WA’s security of payment reforms: Preparing your contracts, policies and procedures and education

Principals / head contractors and contractors / subcontractors will have a range of practical matters to consider, and possibly change within their businesses, to address the changes introduced with the first stage of the Building and Construction Industry (Security of Payment) Act 2021 (WA) (SOPA) coming into operation on 1 August 2022. Broadly, three key areas will need to be considered: construction contracts, internal policies and procedures and education.

Construction contracts

A range of construction contract forms are used in the Western Australian construction industry. Regardless of type, to be SOPA-ready, parties will have five main issues to review:

1. Does the SOPA apply to my construction contract / project?

Under the Construction Contracts Act 2004 (WA) (CCA), certain types of construction contracts were exempt from the application of the CCA. The SOPA, in contrast, applies more broadly. Parties will need to consider whether their new contracts and projects will be caught by the SOPA (at times, on a project-by-project basis). Particular attention should be given to the following, to which the SOPA may now apply:

• construction contracts relating to the fabrication or assembly of processing plant used for extracting or processing oil, natural gas or mineral bearing or other substances; and
• construction contracts for offshore projects: contracts which are either governed by the laws of Western Australia and / or carried out within the territorial limits of Western Australia (including works taking place off the coast of Western Australia).

2. Contractual payment provisions

Although parties who contract to undertake construction work or to supply related goods and services will have a statutory right under the SOPA to receive payment (in addition to their contractual rights), you should also consider amending your payment provisions to be broadly SOPA consistent, particularly:

• Process for claiming payment: The SOPA provides payment claims must be made in writing and in the approved form (if any), detail the claimed amount, include clear descriptions of the “construction work” or “goods and services” they concern and state they are made under the SOPA. You can address this by incorporating an approved form or template for payment claims into your contracts (which provide for those matters to be specifically addressed).
• Payment schedules: Unlike the CCA, under the SOPA respondents can respond to payment claims by submitting “payment schedules” (akin to payment certificates). These are key documents – a failure to submit one, or to include all reasons (including legal arguments) for non-payment or part payment in them, can seriously compromise a respondent’s ability to defend a payment claim and / or adjudication application. You may therefore wish to contractually require responses be given within a maximum of 15 business days (the maximum timeframe under the SOPA) and to provide they must comply with the SOPA-prescribed requirements for a “payment schedule”.
• Time(s) for payment: You should consider amending payment timeframes to be SOPA-compliant:
  • when a progress payment will become payable:
    • for payments by a principal to a head contractor, no later than 20 business days after claim is made; and
    • for payments to a subcontractor, no later than 25 business days after the claim is made),
  • when a final payment claim is to be made (the latest it can be under the SOPA is the later of the contractually prescribed time, 28 days after the end of the last defects liability period or 6 months after the completion of the works).

3. “Unfair” provisions

Uniquely, notice-based time bars may be found to be of no effect (ie. unenforceable) if they are declared “unfair” in the case of a particular entitlement under a construction contract. Whether a time bar is “unfair” will be determined on a case-by-case basis by decision-makers (adjudicators, arbitrators or courts) by reference to various criteria. You don’t necessarily need to strip clauses out of your contracts which may arguably appear “unfair”, but should bear in mind that you might not be able to rely on them in due course (ie. if they are struck down by an arbitrator, court or adjudicator).

4. “Pay when paid” provisions

The SOPA will expand the CCA’s prohibition on “pay when paid” provisions (such as clauses which make party A’s liability to pay party B contingent on A receiving payment from party C or which makes the making of a claim for an amount owing or release of security contingent on a separate contract). These clauses should be removed; if retained, they will – in any event – be of no force and effect.

5. Provisions which may apply if the contract is silent

The implied terms provided for under the CCA will continue to apply. If you do not want to be bound by them, you must ensure your construction contracts address the matters referred to at sections 13 to 22 of the CCA.

Internal policies and procedures

For contractors and subcontractors

• Preparing payment claims: To submit valid payment claims under the SOPA, contractors and subcontractors must be able to prepare and submit payment claims within the times prescribed (ie. or on or after the last day of a given month or at an earlier contract prescribed time) and in a manner which conforms with the SOPA requirements. Companies might achieve this by amending their standard-form payment claim documents (to address form requirements) and shortening internal timeframes for doing various things (such as passing information between teams).
• Preparing and making adjudication applications: Adjudications applications need to be made under the SOPA more quickly than under the CCA (within 20 business days, as compared to 90 days) and in a manner which complies with the applicable SOPA requirements. As with payment claims, internal policies and procedures will need to be revised to facilitate compliance with this shorter preparation timeframe.
• Notices of intention to apply for adjudication: A new feature of the SOPA is the requirement for a claimant to provide a respondent with a “notice of intention to apply for adjudication” where the respondent fails to issue a payment schedule and the claimant wishes to adjudicate. Contractors will need to have a pro-forma notice ready for use and understand when it needs to be submitted (if they fail to do so, they will not be entitled to make an adjudication application).

For head contractors and principals

• Preparing considered payment schedules efficiently: Head contractors and principals will risk seriously compromising their position if they fail to issue considered payment schedules within time. They might position themselves to do so by shortening existing internal timeframes for sharing information between teams, producing standard form payment schedule documents and, if necessary, obtaining legal advice earlier than they would ordinarily (to ensure all reasons for part or non-payment are adequately addressed).
• Preparing adjudication responses: The timeframe for submitting responses will not change – it will remain 10 business days. However, principals and head contractors will still need to ensure they are best positioned to prepare them within that period – a failure to submit one may result in them being unable to apply for a review of an unfavourable determination or to submit a response in a claimant-initiated review process.

Education

Construction industry participants need to ensure their personnel are broadly aware of and understand the changes introduced by the SOPA and any internal company changes made to address the same (to contracts, policies and procedures). This will include ensuring they know when to escalate various matters to specific teams or personnel and how to prepare and compile various documents (including payment schedules). We recommend businesses in addition consider running internal workshops, with various relevant teams, to ensure personnel are across these changes.