Construction contractors, subcontractors and suppliers alike should be rejoicing when the new security of payment (“SOP”) laws came into effect on 1 August 2022. The first stage of Building and Construction Industry (Security of Payment) Act 2021 (WA), which governs payment and disputes in the building and construction industry, has had a much-needed overhaul to make it easier than ever to get paid as a subcontractor. It has a wide-ranging impact on all players in the building and construction industry, including introducing a statutory right to payment and prohibiting certain contract terms.
Construction Contracts
The SOP laws applies to most contracts in the building and construction industry entered into on or after 1 August 2022, except for contracts relating to:
- home building if the contract is directly with the homeowner and the value of the contract is less than $500,000 (noting however that there is scope in the new law that allows multiple “component contracts” of a lower value to be considered together);
- the fit out of a ship or watercraft;
- construction work between an employer and employee; and
- operational mining works.
If the relevant contract does not meet the test for a construction contract (particularly if the construction is a home residence with a value of less than $500,000), you may wish to consider if the Home Building Contracts Act 1991 (WA) instead applies.
Construction Work + Goods and Services
The scope of work covered by the SOP laws includes an arrangement for someone to carry out construction work or to supply related goods or services. Under the new laws:
- the definition of “construction work” is quite encompassing and includes the construction of any buildings, structures or civil works, but excludes construction for the purpose of mining (such as drilling or constructing mine shafts) or watercrafts; and
- the definition of “related goods and services” includes materials, plant and equipment, labour or certain professional services such as surveying, planning, design etc.
Changes to the way contractors are paid
So, if your contract is a “construction contract” for the purpose of the SOP, there are a few things to think about. Notably, contractors and subcontractors are now entitled to:
- progress payments and receive a payment schedule in response to a payment claim;
- statutory payment times of 20 business days after a payment claim is made by a head contractor, or 25 business days if the payment claim is made by a subcontractor, unless an earlier time has been agreed to in the contract;
- stop work if they haven’t received payment by the due date for payment.
Changes to contract terms
“Time bar clauses” provide for the time in which a party must give a notice of claim to the other party. Under the SOP laws, a judge, arbitrator or adjudicator can determine whether a time bar clause is ‘unfair’, and therefore prohibited, if the timeframe specified is not reasonably possible or would be unreasonably onerous to comply with. It remains to be seen, however, what sort of contractual time bars are acceptable, and which are unfair.
Further, ‘pay when paid’ provisions in a construction contract are now also prohibited. Rather, the contractor or subcontractor must be paid when they’re entitled (i.e. when the work is completed and a payment claim has been issued to the principal / head contractor in accordance with the legislation), regardless of what payment has or hasn’t been received elsewhere in the chain.
Future changes
These changes are only the first stage under this SOP Act. Over the next three years, we will see further changes relating to:
- retention trust scheme for construction contracts exceeding $1 million to protect subcontractor retention (which will later be reduced to $20,000);
- additional powers for Building Services Board, including excluding people with a history of financial failure; and
- disciplinary offences and registration exclusions for building contractors with unpaid debts.
Non-compliance with the Act
If you’re not getting paid or if you’re getting paid late for construction work you have performed, there is now a statutory adjudication process, including a reduction in time to bring an adjudication application from 90 days to 20 days.
If you need advice on the Act or to enforce your statutory rights under the Act, contact Lynn & Brown Lawyers on 9375 3411 or admin@lynnandbrown.com.au
About the Author: Kristy-Lee was admitted as lawyer in 2017 after graduating with Bachelor of Laws (Honours). Kristy-Lee joined the commercial law team at Lynn and Brown in June 2022 after practicing in tax law for almost 6 years at some of Perth’s top tier accounting and law firms, and in-house at Monadelphous.
