Security of payment for construction contractors is high on the
agenda for the WA State Government which is rolling out a suite of
the use of Project Bank Accounts (PBAs) to manage progress
payment claims in Building Management and Works projects worth
between $1.5m and $100m;
extended time to apply for adjudication of a construction
payment dispute from the current 28 days to a proposed 90
a code of conduct for government contractors; and
other possible reforms, including a government-run education
program for construction industry stakeholders on contractors'
rights and obligations under the Construction Contracts Act
On 30 September 2016, PBAs will start being used across all
WA-based government projects worth $1.5m to $100m. Originating in
NSW, the concept involves a principal paying a head
contractor's progress payments into a special-purpose account
administered by a bank as trustee for both head contractor and all
subcontractors. Whilst the head contractor remains solvent, the
trustee will pay out both the head contractor's and
subcontractors' payment claims from that fund. In the event of
the head contractor's insolvency, subcontractors will get paid
in preference to the head contractor's other creditors. The
objective is to secure payments to subcontractors that would
otherwise go to an insolvent head contractor's secured and
other priority creditors.
The rationale for limiting the use of PBA to projects worth
$1.5m - $100m is:
at the lower end, contractors engaged in works under $1.5m are
more likely to experience cash flow difficulties if the payments
that would otherwise be available to help fund other works were
instead tied up in a PBA; and
at the upper end, the cash flow issues that PBAs help manage
are considered to be less likely to occur, even at subcontractor
level, where the value exceeds $100m.
However widespread or limited their use may be, PBAs, by
themselves, are unlikely to be enough to deal with the effects of
other undesirable practices in the construction industry such
Inappropriate levels and kinds of risk being pushed down the
line to subcontractors who are least able to manage it; and
inadequate planning and project management causing delays and
budget blow-outs (at a cost to the principal and ultimately, the
public at large).
The proposed code of conduct and government education program
may go some way towards combatting such practices. Only time will
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Warranties can be risk-shifting mechanisms when the party giving the warranty is not the party at fault for the defect.
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