The new Building and Construction Industry (Security of Payment) Act 2021 (WA): Key changes for construction activities in Western Australia

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 Introduction

The new Building and Construction (Security of Payment) Act 2021 (WA) (the New Act) applies to construction contracts entered into from 1 August 2022.[1]  The New Act will be implemented in 3 stages, with further changes to apply from 1 February 2023 and 1 February 2024.

The Construction Contracts Act 2004 (WA) (re-named to include (Former Provisions) in its title),[2] (the Old Act) continues to apply to construction contracts entered into before 1 August 2022.The New Act is a significant legislative change for the construction industry in WA.  It gives effect to many of the recommendations made in reviews of the construction industry at both state and national levels.[3] It will also bring WA into closer alignment with the security of payment legislation operating in most other jurisdictions around Australia.
 
If you:
 
  • have not been paid for construction work; or
  • disagree with a progress claim; or
  • have received an adjudication application,
we recommend that you contact us immediately, as strict time limits apply under both Acts for dealing with these matters.
 
This note covers the following key changes, introduced by the New Act, which took effect from 1 August 2022:
 
  1. broader application, particularly to the resources industry;
  2. prohibitions on some contract terms;
  3. a separate, statutory right to progress payments, with strict time limits and consequences; and
  4. some changes to the adjudication process, including the introduction of a limited review adjudication process.
It also covers other key changes that will take effect from 1 February 2023 and 1 February 2024, namely:
 
  1. notice requirements before accessing performance security;
  2. a retention money trusts regime; and
  3. potential personal liability for directors and officers.
This note does not cover the application of the New Act to construction contracts for home building work.
 
1. Broader application to the resources industry
 
The New Act is broader in its application and may apply to construction activities that were not previously covered by the Old Act – particularly in the downstream activities of the resources industry.
 
Unlike the Old Act, the New Act applies to ‘fabricating or assembling items of plant used for extracting or processing oil, natural gas or any derivative of natural gas, or any mineral bearing or other substance’.[4]
 
The following activities are excluded from both Acts:[5]
 
  • drilling for the purposes of discovering or extracting oil or natural gas (whether or on land or not);
  • constructing a shaft, pit or quarry, or drilling, for the purposes of discovering or extracting any mineral or other substance;
  • constructing or fitting out the whole or any part of a watercraft; or
  • work prescribed by the regulations (none has been prescribed yet).
The New Act applies to written and oral contracts, as well as ‘other arrangements’[6] which, according to the New Act’s Explanatory Memorandum, is intended to encompass transactions or relationships which are not legally enforceable as contracts.[7]
 
2. Prohibitions on some contract terms
 
(a) Expanded prohibitions against “pay when paid provisions”
 
The New Act replicates and expands the Old Act’s prohibition against “pay when paid provisions”. The New Act:[8]
 
  • prohibits provisions that make the liability to pay, or the due date for payment, dependent on receiving payment from another party; and
  • prohibits provisions that make any of the following contingent or dependent on the operation of another contract:
    • the liability to pay an amount owing;
    • the due date for payment of an amount owing;
    • the making of a claim for an amount owing; and
    • the release of retention money or of a performance bond.

Prohibited terms have no effect.

(b) Prohibition against dispute resolution precondition

The New Act also prohibits provisions that require a party to engage in any negotiation, conciliation or other dispute resolution process as a precondition to claiming payment, applying for adjudication, or exercising any other rights or discharging any obligation under the New Act.  Such terms have no effect.

(c) Broader “no contracting out” prohibition

The New Act expands the Old Act’s prohibition against contracting out of the legislation and makes void any provision (whether in a construction contract or any other contract or arrangement) that may be reasonably construed as an attempt to deter a person from taking action under the Act.[9]  A similar prohibition appears in the security of payment legislation of other states,[10] but remains largely untested in the courts.

(d) Unfair notice-based time bar provisions have no effect in particular proceedings

A notice-based time bar provision is one which requires a party to give notice (as set out in the contract) otherwise the party is not entitled to payment for construction work or an extension of time for doing something that affects an entitlement to payment. 

A notice-based time bar provision may be declared unfair by an adjudicator, review adjudicator, judicial officer, arbitrator or expert if compliance is not reasonably possible or would be unreasonably onerous.  The decision-maker must have regard to:

  • 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 the parties;
  • the irrebuttable presumption that the parties have read and understood the contract;
  • the rebuttable presumption that the party required to give notice possesses the commercial and technical competence of a reasonably competent contractor; and
  • if compliance with the provision is alleged to be unreasonably onerous — whether the matters set out in the notice are final and binding,

but must not take into account the provisions of any related contract or the things that happened under any related contract.A notice-based time bar provision in a construction contract will have no effect declared unfair.[11] However, the declaration is limited to the particular entitlement in question in the proceedings. The provision continues to have effect in other circumstances or challenges arising under the same or a related contract.

