17/11/2020 - 09:49

What the milestone construction reforms mean for construction contractors

17/11/2020 - 09:49

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It remains the case across Australia that construction contractors are often not paid what they have earned by their labour, either on time or at all.

It remains the case across Australia that construction contractors are often not paid what they have earned by their labour, either on time or at all. Through security of payment legislation, every State and Territory has made efforts to improve recovery and retention of payments for construction contractors.

In Western Australia, the Building and Construction Industry (Security of Payment) Bill 2020 (WA) (Bill) represents the second attempt since 2016 (Construction Contracts Amendment Act 2016) to improve payment security and protections for construction contractors. If enacted, the Bill will apply in substitution for the Construction Contracts Act 2004 (“CCA”) to all construction contracts made after enactment.

Some of the more significant reforms are considered below.

More extensive prohibitions on withholding of monies earned by subcontractors

Presently, contractors are prohibited from including terms in their contracts that allow them to withhold payments to their subcontractors just because they have not been paid. If enacted, the Bill will extend this prohibition to cover any withholding of payment to a subcontractor based on what happens under a separate contract. This would put an end to the common practice of withholding portions of a subcontractor’s earnings and not releasing other forms of cash securities such as bank guarantees, sometimes for years on end, pending completion of an entire project, even where the subcontractor has performed early or relatively minor works.

Time to bring adjudication claim

It is proposed to reduce the time to apply for rapid adjudication of a construction payment dispute from the current 90 business days to 20 business days. This may prove unpopular at first, but HHG Legal Group would consider shorter deadlines to be better aligned with the overriding purpose of adjudication, to keep cash flowing quickly down the chain of construction contracts. Shorter deadlines may serve that purpose by focusing limited adjudication resources on those in genuine need of rapid resolution and raising a higher barrier to entry by those who might seek to burden the process with unnecessary technical and administrative complexity.

 

Unfair time bars

It is proposed to allow adjudicators and related decision-makers to refuse enforcement of a contract term that prevents construction contractors from being paid for their work only because they could not submit required paperwork within unreasonably short timeframes (known in the industry as “time-bars”). This will be of obvious benefit to the construction industry.

Dealing with retentions and other performance security

Performance security is basically an amount in cash that construction contractors are required to make available to their principal, on demand, as security for the potential loss and expense that the principal might incur if the contractor does not complete their work properly and on time. Commonly, the security will take the form of withholdings from the contractor’s payments or a guarantee or bond from a financial institution, to pay up to a certain amount in cash to the principal on demand.

There is nothing wrong in principle with a principal wanting security for the proper and timely performance of the work they are paying a construction contractor to do. However, the system can be open to abuse where principals or contractors treat the security as if it were their own money, by, for example, cashing in performance bonds or bank guarantees prematurely or applying retention monies in risky and careless ways. The Bill seeks to prevent such behaviour by, for example, requiring notice to be given before recourse is had to retentions; and retention monies to be held in a separate account, on trust for the contractors that have earned them.

So, what should construction contractors to do to prepare for these coming changes?

Now more than ever, it is critical for construction contractors to have both new and existing construction contracts reviewed. It is amazing how much bargaining power a contractor has if they are properly advised and can articulate exactly what changes they want made to their contracts and why. This, together with well-drafted templates for time-barred notification and claim forms, advice about how to maximise and enforce contractors’ rights under the Personal Property Securities Act, and the new statutory protections, can make for a truly powerful combination. Finally, contractors are advised to keep their programmes and calendars up to date so that any late or rejected payment claims can be adjudicated promptly within the shortened time limits under the new legislation. After all, what good are improved payment rights and protections if contractors do not enforce them?

How HHG Legal Group can assist

HHG Legal Group has been proudly serving Western Australian businesses, families, local governments and individuals for over 100 years and we are committed to supporting the communities across Perth, the Great Southern, the Peel region, and the northern corridor.

Led by highly regarded construction law and commercial litigation specialists, HHG Legal Group Director, Murray Thornhill and Special Counsel, Daniel Morris, our Building & Construction team can help you navigate these legislative amendments and provide practical advice, now and when the legislation is passed.

Or if you are currently involved in a construction dispute, our Construction Dispute team have the experience to help you achieve a quick and effective outcome.

Find out more at https://www.hhg.com.au

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