Introduction

Australia’s security of payment regimes are based on two legislative models known as the ‘East Coast’ and ‘West Coast’ models. These models represent two approaches to security of payment rules but even within the broad East and West categorisations, each state and territory has differences in detail. This makes the application of security of payment laws, which already present many complex issues and competing interests, even more challenging in Australia.

Western Australia’s security of payment regime¹ will be replaced by the Building and Construction Industry (Security of Payment) Act 2021 (the SOP Act), to implement reforms put to the Western Australia Government in 2018.² These reforms will bring Western Australia more in line with the East Coast model and bring Australia closer to national harmonisation, as only the Northern Territory will retain a West Coast ruleset. Yet the SOP Act does not simply adopt the East Coast model but also develops it in some areas.

Contingent obligations

The SOP Act expands the existing prohibition of ‘pay when paid’ provisions in construction contracts to other contingencies. Per s14, this includes where liabilities, due dates for payment, the making of a claim, or the release of retentions or bonds are dependent on the operation of another contract.³

For the most part, these provisions prevent ‘pay when paid’ clauses by the backdoor but, notably in relation to claims, s14 will also preclude parallel claims clauses. Although the merits of parallel claims provisions are debatable, their absence could find main contractors taking up a significant amount of employer risk. In the current circumstances, force majeure would be an obvious example of an employer risk where a main contractor might be forced to pay subcontractors claims before it brings its own collated upstream claim to the employer.

Time bars

Notice-based time bars may be declared unfair if an entitlement to payment or extension of time is contingent on the provision of notice in circumstances where compliance would not be reasonably possible or would be unreasonably onerous.⁴ Precisely how this will be judged is yet to be seen but is likely to quickly come to attention once the SOP Act is implemented. However, Systech have previously published an article on time bar fairness based on similar principles under the FIDIC 2017 forms, which may be of interest.⁵

Progress payments

The current rules give a maximum period of 42 days for the payment of payment claims and imply certain payment terms into a contract only where the contract is silent. The SOP Act goes further to provide a statutory right to progress payments independent of the underlying contract between the parties. If there is no earlier date for payment in the contract, progress payments become payable:

• after 20 business days from the payment claim, where an employer makes payment to a main contractor,
• after 25 business days where the payment is to a subcontractor, or
• after 10 business days for home building work.⁶

The SOP Act provides for interest on sums paid late but the cost to benefit of pursuing interest payments is unlikely to be favourable. Therefore, while there is an entitlement, whether general commercial practice will follow these timeframes remains to be seen.

Payment claims

The SOP Act provides a statutory right to issue payment claims for progress payments and, therefore, also gives the right to pursue them. A detailed examination of the various permutations of sections 26 and 27 is beyond the scope of this article but a respondent could be liable to pay the entirety of the claimed amount if the payment schedule is not given by the respondent within a certain timeframe, or if a scheduled payment is not made in time. The offending party may be pursued in court or in an adjudication.

Because such claims concern the enforcement of the statutory right to payment with no regard to the valuation of work done, it allows so-called ‘smash and grab’ adjudications. This is not unique to Western Australia and is a somewhat controversial issue in affected jurisdictions: the greatest element of risk is that the claimant party could become insolvent before the true value of the work is assessed, leaving the paying party out of pocket.

Speedy adjudications

The SOP Act requires adjudication applications to be made within 20 business days of a payment dispute arising, as opposed to 90 business days under the CCA.⁷ Further, the respondent may only make a response to the adjudication application if the respondent provided the claimant with a payment schedule, and may not raise issues that were not addressed in its payment schedule. Given that this scheme of adjudication relates to payment claim disputes under the SOP Act, keeping the adjudications short is sensible. The adjudicator is, though, entitled to decline to hear the matter if it is too complex for the adjudicator to make a fair decision in the time available; it will be interesting to see in what circumstances this discretion may be used.⁸ The SOP Act also introduces an adjudication review mechanism that allows for the review of adjudication awards in limited circumstances.⁹

Conclusion

The CCA is still in force and stage one of the SOP Act’s implementation will not commence until 1 August 2022.¹⁰ However, contractors and employers are advised to prepare for the new system, as several parts of the SOP Act provide for swift and sure consequences if the SOP Act's processes are not met with equally swift and sure management. In particular, the implementation of new processes will need to be considered carefully as, without contingent obligations and in view of the enhanced rights to adjudication, the buck stops much closer to home.

¹ Currently found in the Construction Contracts Act 2004.
² See John Fiocco, ‘Final Report to the Minister for Commerce Security of Payment Reform in the WA Building and Construction Industry’, October 2018, available at https://www.commerce.wa.gov.au/sites/default/files/atoms/files/final_report_-_security_of_payment_reform_in_the_wa_building_and_construction_industry.pdf accessed 21 January 2022
³ See s14 of the SOP Act
⁴ See s16 of the SOP Act
⁵ See Mark Alexander Grimes’ article available at The time bar discretion in FIDIC 2017: raising The Jocelyne – SYSTECH (systech-int.com)
⁶ Progress payments encompass final payments, single or one-off payments, or milestone payments. See s17 of the SOP Act
⁷ See s28 of the SOP Act
⁸ See s36(3) of the SOP Act
⁹ See s39 of the SOP Act
¹⁰ See https://www.commerce.wa.gov.au/publications/security-payment-action-plan, accessed 21 January 2022