3. Statutory right to progress payments, strict time limits and consequences
 
(a) Separate, statutory right to progress payments
 
The New Act gives contractors and consultants a statutory entitlement to payment which is a separate and additional entitlement to any contractual entitlement to payment.[12]  Unlike the Old Act, the New Act does not imply terms into the construction contract – the entitlements in the New Act are statutory entitlements that are enforced based on the legislation, not the contract. 
 
The statutory mechanism for payment under the New Act is not intended to affect the parties’ underlying contractual rights.[13] 
 
(b) Strict time limits and requirements
 
Strict time limits and requirements apply to statutory payment claims.  In the context of similar security of payment legislation in the eastern states, these have been described as “brutally fast”[14] and “carefully calibrated”.[15]  There is no power in the New Act to extend the timeframes for: making a statutory payment claim, responding to a statutory payment claim, the payment due date of a statutory payment claim, or applying for adjudication.
 
A statutory payment claim must:[16]
 
  • be made in writing and in the approved form (none currently);
  • indicate the amount of the progress payment that the claimant claims is payable by the respondent;
  • describe the items and quantities of construction work, or related goods and services, to which the progress payment relates; and
  • state that it is made under the Building and Construction Industry (Security of Payment) Act 2021 (WA); and
  • include any other information required by the regulations (none currently).
If a payment claim does not satisfy all of the requirements of the New Act, it may not be a statutory payment claim and could give rise to jurisdictional challenges in any subsequent adjudication.[17]
 
A statutory payment claim (other than a claim for final payment) may be made:[18]
 
  • monthly;
  • on or after the last day of the month in which the work was first carried out (or related goods and services were first supplied);
  • up to 6 months after the work was first carried out (or related goods and services were first supplied); and
  • for unpaid amounts that have been the subject of previous payment claims.
For the purposes of a statutory payment claim, the New Act will ‘pick up’ and apply any provisions in the construction contract which: allow for more than one payment claim to be made in each month, or provide for an earlier day for making a payment claim, or give a claimant a longer period for making a payment claim.
 
Parties should be aware that a claimant may have a considerably longer timeframe to make a statutory payment claim for final payment than the timeframe provided in the contract.  Under the New Act, a claimant may make a statutory payment claim for final payment until the latest of:
 
  • the date (if any) in the construction contract;
  • 28 days after the end of the last defects liability period for the construction contract; and
  • 6 months after the completion of all construction work or the supply of all related goods and services.
The due date for payment depends on the nature of the party claiming payment and the terms of the construction contract.  A statutory payment claim is due:
 
  • 20 business days after the payment claim is made, for a claim made by a head contractor to a principal;
  • otherwise (including if there is no head contractor), 25 business days after the payment claim is made.
However, if any earlier due date is specified in the construction contract, that date will apply.[19]
 
A party responding to a payment claim, must provide a written payment schedule within 15 business days after the payment claim is made (or any earlier time specified in the construction contract). The payment schedule must:[20]
 
  • identify the payment claim to which it relates;
  • indicate either:
    • the amount of any payment that will be made; or
    • that no payment will be made; and
  • include reasons for not paying the claimed amount in full and any reasons for withholding payment, including rights of set-off and rights to liquidated damages.
The respondent’s reasons should be comprehensive and reasonably detailed because, if an adjudication application is subsequently made, the respondent will be limited in their response (and any review adjudication) to the reasons given in the payment schedule.[21]  A respondent cannot include – and an adjudicator cannot consider (and may award costs against a respondent for attempting to include[22]) - reasons in the adjudication response that were not included in the payment schedule.  This is a significant change from the Old Act as it brings forward, considerably, the time at which a respondent should consider the potential scope and content of their response to any related adjudication application.
 
(c) Consequences
 
If a payment schedule is not provided within the time limit, the unpaid amount of the payment claim becomes a debt on the payment due date and the claimant can bring debt recovery proceedings to recover that amount.[23]
 
The claimant may also bring debt recovery proceedings for any amount stated in a payment schedule which is not paid by the payment due date.[24]
 
If a claimant brings debt recovery proceedings, the respondent cannot bring any cross-claim against the claimant or raise any defence under the construction contract.[25]
 
The New Act also gives the claimant other rights if a respondent does not, within the required timeframe, pay a statutory payment claim in full or provide a payment schedule, including rights to:
 
