Introduction
1. The Building and Construction Industry (Security of Payment) Act 2021 (SOP Legislation) came into effect on 1 August 2022.
2. To make sure you are ready for the new regime, this newsletter answers the following questions:
a. What are the key changes?
b. Do I need to update my payment claims / payment schedule template forms?
c. Do I need to update my contract?
d. When do Stages 2 and 3 of the SOP Legislation come into effect?
What are the key changes?
3. For contracts entered into before 1 August 2022, the Construction (Former Provisions) Contracts Act 2004 (Old Act) applies.
4. For contracts entered into after this date, the SOP Legislation applies. A brief snapshot of some of the key changes is below:
a. Expanded terms for the exclusion of “pay when paid” provisions:
(i) While the exclusion of “pay when paid” provisions from construction contracts is not a new concept, it has been expanded upon in section 14 of the SOP Legislation (for example, the prohibition now applies to return of security also).
b. Unfair terms:
(i) Invalidating unfair time bars – should mandatory contractual notification requirements (time bars) be determined as not reasonably possible or considered as unreasonably onerous, such clauses may be determined as ‘unfair’ and thus have no effect. For more on this, see our earlier article New Time Bar Reasonable Test (Issue 10); and
(ii) Dispute Resolution Processes – The Regulations now provide that a provision that requires a party to engage in a dispute resolution process as a precondition to making a claim, issuing an adjudication application or exercising a right under the SOP Legislation is prohibited.
c. Retention monies:
(i) A significant change is the requirement for security/retention monies to be held in a separate trust account. The failure to do so attracts significant financial penalties. For more on this, see our earlier article New Retention Money Scheme (Issue 11). As discussed below, this Part of the Act will be introduced in two stages commencing in February 2023.
d. Expedited processes and alignment with the ‘East Coast’ model:
(i) The SOP Legislation provides shortened timeframes for payment and a more expedited adjudication application process;
(ii) The SOP Legislation also gives a statutory entitlement to suspend works on for non-payment;
(iii) This represents an alignment with the ‘East Coast’ model. Please click here to see a summary of the key differences between the WA model and East Coast model; and
(iv) For more detail on these changes, see our earlier article New Security of Payment Bill (Issue 9).
e. Adjudication Review:
(i) The SOP Legislation introduces an adjudication review process in certain circumstances. For more on this, see New Security of Payment Bill (Issue 9).
f. New regulations:
(i) See our earlier article on the new regulations: New Security of Payment Regulations (Issue 14).
Do I need to update my Payment Claims and Payment Schedules?
5. A payment claim (made under the SOP Legislation) must contain certain information and, unlike under the Old Act, the payment schedule is now a vital document (similar to NSW and Victoria).
6. Summarised below are the requirements in the SOP Legislation for submission of compliant payment claims and payment schedules:
Content of Payment Claims (Section 24 of the SOP Legislation):
a. A payment claim must:
(i) be in writing;
(ii) indicate the amount of the progress payment that the claimant claims is payable by the respondent;
(iii) describe the items and quantities of construction work, or related goods and services, to which the progress payment relates;
(iv) state that it is made under this Act (i.e. This is a payment claim made under the Building and Construction Industry (Security of Payment) Act 2021 (WA); and
(v) include any other information required by the regulations (note: nothing as yet).
Content of Payment Schedules (Section 25 of the SOP Legislation):
a. A payment schedule must:
(i) be in writing;
(ii) identify the payment claim to which it relates;
(iii) indicate the amount of the payment (if any) that the respondent proposes to make (the scheduled amount);
(iv) if the respondent does not propose to make any payment – indicate that the respondent does not propose to make any payment.
If the scheduled amount is less than the claimed amount or no payment is proposed, the payment schedule must indicate:
(i) why the scheduled amount is less or no payment is proposed; and
(ii) if the reason is that the respondent is withholding payment – the reason why the respondent is withholding payment.
