Security of Payment in Western Australia Stage 1 in force on 1 August 2022

What you need to know

• Stage 1 of the Building and Construction Industry (Security of Payment) Act 2021 (WA) (the Act) comes into force on 1 August 2022. Stage 1 is focused on implementation of the new payment and adjudication regimes.

What you need to do

• Companies involved in the construction industry in Western Australia need to ensure their contract templates and payment protocols are ready for the change in regime on 1 August 2022.
• Mining and energy companies who may have been excluded from the Construction Contracts Act 2004 (WA) (CCA) should consider whether new works will be captured by the Act and may need to update their protocols accordingly.
• Companies operating in this area should be aware of the gradual implementation of the Act, including that the new retention trust scheme will commence in Stage 2 (1 February 2023) and Stage 3 (1 February 2024).

Summary

On 1 July 2021, we provided an outline of the key changes to the Security of Payment regime in Western Australia by the passing of the Act. By way of update to that note, Stage 1 of the Act comes into force on 1 August 2022.

Stage 1 includes the new payment and adjudication regime for construction contracts in WA. The Act will apply to all contracts entered into on or after 1 August 2022. The CCA will continue to apply to all contracts entered into before this date.

All construction contracts entered into after 1 August 2022 will need to be drafted to take account of the legislation, particularly the Stage 1 requirements. Procedures for issuing and responding to invoices will likely also need to be updated to reflect the time frames of the Act.

These changes are relevant to both Respondents (Principals/Head Contractors) and Claimants (Head Contractors/Subcontractors).

A reminder of the key provisions that will be in force on 1 August 2022.

Time frames for payment

Payment claims must be paid by a principal within 20 business days after a payment claim is made by a head contractor or within 25 business days if the payment claim is made by a subcontractor.

A respondent should provide a payment schedule within 15 business days after the payment claim is made. The payment schedule should set out all the reasons it is not paying the amount claimed and ensure it meets the requirements of a payment schedule under the Act.

Importantly, the respondent cannot include in the adjudication response any reasons for withholding payment unless those reasons have already been included in the payment schedule. This is a significant change from the current regime in the CCA.

Failure to respond to payment claim gives right to payment

If no payment schedule is submitted within the 15 business day time limit the respondent must pay to the claimant the full amount of the payment claim.

Invalidity of ‘unfair’ time bars

Time bar clauses should be drafted with the Act's prohibition on 'unfair' time bars in contemplation. The Act allows notice-based time bar provision to be declared ‘unfair’ if compliance with it was ‘not reasonably possible’ or ‘would be unreasonably onerous’.

The concept of an 'unfair' time bar is unique and is not part of security of payment legislation in place in other Australian states. Compliance with notice periods is often a source of friction on construction projects, and it remains to be seen whether these new provisions will serve to reduce disputes.

Mining exclusion

Construction contracts relating to extraction or processing plants in the mining and energy industries, which were previously excluded under the CCA, are not excluded by the terms of the Act, so the above time frames will need to be considered in any new works undertaken by these industries.

Going Forward

There is a 3 year Action Plan for Reform for implementing the Act. The other stages will commence on 1 February 2023 (Stage 2) and 1 February 2024 (Stage 3).

Importantly, s 57 which specifies the requirement that 5 business days' written notice must be provided before having recourse to performance security will not be in force in Stage 1.

We will also provide an update on the the regulations once made, including any regulations made pursuant to s 15 of the Act which can render certain types of terms in construction contracts, or in certain classes of construction contracts void and unenforceable.

Authors: Matthew Blycha, Partner and Suzannah Bahen-Wright, Senior Associate.