In 2021, following both state and national reviews, the Western Australian government introduced the Building and Construction Industry (Security of Payment) Act 2021 (WA) (Act), with the underlying objective of strengthening payment protections afforded to downstream contractors and suppliers of goods and services under construction contracts. Although the "admirable objective" of national harmonisation has not yet been achieved, the Act introduces a statutory payment and dispute procedure consistent with the model adopted by the eastern states. It also includes some novel provisions which have no analogue under other state security of payment regimes and ostensibly make WA's the most subcontractor-friendly in the nation.
Given the extent of the legislative changes, the reforms are being implemented in three stages to allow industry participants time to become familiar with, and adapt to, the new regime. With the Stage 2 reforms coming into effect on 1 February 2023, it is timely to revisit those reforms and look ahead to the Stage 3 reforms, which will become effective on 1 February 2024.
Summary of Stage 2 reforms
Effective 1 February 2023, the Stage 2 reforms apply to all construction contracts entered into after this date. Significant changes include the following.
The right to receive notice before recourse had to security1
To be entitled to have recourse to performance security, a party must provide written notice to the other party at least five business days (or a longer period, specified in the contract) prior to calling on security. Any notice given must be in writing, identify the provisions of the relevant contract upon which the party calling on security relies in doing so, and describe the circumstances entitling recourse to the security. These requirements will be read into applicable WA construction contracts, and cannot be excluded by contract.
Phase 1 retention trust scheme2
For construction contracts valued at over $1,000,000 (with some limited exceptions), and under which retention money is retained, retention money must be deposited into a dedicated trust account. Money held in a retention money trust account can only be applied for specific purposes, including where a party is entitled to the benefit of retention money in accordance with the contract or as otherwise agreed between the parties. Similar to the notice period provisions above, the retention trust scheme requirements are implied into applicable WA construction contracts, and cannot be excluded by any term of the contract.
New penalties3
It is now an offence under the Act to directly or indirectly threaten or intimidate, or attempt to threaten or intimidate, a claimant or person entitled to make a payment claim in respect of a progress payment or the exercise of a right under Part 3 of the Act (which concerns the procedure for obtaining progress payments). This offence carries a maximum fine of $50,000.
Expanded regulator powers4
The Building Services Board now benefits from expanded powers, enabling it to:
- refuse registration, on either a temporary or permanent basis, to persons and businesses with a history of insolvency; and
- initiate disciplinary procedures for building and other providers who fail to pay debts owing to subcontractors.
Parties operating in the WA construction industry should familiarise themselves with the Stage 2 changes and review (and make any necessary changes to) their construction contracts to ensure they are able to efficiently manage their contracts moving forward.
Final stage of reforms
The Stage 3 reforms come into effect on 1 February 2024, and will:
- expand the application of the retention trust scheme to construction contracts valued at $20,000 or more;
- introduce new offence provisions, aimed at ensuring parties comply with the retention trust scheme established by the Act; and
- require adjudicators to meet mandatory CPD requirements in order to maintain registration.
Watch this space
As participants in the construction industry continue to be affected by increased costs and wider economic pressures, many will undoubtedly welcome the reforms' objective of promoting prompt payment to better manage and maintain cash flow. However, given the staged implementation of the changes, the real impact of the Act may not be seen for some time.
One area that will attract interest in the course of eventual judicial consideration, is the novel unfair notice-based time bar provision in section 16 of the Act – which provides that a notice-based time bar provision of a construction contract may be declared unfair and of no effect if compliance with the provision is not reasonably possible or would be unreasonably onerous. While the provision has the clear purpose of relieving parties in the contractual chain from the harsh consequences of failing to give a required notice, the circumstances in which notice-based time bar provisions of a contract will be found to be unenforceable are less apparent.
1 Building and Construction Industry (Security of Payment) Act 2021 (WA)('BCI Act') s 57.
2 BCI Act Part 4.
3 BCI Act ss 65, 118.
4 BCI Act s 133.
Image by Riccardo Oliva on Unsplash.
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