Final stage of security of payment reform in Western Australia implemented

Perth-based construction disputes expert David Ulbrick of Pinsent Masons said the measures mean the reforms envisaged under the state’s Building and Construction Industry (Security of Payment) Act 2021 (the 2021 Act) have now been implemented in their totality – reforms, he added, that form part of a wider initiative aimed at bringing greater uniformity to security of payment laws across Australia.

Included in the new measures is a broadening of existing requirements on head contractors to set money aside in a so-called retention trust scheme, to address the risk that subcontractors are not paid in the event of, for example, misappropriation or insolvency on a project.

The retention trust scheme requirements previously applied to construction contracts worth over AUD1 million (US$659,000) but from 1 February they apply to construction contracts worth AUD20,000 (US$13,200) or greater. Contracts for residential work between builders and homeowners, small residential subcontracts and contracts directly with government principals continue to be exempt from the requirements.

Head contractors or principals that contravene the retention trust scheme requirements will now face potential prosecution and substantial fines. For example, a party whose responsibility it is to retain retention money must ensure that the money is paid into a trust account with a recognised financial institution, or face a fine of AUD50,000 (US$33,000).

Additionally, a party to a construction contract – typically a contractor or subcontractor – will now be entitled to substitute performance security held as retention monies for a compliant performance bond. In a detail which could aid contractor cashflow throughout the course of the project, a claimant may seek the release of a single amount of retention money by substituting several separate performance bonds. Conceivably this would allow for contractors to have access to retention monies as they accumulate during the progress of the project by substituting insurance bonds or other security instruments for the cash retention. The scheme of the Act clearly contemplates this as it entitles such claims to be made in the regular monthly payment claims. 

Further new rules that have now taken effect impose continuing professional development (CPD) requirements on adjudicators and review adjudicators. These individuals play a crucial role in resolving payment disputes between parties involved in construction contracts, but a period of review and consultation that preceded the formation of the 2021 Act highlighted challenges in ensuring consistent and high-quality decision-making.

Ulbrick said: “The industry can have renewed confidence that regular CPD will enhance the expertise of those occupying these key roles, keeping them informed of legal developments and maintaining a high standard of decision making. This ensures fair and efficient resolution of payment disputes, which must have a beneficial effect on all participants in the Western Australian building and construction industry. Renewed confidence in the adjudication system means that disputes which might otherwise have become mired down in litigation can be put through the rapid adjudication process with confidence in the quality of the decision making at that level.”

The new set of changes add to earlier reforms implemented under the 2021 Act. These included changes designed to ensure payment timeframes were drafted in a way that ensures payment flows through the contracting chain with minimum disruption, which had a knock-on impact on the internal contract management processes of head contractors and principals. As well as continuing the prohibition on so-called ‘pay when paid’ clauses, which were outlawed under the previous legislation, the Act gives decision makers the ability to declare “time bar” clauses unenforceable in specific circumstances.

Earlier measures implemented also mean that individuals with a history of financial failure can now be excluded from starting or continuing a building business and that building contractors that fail to pay court or adjudication debts to sub-contractors can be subjected to disciplinary action or denied registration.

Ulbrick said: “This latest set of measures completes the transition for Western Australia to the ‘East Coast model’ of security of payment. This was part of a broader push to harmonisation of the security of payment legislation in Australia. That said, the new legislation has some peculiarities – for example, the opportunity for decision makers to declare a time bar unenforceable and the review adjudication process – that do not have equivalent provisions in the other states’ legislation.”