The security of payment act
The Building and Construction Industry (Security of Payment) Act 2021 (WA) (Act) replaced the old Construction Contracts Act 2004 (WA). The Act aligns the security of payment regime in Western Australia more closely with the eastern states.
The object of the Act is to provide an effective and fair process for securing payment for construction work.
Application
The Act applies to contracts for construction work carried out in Western Australia and related goods and services entered into on or after 1 August 2022.
This includes contracts for civil works, installation works, demolition or decommissioning works, engineering services or the construction of facilities for a mining, oil or natural gas project.
Contracts for drilling for the purposes of exploration for or extraction of minerals, oil or natural gas are excluded.
Payment claims
The Act creates a statutory right to monthly progress payments.
A payment claim for the purposes of the Act must:
- be in writing and in the approved form (if any); (currently there is none);
- clearly indicate the amount claimed;
- describe the items and quantities of work done or related goods and services supplied;
- include an endorsement or statement that the payment claim is being made under the Act;
- include any other information required by the regulations (currently there is nothing).
Milestone payments are permissible if provided for under the contract.
If a document purports to be a payment claim but not all requirements are satisfied, it is safest to treat the document as a payment claim and respond accordingly.
The WA Building Commissioner has released a recommended form for payment claims.
Payment schedules
If you do not intend to pay the full amount of a payment claim, you must respond with a payment schedule within 15 business days (or earlier if required by the contract).
If you fail to do so, the full amount of the payment claim will become payable.
A payment schedule must:
- be in writing and in the approved form (if any); (currently there is none);
- identify the payment claim to which it relates;
- indicate the amount of payment (if any) that a respondent proposes to make; and
- indicate all reasons for withholding payment.
Only those reasons specified for withholding payment in a payment schedule may be raised later in response to an adjudication application.
The WA Building Commissioner has released a recommended form for payment schedules.
Payment terms
Maximum payment terms under the Act are counted from the date of the payment claim and are 20 business days for head contracts and 25 business days for subcontracts.
Late payment will attract interest at the greater of the rate provided under the contract and the statutory rate (which is 6 per cent per annum as at November 2024).
Notice-based time bars
A notice-based time bar may be declared unfair by an adjudicator or the court if compliance with the provision in that case:
- is not reasonably possible, or
- would be unreasonably onerous.
The party who alleges a notice-based time bar provision is unfair bears the onus of establishing that it is unfair.
In determining whether a notice-based time bar provision is unfair, the adjudicator/court must take the following into account:
- when the party required to give notice would reasonably have become aware of the relevant event or circumstance, having regard to the last day on which notice could have been given;
- when and how notice was required to be given;
- the relative bargaining power of each party in entering into the construction contract;
- the irrebuttable presumption that the parties have read and understood the terms of the construction contract;
- the rebuttable presumption that the party required to give notice possesses the commercial and technical competence of a reasonably competent contractor;
- if compliance with the provision is alleged to be unreasonably onerous – whether the matters set out in the notice are final and binding; and
- any matter prescribed by the regulations (currently there is nothing).
Performance security
Retention money must be held in a retention money trust account and may, at the contractor’s option, be substituted for a compliance bond.
Under the Act, a party must give five business days’ notice to the other party of its intention to call on the performance security.
A notice of intention must:
- be in writing and in the approved form (if any); (currently there is none);
- identify the construction contract and the provisions of the contract that the party relies on to have recourse to the performance security; and
- describe the circumstances that entitle the party to have recourse to the performance security.
This is a big shift from previous market practice and will apply despite the provisions of the bank guarantee or the underlying contract.
Adjudication
Payment disputes may be referred to adjudication under the Act.
The adjudication process is a rapid dispute resolution process specific to construction contracts, in which payment disputes can be resolved quickly, on an interim basis.
An adjudication application must be made within 20 business days after the claimant first becomes entitled to make the application.
The respondent will have only 10 business days from being served with the application to provide an adjudication response.
The adjudicator will make a determination within 10 business days of receiving the adjudication response. The parties may agree to extend this period if the adjudicator requests an extension, to a maximum of 20 business days.
Review by another adjudicator is possible if:
- the adjudicator declines jurisdiction and the amount in dispute is more than $50,000; or
- the determination is at least $200,000 less than the payment claim / more than the payment schedule.
The application for review of an adjudication determination must be made within five business days.
While an adjudicator’s determination is legally binding, it does not affect the unsuccessful party’s right to litigate the matter at a later stage.
For more information please contact Rebecca Cifelli and Will Coulthard