  • interest, at the rate provided in the construction contract or prescribed in the Civil Judgments Enforcement Act 2004 (WA) (currently 6% per annum), whichever is greater;[26]
  • suspend work or supply, with written notice;[27]
  • exercise a lien, in relation to the unpaid money, over any unfixed plant or materials supplied by the claimant;[28] and
  • apply for adjudication, as an alternative to debt recovery proceedings.[29]
4. Changes to the adjudication process
 
The adjudication process in the New Act has the same objective as the Old Act of determining an adjudication application fairly, and as quickly, informally and inexpensively as possible.[30]  However, there are some important differences, including the following:
 
  • Second chance notice:[31] If the respondent has not given a payment schedule, the claimant cannot apply for adjudication unless they have, within 20 business days after the payment due date:
    • given written notice of their intention to apply for an adjudication; and
    • given the respondent a ‘second chance’ to provide a payment schedule within 5 business days after receiving the claimant’s notice.
  • Shorter period to apply for adjudication:[32] a claimant has 20 business days after first being entitled to make the application to apply for adjudication.  This is a considerably shorter period than under the Old Act.  Depending on the circumstances, the claimant may be entitled to apply for adjudication from:
    • the date of receiving a payment schedule that indicates a lesser amount than the amount claimed;[33]
    • the payment due date, as calculated under the New Act;[34] or
    • the date of any expiry of, or response to, a ‘second chance’ notice.[35]
  • Limited review process:[36] a dissatisfied claimant or respondent has 5 business days from receipt of the adjudicator’s decision to apply for review. Review is limited to circumstances where there is a difference of at least $200,000 between the amount determined by the adjudicator and the amount claimed by the claimant or the amount in the respondent’s payment schedule.[37]  Further, a respondent may only apply for review if they:[38]
    • gave a payment schedule and an adjudication response within the required timeframe; and
    • have paid any undisputed amount to the claimant and any disputed amount into a trust account, and given written notice of the same to the claimant.

A respondent cannot challenge an adjudicator’s decision that the adjudicator had jurisdiction.[39]  A claimant cannot challenge an adjudicator’s decision that the adjudicator did not have jurisdiction, unless the amount claimed in the payment claim exceeded $50,000 (incl GST).[40]

As in the Old Act, the New Act provides that respondents have 10 business days to respond to an application and an adjudicator has 10 business days to make his or her determination. The timeframes for responding to a review adjudication application and for making a review determination are also 10 business days, in each case. 

The parties can agree to extensions of the time:

  • for the adjudicator to make a determination, up to a maximum of 30 business days; and
  • for a review adjudicator to make a review determination, up to a maximum of 20 business days.[41]

It remains to be seen whether the review adjudication process will be utilised.  Victoria is the only other jurisdiction in Australia to have a review adjudication process and, in the 2019/20 financial year, there were only 2 review adjudication decisions (out of 314 determinations), while none were reported in the 2020/21 financial year (out of 241 determinations).[42]

 5. Notice requirements for accessing performance security - from 1 February 2023

 From 1 February 2023, it will be a term of every new construction contract that a party must give at least 5 business days’ notice of its intention to access performance security.[43]
 
The New Act contains other provisions regarding performance security, including a right, from 1 February 2024, to seek the release of retention money under the contract by substituting a performance bond.[44]
 
6. Retention money trusts regime – from 1 February 2023
 
The New Act also introduces a mandatory retention money trust regime for new construction contracts:[45]
 
  • over $1,000,000 (incl GST), signed from 1 February 2023; and
  • over $20,000 (incl GST), signed from 1 February 2024.[46]
The main exclusions from the retention money trust regime are:
 
  • construction work carried out for a government party; and
  • most home building work.
Retention money is deemed by the New Act to be held on trust for the benefit of the party entitled to have recourse to it and the party entitled to its release.[47]  The party holding retention money under the contract must ensure that the money is paid into a trust account with a recognised financial institution within 10 business days after the parties enter into the construction contract[48] (or 20 business days after the construction contract becomes one to which the retention money trust regime applies – for example, in the case of variations).[49]
 
Retention money is held on trust until the earliest of the following:[50]

  • it is paid to the party who carried out the construction work or supplied the related goods and services;
  • the party performing obligations under the construction contract gives written notice that it will not make a claim for the release of the retention money;
  • the party holding the retention money becomes entitled under the construction contract to have recourse to it;
  • an adjudicator, review adjudicator, arbitrator, court, or tribunal determines or orders otherwise; or
  • the party holding the retention money gives written notice that the retention money is due to be released and 2 years have passed.
Retention money may only be withdrawn in the specific circumstances set out in the New Act, which include:[51]
 
