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It is widely held that subcontractors are vulnerable to not being paid for the work they do. So much so, that legislatures around Australia have made special laws in to try and secure subcontractors’ payment rights.

WA’s security of payment laws, which provide for rapid adjudication of construction pay disputes, appear in the Construction Contracts Act 2004.

However, the recent Forge Group collapse reminds us that adjudicators’ determinations cannot be enforced against insolvent principals or head contractors: Hammersley Iron Pty Ltd v James [2015] WASC 10.

A principal’s/head contractor’s insolvency may give the contractor a right to claim for the “fair value” or quantum meruit of work done up to the date of insolvency. However, these sorts of claims are fraught with difficulty, including:

(a)         the complexity and cost of proving “fair value”;

(b)         the fact that fair value assessments often work out to less than the contractor has already received
in progress payments; and

(c)         the likelihood that the insolvent principal’s lenders, suppliers, professional service providers and the
ATO will all take priority as creditors over contractors who will often be left with ittle or nothing once
those priority claims have been paid out.

For now, the best way for contractors to protect their payment rights against their principals’ insolvency may be to register security interests on the Personal Property Securities Register (“PPSR”).  However, the security that PPSR offers is far from complete, particularly where payment is owed for services as opposed to the sale or lease of goods.  Also, even contractors with security interests registered on the PPSR are likely to rank in insolvency behind the banks, suppliers of materials and plant hire companies.

Project Bank Accounts (“PBAs”) have been touted as a better way to secure contractors’ right to be paid for their work.  Currently, though, PBAs are only required on:

(a)          government projects;

(b)          administered by Building Management and Works;

(c)          with a construction value over $1.5 million;

(d)          tendered from 30 September 2016; and

(e)          where AS2124 contracts are used.

There are calls to expand the operation of PBAs and even to make them universal for projects, be they private or public, over a certain value.

But are PBAs really the panacea they purport to be?

*This information serves as a general guide and does not constitute legal advice. It is based on our research and experience at the time of publication. Please consult our knowledgeable Legal Team for any specific inquiries or advice relevant to your circumstances, as the content may not have been updated subsequently.