Will new laws protect contractors in the construction industry?
Following the insolvency events of construction companies Cooper & Oxley and Pindan, to name only two, there have been calls for better protection of contractors in the construction industry. In response to these calls, the Building and Construction Industry (Security of Payment) Act 2021 (“Act”) received royal assent on 25 June 2021. The Act seeks to provide greater protection to contractors in the construction industry by putting measures in place that will help to ensure they get paid on time.
The key protection measures in the Act include:
- Progress payments
- Regulating contract terms
- Retention money trusts
- Dispute resolution process
- Powers of the Building Services Board
Under the Act, contractors now have a right to receive progress payments and make a claim for payment at least every month. The timeframe for payment will depend on the relationship between the contractor and the person they are claiming from.
The statutory timeframes can be varied by the contract to make them more favourable to the contractor. For example, under the Act contractors can make a payment claim every month, but the contract can specify a more regular interval at which the contractor can make a claim. Likewise, the Act sets out due dates for payment after a claim has been made, but the contract can specify shorter timeframes for payment.
The Act also prohibits ‘pay when paid’ provisions, which attempt to make payment to contractors contingent on the head contractor being paid first.
Regulating contract terms
Certain people, (such as arbitrators, adjudicators, the court or an expert appointed by the parties) have the power to void notice-based time bar clauses if they are deemed to be unfair. A notice-based time bar clause is a clause that says payment for work performed or goods supplied is contingent on adequate notice being provided.
A notice-based time bar clause may be unfair if complying with the clause would not be “reasonably possible” or would be “unreasonably onerous”. The party who claims the clause is unfair has the onus of proving that it is unfair.
Retention money trusts
Retention money is a sum of money that is set aside until the completion of the works. Under the Act, all construction contracts entered into after the commencement of the Act (apart from some exceptions) need to establish a retention money trust fund.
The trust fund will help to protect contractors in the event that the party holding the retention money goes into liquidation. The explanatory memorandum for the Act says the following about the retention money trust scheme:
“This scheme will reduce the risks to builders, subcontractors and suppliers where their immediate contractual counterpart on a project becomes insolvent by ring-fencing retention money to ensure it is not available for distribution to general creditors.”
Dispute resolution process
The Act sets out a process for the adjudication of payment disputes, which brings the WA law more in line with the rest of the country.
The process gives a contractor 20 days to make an adjudication application after the due date for payment has passed and payment has not been made, or not been made in full.
An impartial adjudicator will be appointed to make a decision about the dispute. The adjudicator can do a range of things to help them in making their decision, including but not limited to:
- requesting submissions from the parties
- calling a conference of the parties
- engaging an expert (only if the parties agree)
After the adjudication process has taken place, the parties have an opportunity to apply for a review of the decision in certain circumstances.
Powers of the Building Services Board
The Act expands the powers of the Building Services Board, who will now have the power to take action against builders who do not pay their debts and to manage the conduct of builders.
If you are a contractor, or you engage contractors in the construction industry and would like advice about how the new Act might affect your contracts, have new contracts prepared or have a dispute over a construction contract, do not hesitate to contact Lynn & Brown lawyers for expert legal advice.
About the authors: This article has been co-authored by Chelsea McNeill and Steven Brown. Chelsea is a lawyer that graduated from Murdoch University. Steven is a Perth lawyer and director, and has over 20 years’ experience in legal practice and practices in commercial law, dispute resolution and estate planning.