduction of new regulator powers

This will include the introduction of new powers for the Building Services Board (including to take action against registered builders & other providers who fail to pay debts to subcontractors & to remove those with a history of poor financial behaviour), the introduction of disciplinary offences & registration exclusion.

Parties risk a $50,000 fine if they intimidate or threaten a claimant or person about their rights & entitlements

A person will commit an offence if they directly or indirectly threaten or intimidate, or attempt to threaten or intimidate, a claimant or a person entitled to make a payment claim in relation to:

  • their entitlement to, or claim for, a progress payment; or
  • their exercise of any other rights under Part 3 (Procedure for obtaining progress payments) under the New Act.

If a party commits this offence, they will risk being subject to a fine of $50,000.

Stage 3 to come into operation on 1 February 2024

Second phase of new retention money trust scheme – will apply to construction contracts over $20,000

The second phase of the scheme will commence on 1 February 2024 & will apply to construction contracts of $20,000.00 & above.

Parties will risk facing a $50,000 fine if they fail to establish a retention money trust account & to pay retention monies into that account

A party to a construction contract will commit an offence if they fail to (without reasonable excuse) ensure that retention money (if they retain retention money under the applicable contract) is paid into a retention money trust account which has been established by that party with a recognised financial institution in accordance with the New Act.

If a party commits this offence, they will risk being subject to a fine of $50,000.

Parties will risk facing a $50,000 fine if they fail to allow a person with a beneficial interest in money in a retention money trust account to inspect & take copies of any accounting records relating to the money

A party to a construction contract will commit an offence if they fail to (without reasonable excuse), on being given reasonable notice by any other person with a beneficial interest in money in a given retention trust money account (which was established & operated by that party), allow the other person to inspect & take copies of any accounting records relating to the money.

If a party commits this offence, they will risk being subject to a fine of $50,000.

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Disclaimer

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.