Changes imminent for construction industry Western Australia launches new Security

What you need to know

• New security of payment law has passed through the Western Australian Parliament. The new law, the Building and Construction Industry (Security of Payment) Act (the Act), received Royal Assent on 25 June 2021 and brings Western Australia more in line with most other Australian jurisdictions. The operative provisions of the Act will come into force on dates to be proclaimed by the WA Government.
• The new law will supersede the existing Construction Contracts Act (CCA) which has been in place for 17 years. The CCA will continue to apply to contracts entered before the operative provisions of the new law come into force.
• The new law does not strictly follow security of payment legislation in other jurisdictions and is unique. The new law introduces novel concepts which will be ground for debate for contractors and principals in the coming years.
• The "mining exclusion" in the CCA has been narrowed. Processing plants in the mining and energy industries were excluded from the operation of the CCA. These plants will be captured by the new law and mining and energy companies should be aware of the changes.

What you need to do

• Companies involved in the construction industry in Western Australia need to update their procedures for issuing and responding to invoices.
• All parties should review contracts that involve construction work in Western Australia for compliance with the new law.
• Mining and energy companies should be aware of the new security of payment regime as it will apply to new projects.

Relevant Changes

On 22 June 2021 the Western Australian Parliament passed the Building and Construction (Security of Payment) Bill 2021 (WA). Royal Assent was given on 25 June 2021, making the Bill an Act. The Act overhauls security of payment legislation in WA.

The Act will supersede the existing CCA and in doing so will:

• change the adjudication regime in Western Australia;
• impose changes on contracts used for construction work performed in WA; and
• introduce a trust scheme in respect of retention money held under a construction contract.

The Act brings Western Australia closer in line with what is typically referred to as the "East Coast Model", being security of payment legislation in place in New South Wales, Queensland, Victoria, South Australia, Tasmania and the ACT. The Act includes a number of new concepts not seen in other jurisdictions.

Key changes introduced by the new Act include:

A statutory right to payment for construction work & limits around responding to applications for adjudication

The Act sets due dates for payment of construction work, depending on the parties involved.

The due dates require a principal to make payment to a head contractor within 20 business days after a payment claim is made. A contractor is required to make payment to a sub-contractor within 25 business days after a payment claim is made.

A respondent is entitled to provide a response (referred to as a payment schedule) to a payment claim. The delivery of a payment schedule is significant as:

•  if no payment schedule is given the respondent is liable to pay the amount claimed;
• a payment schedule is a condition precedent to respondent's ability to respond to any application for adjudication; and
• a respondent's adjudication response is limited to the reasons set out in its payment schedule.

A narrowing of the mining exclusion

Under the CCA, the term "construction work" did not include fabricating or assembling any plant that was to be used for extracting or processing oil, natural gas or any other mineral bearing substance. This exclusion meant that most construction work on large mining and oil and gas projects in WA was not covered by the CCA.

The new Act narrows the "mining exclusion", with the result that mining and energy companies will need to consider the Act when considering new developments.

A prohibition on unfair time bars

Contractual clauses that requires a party to give notice or exercise a right within a fixed time-frame are common in construction contracts. These "time bar" clauses are usually enforced, even where the outcome can be seen as harsh. The giving of notices in the form required is therefore a key feature of the administration of construction contracts.

The new Act contains provisions that allow a decision-maker (such as an adjudicator, a court, an arbitrator or an expert) to declare a time bar "unfair" and therefore of no effect. The party alleging that a notice-based time bar is "unfair" bears the onus of proof.

The prohibition on unfair time bar provisions is new and is not a feature of security of payment legislation in other Australian jurisdictions. Contractors and principals should review any new construction contracts in light of this prohibition.

A requirement for notice before making a demand on performance security

The Act states that a party is not entitled to have recourse to a performance security unless it gives the other party five business days' written notice of its intention to have recourse to the security. The rationale behind this requirement is to give contractors the ability to rectify any default. Though it will also give contractors forewarning of the demand and potentially provide contractors with the time needed to seek injunctive relief in Court to prevent the demand on the performance security.

A requirement to place retention money into a trust account

Retention money refers to funds payable to a contractor for having performed construction work, but which is held as security until works are complete.

The Act introduces a trust scheme that requires retention money to be placed into a dedicated trust account which can only be accessed in limited circumstances.

The introduction of a trust account will provide increased protection for contractors, though will increase the cost of administering construction contracts.
A requirement to place retention money into a trust account.

Moving forward

The operative provisions of the Act will come into force soon and in light of this:

• parties should review and amend any precedent construction contracts used in Western Australia to ensure compliance; and 
• parties should update their procedures for issuing invoices and for responding to invoices to ensure alignment with the requirements of the Act.

Mining and energy companies should review any new developments to consider whether the Act will apply and update their contracts and policies accordingly.

Author: Matthew Blycha, Partner.