7. The requirements as to the format of payment claims and payment schedules are fairly bland. The key items of note are that:
a. for a payment claim to be brought under the SOP Legislation, the legislation must be expressly referred to on the face of the claim; and
b. where the recipient of a payment claim does not intend to pay the full amount claimed, reasons for not paying/withholding must be stated (and these reasons limit the matters that can be raised in an adjudication process).
8. The WA Government website includes example template forms for a payment claim and payment schedule, along with user guides here.
Do I need to update my contract?
9. There are several changes that may be required to your template construction contract/s as a result of the new SOP Legislation (noting that a contract for related goods and services also meets the definition). Set out below is a checklist of some key considerations when deciding whether to update your contract/s:
| Issue | Checklist |
|---|---|
| Security | Does your contract contain a term to the effect that the principal may hold any retention moneys or cash security however it wishes and/or is under no obligation to hold the money in a separate account? If 'yes', consider removing or amending this provision for consistency with the retention money trust scheme. Does your contract provide that notice is not required to call on performance security? If 'yes', consider amending this provision as 5 Business Days' notice of call on Bank Guarantees describing the circumstances of the entitlement to have recourse is mandatory to comply with s 57 of the SOP Legislation. Does your subcontract link release of performance security to completion or release of performance security under the head contract? If 'yes', consider amending. Under s 14 of the SOP Legislation the return of security is now caught by the "pay when paid" provisions. |
| Head Contract Liabilities | Does your subcontract contain terms linking liabilities to the head contract (e.g. that payment under the subcontract is subject to payment under the head contract)? If 'yes', consider amending as this type of provision is prohibited under the new SOP Legislation. |
| Time bars | Does you contract include time-bars (i.e. time limits for making EOT, variation or other claims)? If 'yes', consider reviewing the reasonableness of these periods and amending if necessary as the SOP Legislation gives decision makers the ability to determine that time-bars are unfair and therefore unenforceable. |
| Payment provision | Does your contract have payment terms in excess of 20 Business Days? If 'yes', consider amending the timeframes to align with the minimum periods set out in the new SOP Legislation, being: 1) in the case of a progress payment to be made by a principal to a head contractor — on the date that is 20 business days after a payment claim is made; and 2) in the case of a progress payment to be made to a subcontractor — on the date that is 25 business days after a payment claim is made. |
| Payment Schedules | Does your contract provide for payment schedules in response to claim for payment? Consider amending to bring the contractual regime into line with the SOP Legislation (e.g. 15 Business Days from the date of the Payment Claim for a Payment Schedule). |
| Building Services Contractors | Is your contract a building service contract? If 'yes', you must ensure that your contract includes the new mandatory information including the builder's building registration number. |
| Boilerplate SOP provisions | Does your contract contain a boilerplate SOP Legislation clause? If 'no', considering including this. |
When does the SOP Legislation come into effect:
10. Introduction of the SOP Legislation is staggered over a three stage action plan with the final stage set to be introduced in early 2024. This action plan is set to provide a clear roadmap for the implementation of the SOP Legislation.
11. Stage 1 to commence 1 August 2022 includes most of the key features discussed in this article:
a. expedited payment, adjudication and recovery processes;
b. prohibiting certain terms such as “pay when paid” provisions;
c. unfair time bars regime;
d. the right to suspend work for non-payment;
e. changes to the administration of adjudicators, including introducing review adjudicators; and
f. the requirement for specific terms to contain mandatory information and conditions.
12. Stage 2 to commence 1 February 2023:
a. the new mandatory retention trust scheme introduced (head contractors to set up a trust account for construction contracts over $1 million);
b. new powers for the Building Services Board (e.g. to refuse registration of persons and businesses with a history of insolvency); and
c. new offences for threatening or intimidating claimants for exercising rights under the SOP Legislation (e.g. suspension).
13. Stage 3 to commence 1 February 2024:
a. Retention Trust Scheme will be extended to all construction contracts with a value of $20,000 or more.
Do not hesitate to contact the authors to discuss how the new SOP Legislation will affect your business, or to seek assistance with the amendment of your standard form claim, schedule and contract templates.
This article was written by Kate Morrow, Partner, Michael Harris, Senior Associate, and Emilio Shambrook, Law Graduate.
