A bond can replace retention under WA law, and notice comes before recourse.
Under the WA Building and Construction Industry (Security of Payment) Act 2021, a compliant performance bond can be substituted for retention money, and notice, with at least 5 business days, is required before recourse to performance security.
· Updated · Western Australia · Performance security · 4 min read
Under the Building and Construction Industry (Security of Payment) Act 2021 (WA), there are two rules many contractors overlook: a compliant performance bond can be substituted for retention money, and notice is required before recourse to performance security.
Both rules turn on records: what security is held, on which project, from which issuer, and what notice has been given.
What the Act actually says
Part 4 of the WA Act establishes the retention money trust scheme. Division 6 contains the performance security notice requirements. Together, they create a clear framework around three key obligations:
Retention money is held on trust. It is not the principal's money
When cash retention is withheld from a subcontractor's progress payments, the Act requires it to be held in a dedicated trust account at a recognised financial institution. The trust account must be established within 10 business days of the contract being entered into (or within 20 business days of the contract value exceeding the threshold). Retention money cannot be accessed by the principal's creditors and cannot be mixed with general funds.
A compliant bond can be substituted for cash retention, and substitution may be sought in a payment claim
The Act allows a compliant performance bond to be substituted for retention money, and substitution may be sought in a payment claim (s 59(1) and (2)). The bond must meet s 60, including an S&P long term issuer rating of A unless the contract allows a lower one (s 60(1)(i), reg 10). Its issuer is a bank or an authorised insurer (s 56), and several bonds may replace one amount of retention (s 59(3)).
Notice is required before recourse to performance security
For performance security, the party holding it must give notice, and wait at least 5 business days, before taking recourse to it (s 57).
The 5-day notice is not a formality
The Act requires notice, and at least 5 business days, before recourse to performance security (s 57), so a dated record of what was served matters.
Why this matters for contractors managing bonds
If you are a contractor holding performance bonds from your subcontractors, the notice rule cuts both ways.
On the liability side: Before taking recourse you must give notice and wait at least 5 business days. Treat the notice as the legal step it is, not a procedural formality.
On the asset side: If you provide bonds to your upstream contractors, the same notice rule applies to you. Before any principal takes recourse against your bond, they must give notice and wait at least 5 business days (s 57). That window is your time to act.
On contract structuring: Because a compliant performance bond can be substituted for retention money (s 59), it is worth knowing early which instruments you hold and which could be offered in place of retention.
The trust obligation is not optional
For any head contractors or principals holding cash retention: the trust account obligation is not a best-practice recommendation. Retention money must be paid into a dedicated trust account at a recognised financial institution within the timeframes set by the Act. Failure to comply is an offence, with penalties of up to $50,000 for individuals and $250,000 for corporations.
Director liability may apply
Section 119 of the Act addresses liability of directors and others for offences by bodies corporate. If your company has been treating withheld retention money as working capital or holding it in a general account, that needs to change, and the exposure may extend to individual directors.
How bondtrack helps
The WA Act creates a formal, document-driven process around bond calls, trust obligations, and security substitution: exactly the kind of work that falls through the cracks without purpose-built tooling.
A guaranteed window before any recourse
The Act requires notice, and at least 5 business days, before recourse to performance security (s 57). bondtrack keeps every instrument's details, project, and exposure at hand, so when a notice arrives you can size the risk and respond inside the window.
The record behind a request for release
Under the WA Act, a payment claim for a progress payment may seek the release of performance security (s 58(1)), but an adjudicator may order release only if it is already due under the contract (s 58(4)). bondtrack keeps the record such a claim draws on: which instruments remain unreturned, on which projects, their expected return dates and for how long they have been held. bondtrack does not make or serve the claim.
Bond substitution for cash retention
The Act allows a compliant performance bond to be substituted for retention money, and substitution may be sought in a payment claim (s 59(1) and (2)). bondtrack keeps the details substitution turns on, including issuer, amount and conditions for every instrument, against each project. bondtrack does not make or serve the claim.
Centralised audit trail for written notices
Notice before recourse to performance security is a formal step (s 57). Kept against the relevant instrument in bondtrack, those records sit alongside the bond's full history, giving a complete, dated picture of what was served and when.
Portfolio visibility to push back with confidence
The Act requires notice before recourse to performance security (s 57). bondtrack gives you the visibility to know exactly what has been served, when, and against which instrument.
This briefing is for general information only and does not constitute legal advice. Contractors should seek independent legal advice regarding the application of the Building and Construction Industry (Security of Payment) Act 2021 (WA) to their specific contracts and instruments.
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