On a Proper Construction Issue 14: Hear Ye Hear Ye – Draft WA Security of Payment Regulations Released for Public Comment

Introduction

“We shape our buildings, and thereafter, they shape us“¹, words once uttered by Winston Churchill, could ring true here, as the Government is inviting stakeholders’ views on the proposed Building and Construction Industry (Security of Payment) Regulations 2022 (WA) (Draft Regulations) which will no doubt, once implemented, shape the trajectory of WA’s construction industry for years to come.

The Draft Regulations and accompanying Consultation Paper are available here.

Phased introduction of retention money scheme

As noted in our On a Proper Construction Issue 11, the Building and Construction Industry (Security of Payment) Act 2021 (Act) introduces a statutory trust scheme for retention money under certain construction contracts. Strict rules are placed on trustees, and hefty fines can be sanctioned to non-complying parties.

Under the proposed Draft Regulations the scheme will be rolled out in two phases:

1. from 1 February 2023, construction contracts valued over $1 million will be subject to the scheme;² and
2. from 1 February 2024, contracts valued over $20,000 will be subject to the scheme.³

Contracting parties should turn their minds to ensuring compliance with the scheme or consider alternative forms of security (ie bank guarantees) for future contracts.

Administrative changes to the adjudication procedure

The proposed Draft Regulations provide a number of default rules for determining the date documents are deemed to be served. Relevantly, service by  email is now taken to be received in accordance with the Electronic Transactions Act 2011 (WA).⁴  Whilst the legal industry is not well known for keeping up with technological advancement, efforts are made as proposed Regulation 21 allows for cloud-based electronic delivery of documents to an authorised nominated authority via its ‘lock-box’ (if it has one).

Review adjudicators

Those aggrieved by an adjudication determination should note that they can only apply for review under the new review (quasi appeal) process if the difference between the amount claimed (for claimants) or amount scheduled (for respondents), and the amount awarded, is $200,000 or more amongst other matters.⁵

Proposed regulation 17 of the Draft Regulations prescribes the additional experience required to be registered as a ‘review adjudicator’. Namely, they must:

1. have both:
   1. 10+ years’ experience in the management and administration of construction contracts (or in the resolution of disputes in connection with construction contracts); and
   2. 10+ adjudication applications they have already determined (at least 5 of them being determinations related to payment claims or payment disputes for more than $100,000); or
2. be a former judge.

Adjudicators will also be graded as Grade 1 or Grade 2 (Grade 2 being the higher grade) to assist with determining which adjudicator is appropriate to make the relevant determination.

All adjudicators must comply with a code of practice (imposing various duties and other obligations on them) included in Schedule 3.

Potential prohibition of certain contract terms and definition of scope of the “mining exclusion”

Consistent with the nationally leading approach taken regarding “unfair time bars” in the new Act [see On a Proper Construction Issue 10 on how the Act deals with unfair time bars], the Consultation Paper invites comments on whether certain other contract terms should be also be prohibited, such as termination for convenience, uncapped liquidated damages and mandating compulsory dispute resolution before making a payment claim under the Act.

Industry participants are also encouraged to comment on whether certain works should be prescribed as within the definition of “construction work”, or conversely, whether specialist works should be excluded from the definition of “construction work”.  No doubt this will be of interest to mining industry participants given the narrowing of the “mining exclusion” in the new Act.

This will be an interesting space to watch and may necessitate re-drafting of construction contracts should regulations be made.

Regulations applying to lower value claims

For adjudication of payment claims for $50,000 or less, a cap is proposed on the number of pages of submissions (10 pages)⁶ and the amount of fees and expenses an adjudicator can charge (up to a maximum of $5,300).⁷ No equivalent caps are proposed on adjudications of payment claims for over $50,000.

Construction contracts involving registered building service contractors that are over $20,000 must be in writing and contain the information prescribed in s13(6) of the Act.⁸

A form of homeowner’s notice is included in Schedule 1 of the Draft Regulations which must be included in a payment claim given to a principal for home building work if the value of the construction contract exceeds $500,000.⁹

Penalties

Regulation 24 of the Draft Regulations gives the Building Commissioner power to appoint ‘authorised officers’ to issue infringement notices for offences under the Act. For example, a building service contractor who fails to include their building services registration number in a written contract may receive a penalty of $400.

What’s next?

Interested parties are encouraged to make a submission to the Department of Mines, Industry Regulation and Safety by 21 January 2022.

If you would like to discuss how the Draft Regulations will impact you, or require advice on future contracts, please contact the authors.

This article was written by Kate Morrow, Partner, Michael Harris, Associate and Ra’d Qandour, Solicitor. 

¹ Winston Churchill (Speech, House of Lords, 28 October 1943).
² Regulation 10(a), Draft Regulations.
³ Regulation 10(b), Draft Regulations.
⁴ Regulation 22(d), Draft Regulations.
⁵ Regulations 7(1) and 7(3), Draft Regulations.
⁶ Regulation 6(2), Draft Regulations.
⁷ Regulation 8(1), Draft Regulations.
⁸ Regulation 4, Draft Regulations.
⁹ Section 24(2), Act.