Security of payment for architects - WA

The Building and Construction Industry (Security of Payment) Act 2021 (Western Australia)

In Western Australia the Construction Contracts Act 2004 (WA) (CCA) has been superseded by the Construction Contracts (Former Provisions) Act that now only applies to construction contracts prior to August 2022. For all new construction contracts signed on or after 1 August 2022, the Building and Construction Industry (Security of Payment) Act 2021 (the ‘Act’) with accompanying regulations (the ‘Regulations’) applies. The Act has three stages:

• The first stage commenced on 1 August 2022 setting out the main provisions of the Act.
• The second stage commenced on 1 February 2023, with retention trust schemes phase.
• The third stage is to commence on 1 February 2024 with further development of the retention trust scheme.

If a payment dispute arises on a valid payment claim in respect of a construction contract covered by the Act entered on or after 1 August 2022, then that payment dispute can be brought to an adjudication of the dispute under the Act.

Back to top

Stage 2 of the Act

Stage 2 of the Act, commenced on 1 February 2023. This stage introduces the ‘Client’s rights with respect to performance security’ and ‘Retention money trusts’. These provisions regulate parties who retain monies from contractors and subcontractors in order to secure performance. Refer Part 3, Division 6 ‘Client’s rights with respect to performance security’ and Part 4 ‘Retention money trusts’.

This part of the Act applies to commercial construction contracts with a value of $1,000,000 or more (with exceptions for small-scale residential contracts and contracts directly with individual homeowners). It affects parties who retain monies from contractors and subcontractors to secure performance. Architects should be familiar with the ABIC contracts (non-domestic) Section C Security, with security for performance either by way of cash retention or unconditional (bank) guarantee.

Architects should be aware that the Act does not regulate construction contracts for specified home building work (see Table 1 below). If your project is for home building work that is not regulated by the Act, then the provisions of the relevant construction contract (eg as set out in the ABIC contracts) apply to the security arrangements between the owner and the builder.

Back to top

Construction contracts entered into prior to 1 August 2022

The CCA will apply to all construction contracts entered into (executed) prior to 1 August 2022. Under the CCA, a construction contract for construction work includes performing ‘related’ goods and services; related services specifically include professional architectural and design services.

If a SOP payment claim dispute arises with a client where the client-architect agreement was entered into prior to 1 August 2022, the architect should seek an adjudication under the CCA. The CCA also applies to an architect’s client that enters into a construction contract with a contractor or supplier prior to 1 August 2022. If a payment dispute arises under that contract, a contractor or supplier can make a claim for an adjudication of the dispute under the CCA (refer Acumen note Security of payment – WA).

Back to top

Architect’s services fall under the Act

The new Act will apply to the architect’s services if the payment claim and subsequent dispute is between an architect and client under a construction contract entered on or after 1 August 2022. If a payment dispute arises then either the architect or the client may seek an adjudication under the Act because it includes an architect’s professional services that relate to construction work. The current Regulations which apply to the Act do not make any exceptions for architects or architectural services.

The Act does not apply to construction contracts for home building work if the principal is an individual (but not a developer) and the contract value is less than $500,000 and the work isn’t for multiple dwellings. An architect’s services on residential or home building projects are not excluded from the Act. Refer summary table below.

Refer ‘Information for housing (domestic)’ in Acumen note ABIC contracts – Western Australia, for further information on the Home Building Contracts Act 1991.

Architects are identified under the Act as providing professional services that directly relate to construction work. Such services include construction feasibility, the design of a building or when acting as a contract administrator (project management), if the architect’s client requires the architect to be the contract administrator under the contract that the client entered into with a contractor.

From 1 August 2022, architects who are providing a professional service directly relating to construction work will be able to use the Act to claim payment for services undertaken and to seek resolution of claimed payment disputes.

A consultancy agreement for non-home building work, as defined under the Act, also qualifies as a construction contract which enables an architect to use the Act to make a payment claim under the Act and to seek resolution of any dispute with or secure payment from a client failing to pay the architect’s claimed amount. Consultancy agreements or similar contracts for professional services for the construction of buildings and other work (eg the Australian Institute of Architects Client Architect Agreement, Standards Australia AS 4122 or another form of contract) can fall within the application of the Act — whether written, oral or partly written and partly oral.