  • by agreement of the parties;
  • withdrawal in accordance with the terms of the construction contract; and
  • withdrawal in accordance with the determination, order or decision of an adjudicator, review adjudicator, arbitrator, court, tribunal or expert.
7. Liability of directors and officers of corporations
 
Under the New Act, it will be an offence (from 1 February 2023) to:
 
  • threaten or intimidate (or to attempt), a claimant or a person entitled to make a payment claim in relation to their entitlement to, or claim for, progress payments;[52] and
  • fail to (without reasonable excuse) pay retention money into a trust account, or to provide inspection and copies of accounting records of the retention money trust account to a party with a beneficial interest.[53]
If a body corporate is guilty of any of the above offences, an officer (including director) of the body corporate is also guilty of the offence if he or she failed to take all reasonable steps to prevent the commission of the offence by the body corporate.[54]
Key takeaways
If you are involved in the construction industry (including in the resources industry), you should review your contracts in light of the New Act. 
 
We have also previously written about the Old Act here:
 
Contact Grondal Bruining for assistance with reviewing your contracts and any payment disputes under both Acts.
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[1] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 9.

[2] Now, the Construction Contracts (Former Provisions) Act 2004 (WA).

[3] In particular, J Fiocco (October 2018), Report to the Minister for Commerce on the ‘Security of Payment Reform in the WA Building and Construction Industry’ and J Murray (December 2017), ‘Review of Security of Payment Laws’.

[4] Construction Contracts (Former Provisions) Act 2004 (WA), s 4(3)(c).

[5] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 6(3).

Construction Contracts (Former Provisions) Act 2004 (WA), ss 4(3) and (4).

[6] Building and Construction Industry (Security of Payment) Act 2021 (WA), ss 5 and 9(2).

[7] Explanatory Memorandum, Building and Construction Industry (Security of Payment) Act 2021 (WA), cl 5.

[8] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 14.

[9] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 111.

[10] See, for example, Building and Construction Industry Security of Payment Act 1999 (NSW), s34(2)(b); Building and Construction Industry Security of Payment Act 2002 (Vic), s48(2)(b); Building and Construction Industry Security of Payment Act 2009 (SA), s33(2)(b); Building Industry Fairness (Security of Payment) Act 2017 (Qld), s200(2)(c).

[11] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 16.

[12] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 17(4).

[13] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 55; see also Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4 at [39] per Kiefel CJ, Bell, Keane, Nettle and Gordon JJ.

[14] Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4 at [40] per Kiefel CJ, Bell, Keane, Nettle and Gordon JJ.

[15] Chase Oyster Bar v Hamo Industries [2010] NSWCA 190 at [47] per Spigelman CJ.

[16] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 24.

[17] Brodyn Pty Ltd v Davenport [2004] NSWCA 394.

[18] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 23.

[19] Building and Construction Industry (Security of Payment) Act 2021 (WA), 20.

[20] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 25-26.

[21] Building and Construction Industry (Security of Payment) Act 2021 (WA), ss 34(3) and 42(2).

[22] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 50.

[23] Building and Construction Industry (Security of Payment) Act 2021 (WA), ss 26 and 27.

[24] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 27.

[25] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 27(3)(b).

[26] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 21.

[27] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 62.

[28] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 64.

[29] Building and Construction Industry (Security of Payment) Act 2021 (WA), Pt 3, Div 2.

[30] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 35(1); Construction Contracts (Former Provisions) Act 2004 (WA), s 30.

[31] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 28(2).

[32] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 28(4).

[33] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 28(1)(b).

[34] Building and Construction Industry (Security of Payment) Act 2021 (WA), ss 27(2)(b) and 28(1)(a).

[35] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 28(2).

[36] Building and Construction Industry (Security of Payment) Act 2021 (WA), Pt 3 Div 3.

[37] Building and Construction Industry (Security of Payment) Act 2021 (WA), ss 39(2)(b) and 39(3)(c).

[38] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 39(3).

[39] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 39(4).

[40] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 39(4).

[41] Building and Construction Industry (Security of Payment) Act 2021 (WA), ss 37(3) and 47(3).

[42] Victorian Building Authority, Adjudication Activity Statistics, https://www.vba.vic.gov.au/plumbing/security-of-payment/adjudication-activity-statistics, accessed 9 September 2022.

[43] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 57.

[44] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 59.

[45] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 70.

[46] Building and Construction Industry (Security of Payment) Regulations 2022 (WA), reg 11.

[47] Building and Construction Industry (Security of Payment) Act 2021 (WA), ss 71 and 72(1).

[48] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 74.

[49] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 74(2).

[50] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 69(1).

[51] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 76.

[52] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 65.

[53] Building and Construction Industry (Security of Payment) Act 2021 (WA), ss 87.

[54] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 118.