Key Obligations under WA’s Security of Payment Regime

By Nisha Long

The Building and Construction Industry (Security of Payment) Act 2021 (WA) (SOPA) applies to contracts for “construction work” or the supply of “related goods and services” entered into after 1 August 2022. Construction contracts entered into before this date continue to be governed by the Construction Contracts Act 2004 (WA) (CCA). The SOPA aims to strengthen payment protections for subcontractors and suppliers by introducing shortened payment timeframes, new adjudication procedures and retention trust requirements. It is crucial for developers, builders, and contractors to understand these changes and their obligations under the SOPA to effectively manage contracts, avoid penalties, and ensure compliance. The key reforms were implemented across three stages.

First Stage – Payment

The first stage commenced on 1 August 2022 and introduced stricter payment timeframes. If a respondent fails to provide a payment schedule within 15 business days of receiving a payment claim, they must pay the full claimed amount by the due date. Unless a construction contract specifies an earlier payment date, payments from principals to head contractors must be made within 20 business days of the payment claim, while payments from head contractors to subcontractors must be completed within 25 business days. For construction projects involving certain home building work, payment is required within 10 business days after the claim is submitted.

If payment is not made within the required timeframes, contractors have the statutory right to suspend work in the event of non-payment. A contractor can, upon giving two business days’ written notice, suspend work (or supply of related goods and services) if the principal fails to pay a claimed or scheduled amount, an adjudicated amount, or return security or retention monies.

Adjudication process

Adjudication procedures were adjusted to ensure a streamlined and fair resolution of disputes. Claimants now have 20 business days after the due date for payment to notify the respondent of their intention to apply for adjudication, and the respondent then has 5 business days to provide a payment schedule in response.

The respondent may give the adjudicator a response to the claimant’s adjudication application (the adjudication response) within 10 business days after receiving a copy of the adjudication application. If the respondent fails to include valid reasons for withholding payment or to lodge a payment schedule at all, they will not be able to raise new submissions in response to claimant adjudication application, or to issue an adjudication response at all. Adjudicators also have the authority to dismiss frivolous or excessively complex claims that cannot be fairly determined within the required timeframe.

Void Clauses

The SOPA strictly prohibits “pay-when-paid” clauses, which delays subcontractor payments or makes them conditional upon the head contractor receiving payment from a third party. These provisions are void and unenforceable, ensuring subcontractors and suppliers are paid on time regardless of third-party payment delays.

The Act also allows adjudicators, courts, arbitrators, or experts to declare notice-based time bar provisions unfair if compliance with such clauses would not be reasonably possible or unreasonably onerous. These provisions, which make entitlement to payment or extensions of time contingent on providing notice within a specified timeframe, may be deemed unenforceable if they impose an unreasonable burden on a party. When assessing whether a notice-based time bar is unfair, adjudicators and courts must consider the factors outlined in section 16 (6) of the SOPA.

Mining

Another significant change under SOPA was the narrowing of the mining exclusion that previously existed under the CCA. The SOPA now covers more of the mining and resources industry, although drilling and shaft/quarry construction remain excluded. However, the fabrication and assembly of plant and infrastructure used in mining and energy projects now fall within the scope of security of payment protections. Furthermore, claimants can exercise a statutory lien over unfixed plant and materials in respect of unpaid progress payments, further safeguarding contractor rights.

Adjudication Review

Either party has broad rights for review where the adjudicated amount differs from the amount in the payment claim or schedule by $200,000 or, where the adjudicator determines they lack jurisdiction, and the claimed amount exceeds $50,000. A respondent who fails to provide a payment schedule or an adjudication response within the required timeframe, loses the right to seek a review of the determination. Further, a respondent will not be entitled to apply for a review of a decision that the adjudicator had jurisdiction to determine an adjudication application. The parties have 5 business days from the date of the original adjudication determination to make an application for review and the review adjudicator has 10 business days to make a determination.

Second Stage

The second stage, which took effect on 1 February 2023, introduced the Retention Trust Scheme which applies to construction contracts with a value of more than $1 million (note the threshold is now lowered). Under this scheme, retention money must be held in a trust account with a recognized financial institution within 10 business days of the parties entering the construction contract. Before a party can have recourse to performance security, it must provide the other party at least five business days’ written notice of its intention to have recourse.

New powers were granted to the Building Services Board—including the ability to exclude individuals with a history of financial failure from the registered building contractor market. These reforms introduced new disciplinary offences and registration exclusions, preventing building contractors with unpaid building service debts from obtaining or maintaining registration.

The SOPA makes it an offence to threaten or intimidate a claimant exercising their right to a progress payment or any other entitlement under the Act, with penalties of up to $50,000 for non-compliance.

Third Stage

The third stage of the reforms commenced on 1 February 2024, lowering the threshold for the Retention Trust Scheme from $1 million to $20,000. This change significantly expanded protections for subcontractors, making retention trust obligations applicable to a wider range of construction projects. Any construction contract exceeding $20,000 must now comply with trust account requirements to safeguard retention funds.

A major reform introduced in Phase 3 is the right for a party to a construction contract to which the SOP Act applies to substitute a performance bond for the release of retention money under the contract. However, to qualify for this substitution, the performance bond must meet specific criteria, including being unconditional, irrevocable, and other requirements as outlined in Section 60 of SOPA.

A party to a construction contract may face a fine of up to $50,000 if they fail, without reasonable excuse, to pay retention money into a trust account in accordance with SOPA. Additionally, they may be penalized for failing to provide reasonable access to individuals with a beneficial interest in the retention money, preventing them from inspecting records or obtaining necessary information, as prescribed by the regulations.