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INSIGHT

Building and Construction Industry (Security of Payment) Bill 2020 (WA)

By Jodi Reinmuth, Mark McAleer, Eve Lynch, Tristan Iredell , Gerard Woods 13 August 2020
Mining

In brief 6 min read

A consultation draft Building and Construction Industry (Security of Payment) Bill 2020 (WA) (Bill) was released to key industry stakeholders for comment around May 2020. The Bill, if adopted, will provide a new Act for securing payments under construction contracts in the building and construction industry in WA, while the Construction Contracts Act 2004 (WA) (CCA) would continue to apply to construction contracts entered into before the commencement of the new Act.

Jump to

  1. Key takeaways
  2. Background
  3. Key features of the proposed regime
  4. Next steps

Key takeaways

  • The Bill will largely replace the CCA with an 'East Coast' model. The 'West Coast' model for security of payment will be abandoned in favour of a more harmonised national approach.
  • The -mining exemption has been narrowed, resulting in a broader application of the CCA to the mining and resources industry.
  • There is a reduction in the allowable payment period to 20 business days after a payment claim is made (30 days in the case of payments to subcontractors).
  • There is a requirement to provide written notice of an intention to have recourse to performance security.

Background

The Bill adopts many of the recommendations made by John Fiocco in his Final Report to the Minister for Commerce, 'Security of Payment Reform in the WA Building and Construction Industry' (October 2018) (Fiocco Report). The Fiocco Report sets out 44 recommendations to improve security of payment for subcontractors in WA's building and construction industry, most notably to introduce a new legislative model based on the East Coast model of security of payment laws (the security of payment regimes in New South Wales, Victoria, Queensland, Tasmania, South Australia and the Australian Capital Territory) in accordance with recommendations made by John Murray AM in his report 'Review of Security of Payment Laws' (December 2017) .

Chief among the many differences between the East Coast model and the West Coast model (the CCA and the security of payment regime in the Northern Territory) is that the 'East Coast' model establishes a statutory payment process that operates in parallel with any contractual regime, whereas the -West Coast model does not.

The Bill signifies a likely move towards national consistency of security of payment laws across Australia since – in addition to other key changes (some of which are set out below) – it proposes to introduce a statutory payment process similar to that of the East Coast model into WA's building and construction industry.

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Key features of the proposed regime

While the Bill is currently in draft form and remains subject to change, it departs from the CCA in some significant ways:

  • Statutory payment process: Like security of payment laws in force in other jurisdictions, the Bill:
    • gives claimants a statutory right to give payment claims and receive progress payments, independent of the underlying construction contract;
    • introduces a strict new procedure for obtaining progress payments (in terms of claiming and certifying amounts due under construction contracts) that would operate in parallel with any payment procedure agreed by the parties under a construction contract; and
    • introduces the concept of a 'payment schedule', which may be given by a respondent to a claimant in response to a payment claim. While responding with a payment schedule is optional:
      • if a payment schedule is not duly given by a respondent, the respondent becomes liable to pay the claimed amount to the claimant on the due date for payment;
      • giving a payment schedule is a condition precedent to the respondent's entitlement to respond to an adjudication application; and
      • the respondent cannot include in its adjudication response any reasons for withholding payment unless those reasons have already been included in the relevant payment schedule given to the claimant.
  • Maximum payment period: The maximum payment period, currently 42 days under the CCA, is reduced to:
    • 20 business days after a payment claim is made in the case of payment to be made by a principal to a head contractor; and
    • 30 business days after a payment claim is made in the case of payment to be made to a subcontractor.
  • Narrower 'mining exemption': The so-called 'mining exemption' under section 4(3) of the CCA, which was previously narrowed by amendments to the CCA in late 2016, is further narrowed as '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' and is not excluded from the definition of construction work, which would therefore result in a broader application of the CCA to the mining and resources industry.
  • Notice-based time bars will have no effect if declared unfair: Notice-based time bar provisions of construction contracts will have no effect in the case of a particular matter, if declared unfair. Such provisions may be declared unfair if compliance with the provision is not reasonably possible or would be unreasonably onerous.
  • 'Pay-when-paid' prohibition expanded: The existing prohibition on 'pay-when-paid' provisions under the CCA will be broadened to prohibit terms in a construction contract that make:
    • 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;

    contingent or dependent on the operation of another contract.

  • Time for bringing an adjudication application is reduced: The time period for bringing an adjudication application is reduced from 90 business days under the CCA to 20 business days. The relevant trigger for bringing an adjudication application is also set to change – under the CCA, time started running after a payment dispute arose, while under the Bill, time starts running after the claimant receives a payment schedule or after the due date for payment (as applicable).
  • 'Rapid' adjudication process: The Bill provides for a rapid adjudication process in circumstances where the respondent is not entitled to provide an adjudication response (where it has not given the claimant a payment schedule).
  • Christmas 'blackout' extended: The exclusion of the Christmas period from the definition of 'business day' is expanded, with any day that falls between 22 December in a year and 10 January in the following year (inclusive) being excluded.
  • Recourse to performance security affected: A party to a construction contract will only be entitled to have recourse to performance security under the contract if it gives the other party five days' written notice of its intention to have recourse to the security.
  • Deemed trust schemes: The Bill introduces a deemed trust scheme whereby retention money is held on trust by the party to a construction contract who retains the money and that party must ensure the money is paid into a trust account and only withdrawn in limited circumstances.
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Next steps

Comments on the Bill were due from key industry stakeholders earlier in July 2020 [], which could result in changes to the Bill before it is introduced into Parliament. The Bill is expected to be introduced into Parliament later this year.

Allens will continue to follow any developments in this space.

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