Back to top

Seeking payment from a client under the Act

An architect who has completed a stage of its service under a consultancy agreement and seeks payment needs to submit to the client a payment claim, which may be given as an SOP claim under the Act. To be a compliant SOP claim under the Act, it must be in a form that identifies the claim as being given under the Act, must be in writing, indicating the amount that the architect claims is payable by its client and describing the extent of work undertaken. The claim must state that it is made under the Act, for example displaying the words: ‘This is a payment claim made under the Building and Construction Industry (Security Of Payment) Act 2021 (WA)’.

The WA Building Commissioner (2022) has published a user guide and template for builders when making a payment claim. This may provide a guide for architects.

The claim can be given (served) in person or by email but must be in the form set out in the Regulations. There is flexibility under the Act for a delayed claim where a payment claim can be made up to six months after the work in the payment claim was carried out.

Back to top

What follows from the architect’s payment claim

The timing for when payment claims become payable may be set out under the terms of the agreement or otherwise under the terms set out in the Act. When the client receives the architect’s claim, the client may reply to the payment claim by giving the architect a payment schedule that indicates the amount of payment, if any, that the client proposes to make. This is called the client’s scheduled amount and is the client’s assessment of what is payable under the consultancy agreement for the work that is claimed to have been performed. The payment schedule must be given in writing and identify the payment claim given.

The timing for the client to give its payment schedule in reply is the earlier (shortest) of either the time required under the consultancy agreement, or 15 business days from when the claim was made. If the client has not provided a payment schedule within the required time, then the client becomes liable to pay the full amount claimed by the due date for payment and the client will be precluded from later claiming or giving reasons for withholding payment if the payment dispute proceeds to adjudication.

In addition to indicating the amount of payment (if any) that the client proposes to make, the client’s payment schedule must indicate its reasons for withholding or not making payment for the balance. This is important because the Act does not permit the client to raise new or additional reasons for withholding payment should the architect decide to apply for an adjudication. The adjudicator cannot take into consideration any new or additional reasons beyond the reasons provided in the client’s payment schedule.

Back to top

Making an adjudication application following a disputed payment schedule

The Act sets out two circumstances when the architect can make an adjudication application:

1. Where the client has provided a payment schedule but has not paid the architect the scheduled amount in full on or before the due date for the payment claim. The adjudication application must be made within 20 business days after the due date for payment of the scheduled amount.
2. Where the client has provided a payment schedule that is less than the amount claimed, or no payment is proposed. Again, the application is to be made within 20 business days after the due date of payment of the scheduled amount.

Where the client did not provide a payment schedule within the required time, the architect within 20 business days after the due date for payment is to give the client written notice of its intention to apply for an adjudication. The client is given a second chance to provide a payment schedule where the client’s second chance schedule is to be given within 5 days from receiving the written notice.

If no payment is proposed in the payment schedule, the architect may elect to recover from the client the unpaid portion of the claimed or schedule amount as a debt due to the architect in a court of competent jurisdiction. Should the matter go to court, if the client did not provide a payment schedule, then the client is not entitled to bring a cross claim or to raise any defence in relation to the client-architect agreement.

If the agreement stipulates a registered adjudicator to be the adjudicator, the giving of an adjudication application must be given to that person and if there is no conflict of interest and that person is in a position to act as an adjudicator for that dispute, then the adjudicator is appointed.

If the agreement is silent on the identity of the adjudicator, then an adjudicator is appointed through what is called an authorised nominating authority. In Western Australia the authorised nominating authority is an authority recognised by the Building Commission WA.

If the appointment is through an authorised nominating authority, the architect may apply for an adjudication of the payment claim by making an adjudication application to the authorised nominating authority under the requirement of s.28 of the Act.

The WA Building Commissioner (2022) published a recommended template form to be used for an adjudication application that can provide a guide for an architect. The Act sets out the requirements of the adjudication application and the requirements for the appointment of the adjudicator.

The architect must also give a copy of the adjudication application to the client within 1 business day after having made the application to the adjudicator or to the authorised nominating authority.

Back to top

The client’s response to the adjudication application

Whether the client can give an adjudication response depends on whether the client gave a valid payment schedule to the architect. If the client failed to give a payment schedule or the schedule was not given within the time limit under the Act, then the client is not able to submit an adjudication response.

If the client has met the requirements for a valid payment schedule the adjudication response must be given in writing within 10 business days, and must identify the adjudication application and the submissions relevant to the response. The response cannot include new reasons for withholding payment that are additional to those reasons given in the payment schedule. If the client does include new or additional reasons, then the adjudicator is not permitted to take this into consideration when making a determination.

The client can elaborate on the reasons given in the payment schedule, including providing supporting evidence. There is also the opportunity for the client to respond to the architect’s submission by, for example, refuting any of the architect’s assertions.

