Construction sector insolvencies are now a regular feature the daily news cycle. However, insolvency risk has been a constant in the construction industry for many years, often resulting in subcontractors being left out of pocket.
The Western Australian government’s main initiative to safeguard the security of payments in construction contracts – the Building and Construction Industry (Security of Payments) Act – will soon come into force.
The new Act is the most significant change to Western Australia’s security of payments regime in its 18-year history. Over the course of its 3-stage implementation between August 2022 and February 2024 the new regime will fundamentally change when and how contractors can be paid for their work.
Stage 1 commences on 1 August 2022 and captures all construction contracts entered into on or after that date. Mining companies in WA, whose construction projects have historically dodged security of payment legislation, will have to deal with a dramatic tightening of the ‘mining exclusion’.
So too oil and gas companies, as for the first-time offshore construction works are expressly captured by the new regime.
Perth-based DLA Piper partner and co-head of Global Construction Disputes, Richard Edwards, noted that he had been surprised at the number of industry participants who had not yet turned their full attention to the changes the new legislation will bring.
“The Act was passed by the WA Parliament back in June 2021, and attention since has turned to more urgent concerns in the construction industry such as COVID-19, supply chain disruption and labour issues. However, this new legislation operates in an entirely different way to the previous Act. Now, the right to payment is directly protected by the Act. Contractors are entirely within their rights to bypass contractual payment provisions and instead seek payment solely through the mechanisms in the Act.”
Mr Edwards suggests that “owners, contractors and subcontractors should all be reviewing their standard contractual terms and contract administration procedures. Project participants may find themselves unable to make or dispute a payment claim because they failed to comply with the new regime.”
DLA disputes partner, Corey Steel, added that “the changes may catch out the WA mining industry in particular, which has previously been largely immune to the security of payment regime. The ‘mining exclusion’, as it is often called, has been significantly narrowed, meaning the construction of processing plant and equipment will now be squarely within the ambit of the new Act.”
“The second half of 2022 will present many challenges, as a construction contract executed on 31 July will operate under an entirely different system to one executed on 1 August. In a sector already facing multiple issues in the current economic environment, an increase in construction disputes is a real risk, at least until the industry adjusts to the new norm. Companies that spend the time now to prepare will be best placed to ride the potential new wave of payment claims and disputes.”
