With toxic payment practices rampant across the Building and Construction Industry, the Building and Construction Industry (Security of Payment) Act 2021 (WA) (Act) is a welcome change to the Western Australian Industry landscape.

With the first stage having taken effect from 1 August 2022, these changes will be supported by stages 2 and 3 commencing in February 2023 and 2024 respectively.

Late payment, part-payment, and non-payment of invoices are not uncommon practices in Industry. The imbalance of bargaining power in the contracting chain from developer to subcontractors has created a pathway for pushing risk and costs further down the line.

So, what’s changed for WA?

The Act introduces a new scheme for security of payment, applying to contracts for construction work in Western Australia entered on, or after, 1 August 2022. The Construction Contracts (Former Provisions) Act 2004 (WA) continues to apply to pre-existing contracts.

The new scheme affords greater protections to subcontractors seeking payment for their works. Under the 3-staged approach, we’ll also see mandatory retention trusts, strengthened anti-phoenixing provisions, and fairer contracting powers, from February 2023 and 2024.

Stage 1 of the Act contains:[i]

• a right to payment in legislation, alongside an adjudication and recovery process;
• a minimum interest rate to be applied to late progress payments;
• prohibitions on certain contract terms, such as ‘pay when paid’ provisions and unfair time bars;
• a right to suspend work for non-payment of progress claims;
• requirements that certain construction contracts must be in writing or contain mandatory information; and
• simple form contracts (to be published by the Building Commissioner).

How does the new payment claim process work?

The new rules offer protection to contracts where someone agrees to carry out construction work or to supply related goods and services to another company, with some limited exclusions.[ii] ‘Construction work’ is broadly defined under the Act, covering activities beyond typical ‘construction’ such as alterations, repairs, restorations, maintenance, and demolition works.[iii]

Claims can be made for construction work and related goods[iv] and can include milestone payments, single/one-off payments, and final payments.

A claim could include a new claim, as well as amounts from previous months and unpaid amounts from previous claims. The Act also gives Industry details of how claims can be made, what they must contain, and how they must be given to the contractor.

The person receiving a claim must pay by the date in the contract, or within 20 business days from the claim being issued (or 25 if it’s a subcontractor making the claim).[v] Alternatively, they have 15 days (or less under the contract) to respond to the claim with a ‘payment schedule’, setting out the reasons they aren’t paying the amount claimed, in full or in part.

If they don’t provide a schedule within that time, they are liable to pay the full amount claimed. The person claiming payment can also refer the matter to adjudication or an appropriate Court. Interest can also be applied to late payments[vi] at whichever is higher between the rate in the contract, and the rate prescribed in legislation.[vii]

If a payment schedule hasn’t been given, the person who received the claim also loses their ability to make their case before an adjudicator and becomes unable to challenge the adjudication decision. Those who do issue a schedule are still only able to rely on the reasons in their schedule, and not new reasons.

What happens now?

Industry may see principal contractors making changes to their standard contract terms for various purposes, including now that written agreement is required for dealings between registered building contractors and subcontractors for providing services, where the value of works is $20,000 or greater.

Principals may also need to remove ‘pay when paid’ terms which may not have been caught by the previous prohibition on these terms but are caught by the Act’s expanded prohibition.

Subcontractors may also want to consider adjusting their template payment claims to align with the requirements of the Act for making a ‘Payment Claim’, so that they are in writing and in the approved form (if any), detail the amount claimed and the ‘construction work’/’goods and services’ to which it relates, and state that it is made under the Act. Subcontractors should also consider putting processes in place to ensure that payment claims are made within the 6-month timeframe.

What’s happening Federally?

The NFIA, alongside NECA, the AMCA, Master Plumbers, and other Industry Associations, recently participated in a Security of Payment Industry Forum, jointly calling on the Federal Government to fulfil their pre-election commitment and take urgent action to tackle security of payment and unfair contract terms as a matter of priority.

The NFIA has consistently called for improvements in the laws that govern payments in the Building and Construction Industry. We fundamentally believe that people must be paid for the work they perform. The need for nationwide security of payment reforms goes hand-in-hand with the urgent need for the Government to respond to the rampant use of unfair contract terms in the industry.

With Building and Construction Industry costs rapidly rising, now more than ever, it’s critical that the Government acts.

The NFIA provides our Members with a detailed guide to the WA Security of Payment Act and the payment claim process via the Members’ Portal on the NFIA website.

[i] Visit https://www.commerce.wa.gov.au/sites/default/files/atoms/files/security_of_payment_-_action_plan.pdf (Accessed 10 August 2022).

[ii] See Building and Construction industry (Security of Payment) Act 2021 (WA) ss.5-6.

[iii] See Building and Construction industry (Security of Payment) Act 2021 (WA) ss.5-6.

[iv] As defined in the Act.

[v] For certain types of home building works, 10 business days

[vi] Building and Construction industry (Security of Payment) Act 2021 (WA) s.21

[vii] Civil Judgements Enforcement Act 2004 (WA) s.8(1)(a).