Back to top

Making the determination and grounds for further review

Following the client’s response, the adjudicator must consider the application and reasons provided and determine the adjudication within 10 business days after the client has given its response or on the last day the response should have been given. Provided there are no technical legal reasons for declining to adjudicate, the adjudicator is to determine the amount of the payment claim if any to be paid by the client, the due date for payment of that amount and any interest payable. The adjudicator can also determine that no amount is payable in respect of that payment claim.

After receiving the adjudicator’s determination, either the architect or the client can make an application for a review of the adjudication determination if:

• there is a difference between the claimed amount and the adjudicated amount that is $200,000 or more
• the adjudicator decided that it did not have legal jurisdiction to determine the application and the claimed amount was greater than $50,000.

The application for an adjudication review must be made within 5 business days after the architect received a copy of the adjudicator’s determination. The adjudication review application is given to an authorised nominating authority (an ANA). There is a specified list of ANAs in WA. Once the application for review is given to the ANA the authority will appoint a review adjudicator within 5 business days. The Act also requires that the agreed or adjudicated amounts payable in the payment claim be paid by the client into a trust account, until the review is determined. Ultimately, a further determination will be given by the ANA on the review application.

Back to top

A subconsultant’s payment claim made to an architect

A subconsultant engaged directly by the architect — under the Australian Institute of Architect’s Architect-Specialist Consultant Agreement or a similar consultancy agreement for professional services directly related to construction work identified under the Act — can give the architect a SOP claim under the Act. Under these contracting arrangements, the Act reads as if the architect is the ‘head contractor’ supplying services to the client as principal.

The same limitations under the Act on professional services related to home building work apply (refer ‘Architect’s services fall under the Act’) to a subconsultant’s services and given the $500,000 threshold for the (sub-)consultancy agreement, many of the sub-consultancy services related to home building work will be excluded from the Act. To recap: a sub-consultancy agreement for home building work can come within the Act if the principal is a company or partnership, or the work is for multi-residential (or for a developer), or the value of the agreement is above $500,000.

The subconsultants’ payment claim, if it is to be enforced under the Act, must identify the claim as a claim made under the Act. The architect should respond by giving the subconsultant a payment schedule before the earlier of: the time required by the (sub)consultancy agreement or within 15 business days after the payment claim is made.

The procedure that follows is identical to an architect making a payment claim to its client and the client providing its payment schedule (see above under ‘Making an adjudication application following a disputed payment schedule’).

Back to top

The architect as a contract administrator

An architect engaged by a client to administer the construction contract between the client and the contractor will need to carefully consider a contractor’s payment claim under the contract, as well as a SOP claim if the architect’s assistance is required to prepare a payment schedule on behalf of the client (as the principal under the contract for construction work). The client’s payment schedule must be given within 15 business days after the payment claim has been made or any shorter period agreed under the contract. The client’s payment schedule must identify the payment claim, indicate the amount the client agrees is payable if any, and indicate any reasons for withholding or not making payment. The client’s payment schedule should be as consistent as possible with the architect’s assessment, in accordance with the terms of the construction contract, of the claim submitted.

A failure to adequately give reasons for withholding payment or making no payment, can result in the client becoming liable to pay the full amount of the claim and the client will be precluded from giving any reason for withholding payment should the matter proceed to adjudication.

If acting for or assisting the client with its payment schedule response to a SOP claim, the architect should be aware of general considerations and good practices. Refer Acumen note Administering Security of Payment claims.

Back to top

Parties should seek legal advice

This note provides an overview of the Act and is not a substitute for legal advice.

If the client receives a SOP claim, we recommend that you advise the client to promptly consult their legal adviser because:

• the time limits for the owner to comply and respond to SOP claims are tight
• the procedures are complex and certain formalities must be observed to protect the client's rights
• developing case law will progressively clarify some uncertainties in the legislation and uncover others.

Back to top

Concluding comment on the Act

Contractors, subcontractors, suppliers and persons providing a professional service (including architects) are required to meet numerous requirements in using the Act. An architect acting for a client engaging a contractor for construction work, or concerned with a client failing to pay the architect’s fees, is advised to consult with a lawyer with experience of this Act.

Back to top

References

• Building and Construction Industry (Security of Payment) Act 2021
• Building and Construction Industry (Security of Payment) Regulations 2022
• Explanatory Memorandum Building and Construction Industry (Security of Payment) Bill 2021
• WA Building Commissioner, 2022, User guides and templates for the security of payment process

Back to top