BUILDING AND CONSTRUCTION INDUSTRY (SECURITY OF PAYMENTS) ACT 2021 (WA) [SOP ACT]

1st October, 2024

The SOP Act commenced operation on 1 August 2022 replacing the Construction Contracts Act 2004 (WA) (CCA) and applies to most contracts for the carrying out of construction work or the supply of related goods and services in Western Australia.  It was introduced in three phases, with the last phase enacted on 1 February 2024.

This article introduces the key provisions of the Act.

Narrowing of mining exclusion

The exclusion under the old CCA for ‘fabricating or assembling items of plant used for extracting or processing oil, natural gas or any derivative of natural gas, or any mineral bearing or other substance’ has been removed.

However, construction work for ‘drilling for the purposes of discovering or extracting oil or natural gas, whether on land or not’ and ‘constructing a shaft, pit or quarry, or drilling, for the purposes of discovering or extracting any mineral or other substance’ remains excluded.

Payment claims

The SOP Act imposes a statutory payment process that operates independently of the underlying contract. This process reduces the maximum statutory time for payment of contractors and is dependent on the parties’ position in the contracting chain. For example, unless the contract prescribes an earlier date, payment will be due within:

  • 20 business days after a payment claim is made by a head contractor to a principal;
  • 25 business days after a payment claim is made by a sub-contractor

Payment claims may be made on or after the last day of each month during the project and can be made within six months after the works subject to that claim were carried out.

Payment claims for final payment can be made after the later of: six months after the completion of all work; 28 days after the defects liability period has expired; and the date (if any) determined in accordance with the contract.

Payment claims can now include claims for the release of performance security.

Payment schedule

The SOP Act requires the use of payment schedules for principals or head contractors that dispute any part of a payment claim.  A party that receives a payment claim (the respondent) may respond to a payment claim by providing a payment schedule within 15 business days of receipt of the payment claim or any lesser time prescribed by the construction contract.

There are no extensions of time and the consequences of failure to provide a valid payment schedule within time are significant.

For a repayment schedule to be valid, it must be in writing, identify the payment claim to which it relates and indicate the amount of payment (or no payment) that the respondent proposes to make (the Scheduled Amount). If the Scheduled Amount is less than the claimed amount, the payment schedule must indicate reasons for the reduced amount and why the respondent is withholding payment.

Consequences of failure to provide adequate payment schedule

If the respondent does not provide a payment schedule within time, the full amount of the payment claim becomes a statutory debt and the claimant is entitled to payment in full. There are no exceptions, even if the respondent has genuine reasons for withholding payment or why it failed to provide a payment schedule (which may include oversights or administrative errors).

If a payment schedule is not provided and payment is not made to the contractor, the claimant may:

  • suspend the works or the supply of related goods and services; and
  • either:
    • commence legal proceedings in a court to recover the statutory debt; or
    • proceed to adjudication upon giving the requisite notice.

If legal proceedings are commenced and no payment schedule provided, the respondent cannot raise a defence or cross-claim in relation to matters arising under the construction contract. For example, a respondent cannot defend the proceedings on the basis that not all the works for which payment is claimed were actually carried out, or that it is entitled to set-off costs for rectification of defects, liquidated damages or other amounts.

A respondent must also ensure that it includes all reasons for withholding payment in its payment schedule. If it does not include a reason for withholding payment, it will not be entitled to raise that reason in any subsequent adjudication which amplifies the importance of giving careful thought to the reasons for withholding payment at that early stage.

Interim payments

Any amounts required to be paid under the SOP Act are payments ‘on account’ and subject to any later final determination of the parties’ rights under the construction contract. This means that while payment of the statutory debt must be made by the respondent, it can later seek to recover the amount paid through litigation, arbitration or other mechanisms (if applicable under the contract) if the claimant’s entitlement to those amounts under the construction contract is disputed.

This will not provide comfort to all respondents as it can take months or years to obtain a final determination of the parties’ rights through these processes.

Adjudicating claims

Under the old regime an applicant had 90 business days to make an adjudication application. Under the current regime, an applicant to adjudication has 20 business days to commence the adjudication if a payment schedule was provided by the respondent, but the claimed amount not paid, or 20 days to give notice of their intention to adjudicate if the respondent did not provide a payment schedule at which point the principal has a last opportunity to serve a payment schedule, failing which the contractor can commence the adjudication within a further 20 business days.  The respondent then has 10 days to provide a response, and the adjudicator then has 10 days to provide a determination.

Adjudicators do not have a discretion to consider late adjudication responses.

Parties to adjudications are not entitled to claim their legal costs incurred in the adjudication.

Adjudication review

The SOP Act replaces the claimant’s right of review to the State Administrative Tribunals under the CCA with a limited right of review by a senior adjudicator for certain types of determinations. Should you have any queries regarding SOP Act, please contact Greg O’Shannessy by email to goshannseey@mphlawyers.com.au or Cheryl Sun by email to csun@mphlawyers.com.au or on (08) 9221 0033.

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