Out-Law Guide 4 min. read
02 Aug 2022, 9:28 am
Significant changes to Western Australia’s security of payment regime have come into force now that the bulk of the Building and Construction Industry (Security of Payment) Act 2021 (WA) (BCISPA) has taken effect.
The BCISPA replaces the Construction Contracts Act 2004 (WA) (CCA), which is now referred to as the Construction Contracts (Former Provisions) Act 2004 (WA) in relation to contracts signed after 1 August 2022. The BCSIPA will help to harmonise Western Australia’s security of payment regime with those in eastern states, but contract administrators could face confusion in the years ahead, as it is the date that a contract was entered into that determines whether BCISPA or CCA applies.
Here are some of the changes to contract administration that the BCISPA includes that companies must not – and cannot - ignore.
Under the BCISPA, a contractor or a subcontractor has a statutory right to receive a progress payment if it has undertaken or carried out construction work – or supplied related goods or services under a construction contract.
Contract administrators could face confusion in the years ahead, as it is the date that a contract was entered into that determines which law applies.
A payment claim for a progress payment may be made monthly or, in any case, must be made within six months of the completion of the relevant construction works. The payment terms prescribed under the BCISPA differ depending on the parties involved. For example, payments are due within 20 business days under head contracts and within 25 business days under subcontracts.
This represents a dramatic shortening of the statutory limit on payment terms which, under the previous regime, could drift out to 50 days without falling foul of the legislation.
Perhaps the most significant change for the industry will be the focus on payment schedules. The concept is drawn from the Australian standard subcontracts and will be familiar to many contractors and subcontractors. Under the BCISPA, however, a failure to implement a payment schedule within 15 days of receiving a payment claim can mean that the principal is obliged to pay the full amount claimed.
In such circumstances, the principal would need to bring proceedings to claw back money that was not properly payable.
The BCISPA introduces a right to receive interest on unpaid amounts of progress payments that have become payable. This can either be the greater of the rates provided in the operative constructive contract, or the 6% rate currently set by section 8 of the Civil Judgments Enforcement Act 2004 (WA).
The BCISPA introduces a retention trust scheme, which means that money retained by a party – under certain construction contracts – as security for the performance of obligations of the other party will have to be held on trust in an authorised account.
The scheme is intended to protect the money retained from third-party creditors in the event of insolvency and to ensure that access to it is only given in accordance with the operative construction contract and the Act.
While well-meaning, the scheme also represents a significant administrative burden on the party retaining the money, which must now comply with the strict timeframe within which a trust account should be created, and maintenance of proper accounting records. Given the A$50,000 fine imposed on parties that fail to comply with the Act, principals and head contractors would be well-advised to opt for other forms of security, such as bank guarantees.
The BCISPA requires a party seeking to have recourse to a performance security under a construction contract to give the other party a written notice of at least five business days of its intention to do so. This represents a significant change from the usual position in well-drafted contracts where no notice is required.
The BCISPA widens the prohibition of ‘pay when paid’ provisions, which were already a core component of the former regime. Under BCISPA, the prohibition now includes provisions which:
The BCISPA turns the common law position on time bars in Western Australia on its head. The long-standing rule had sound practical and commercial rationale and made clear that contractual time bars should be strictly enforced in accordance with their terms, even where the effect of those time bars may be harsh.
Under the BCISPA, however, a decision maker such as a judge or an adjudicator can declare a time bar provision in a construction contract to be “unfair” and to have no effect if compliance with the provision is not reasonably possible or would be unreasonable onerous.
This is likely to create uncertainty among drafters of construction contracts and a host of jurisdictional disputes, as parties seek to enforce time bars by arguing their way “out” of the jurisdictional reach of the BCISPA.
There are no easy solutions here. One approach that has been mooted is to include a contractual acknowledgement that the time bar is reasonable. However, the effect of such drafting, if any, remains to be seen.
One of the most important reforms to the adjuration process is the shortened timeframe to bring an adjudication. This will limit the respondent’s submissions to matters dealt with in the payment schedule and, in certain circumstances, include a new review adjudication process.
The novel review adjudication process could add another hoop for claimants to jump through on the road to payment. Because of this it will, no doubt, be the subject of curial consideration in the coming months.
Firms involved in the Western Australian construction industry should make sure that any standard construction contracts have been reviewed and amended to ensure compliance and review the additional administrative requirements under the new Act, such as the requirement to establish a retention trust fund.
Companies should also ensure that their commercial practices are aligned with the BCISPA, especially in relation to payment schedules.
Co-written by Uma Radhakrishnan, Ciara Pearson and Simon Di Rosso of Pinsent Masons.
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