Problems and delays getting invoices paid can be an issue for all types of business – and contractors and subcontractors in the construction industry can be hit particularly hard.

Many subcontractors and suppliers have to spend considerable amounts of money to pay for the materials and labour they need to complete a project. Issues and delays receiving payment from their clients, such as building companies or homeowners, can put their whole business at risk.

The new Building and Construction Industry (Security of Payment) Act 2021 has been created to help protect contractors in the construction industry. It is designed to give subcontractors and suppliers more protection from the risks of not being paid.

Here are five things you need to know about the new laws.

1. The new laws apply to new contracts

The new Building and Construction Industry (Security of Payment) Act 2021 (the Act) applies to new construction contracts in WA from 1 August 2022. For any contracts you might have entered before this date, the Construction (Former Provisions) Contracts Act 2004 will apply. The Security of Payment Act introduces a series of changes to help protect subcontractors and suppliers from the risk of non-payment, beginning with the launch of new security of payment laws from 1 August 2022. From 1 February 2023, additional protections including an Australian-first retention scheme apply.

The various elements of the Act will support contractors and promote cashflow in the supply chain within WA’s building and construction industry.

2. It should be easier than ever to get paid as a subcontractor

Under the new laws, contractors and subcontractors can take advantage of reduced payment times and have the right to a progress payment to get paid once a month or even more frequently, depending on the contract details. This is great news if you’ve previously had to manage the ‘feast and famine’ cycle of waiting for extended periods of time before you’ve been able to get paid.

Generally, payments such as progress payments or final payments will need to be made within 25 days or less, as outlined in the construction contract. If you’re working in certain types of construction, such as residential-related work, your client will need to pay your payment claim by the due date in the contract, or within 10 days if the date isn’t specified.

The Department of Mines, Industry Regulation and Safety, through Building and Energy, has created factsheets and animations for using the security of payment laws.. This includes making a payment claim and working through the rapid adjudication and recovery process, if necessary.

3. If you’re a contractor, the new laws give you the right to stop work

Under the Act, contractors have the right to stop work if they are not paid as agreed in the contract, unless there are disputed or unapproved variations.

If you’re working in the industry, this could give your business more protection against not getting paid. It also gives your clients a clear incentive to pay as agreed in your contract to keep the project running smoothly. This new legislation marks a huge change in the construction industry, helping contractors and subcontractors get paid.

4. Make sure your contracts are clear and structured

If you’re in the industry, the key to getting your payments as quickly as you can under the new laws is to make sure you follow the right processes. Make sure your contracts clearly outline your payment requirements and expectations from the beginning.

The Act outlines what kind of terms are prohibited in contracts, improvements to administration and generally helps to streamline the contract and payment processes.

For example, building companies cannot include a ‘pay when paid’ provision in their contracts with contractors and subcontractors. As a contractor or subcontractor, you should be paid for the work you do regardless of what might be happening in other contracts along various parts of the contracting chain.

A note for subcontractors

Any ‘pay when paid’ clauses in your contracts made after 1 August 2022 will have no effect. If your client relies on this kind of clause to delay paying you, make sure they are aware of the Building and Construction Industry (Security of Payment) Act 2021.

You could also consider making an adjudication application to seek payment. A client who can’t pay you could be a sign of concerning cash flow issues – it could be worth acting quickly to protect your rights.

5. There are more protections for subcontractors under the Act

The Act also includes additional stages of protections for subcontractors, all of which should be in place by February 2024.

  • A retention trust scheme – This protection will be introduced from 1 February 2023 to protect subcontractors if there is a dispute or a company becomes insolvent and is unable to return retention money owed. Initially the protection will cover construction contracts over $1,000,000 (including GST) but will expand to contracts over $20,000 (including GST) from 1 February 2024. Find out more.
  • Excluded contractors – If registered builders don’t pay their debts to contractors or have a history of financial failure, the Building Services Board has increased powers to take action against them, including excluding them from starting or continuing a building services business from 1 February 2023.
  • Balance of risk – Rather than the subcontractor needing to take on all the risk to pay for materials and labour upfront, fairer contracting practices will help to balance the financial risks in the construction industry.

More information

The Building and Energy website has a range of educational materials available to assist building service providers understand and comply with the Act reforms, including:

  1. educational videos and fact sheets on the new security of payment laws
  2. user guides and templates for making and responding to payment claims
  3. a contract template (for small value construction contracts)
  4. a Factsheet and Retention Money Trust Accounting Guidelines to assist industry understand retention money reforms;
  5. industry updates on changes to registration requirements for building service providers
  6. user guides for the rapid adjudication process.

You can also learn more about our SBDC subcontractor support services or book an appointment with our free business advisory service to discuss an issue you’re facing.

Legal and risk
01 February 2024