Security of payment for construction contractors is high on the agenda for the WA State Government which is rolling out a suite of reforms, including:
- 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 days;
- 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 2004.
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 as:
- 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 tell.
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