Your bond and retention are treated the same under WA law.
Under the WA Building and Construction Industry (Security of Payment) Act 2021, a surety bond or bank guarantee and cash retention are legally equivalent instruments. Same protections. Same obligations. Same recourse rules.
Western Australia · Performance security · 4 min read
Under the Building and Construction Industry (Security of Payment) Act 2021 (WA), there is a principle that many contractors overlook: a performance bond (or bank guarantee) and retention money are legally equivalent instruments.
The Act does not rank one above the other or treat them differently. It groups them together under a single concept: performance security. And that has real consequences for how your instruments can be called upon, and what rights you have when that happens.
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 bond can be substituted for cash retention through the payment claim process
The Act gives contractors the right to seek substitution of cash retention with a compliant performance bond. This is done via a formal payment claim, which can be referred to adjudication if disputed. The substitute bond must be unconditional, irrevocable, issued by a financial institution meeting the minimum credit rating prescribed by regulation, and match the amount of the retention being released.
The same recourse rules apply to both bonds and cash retention
Whether the security is held as a bond or as retained cash, the party holding it must give at least 5 business days' written notice before calling on it. That notice must identify the construction contract, the contractual provisions that entitle the party to recourse, and describe the circumstances giving rise to the call. The notice obligation is statutory and overrides any contrary term in the contract.
The 5-day notice is not a formality
The 5-business-day window is the other party's opportunity to respond, and potentially to contest the recourse through adjudication if they believe it is unwarranted. A principal who calls on security without first serving a compliant written notice is not entitled to have recourse, regardless of what the underlying contract says.
Why this matters for contractors managing bonds
If you are a contractor holding performance bonds from your subcontractors, the equivalence principle cuts both ways.
On the liability side: The same recourse rules that protect subcontractors whose cash retention you hold also apply to their bonds. If a subcontractor disputes your right to call the bond and applies for adjudication within that notice window, the call may be paused. Treat the notice as the legal trigger it is, not a procedural formality.
On the asset side: If you provide bonds to your upstream contractors, the same protections apply to you. Before any principal takes recourse against your bond, they must serve you a compliant written notice and wait 5 business days. That window is your right to act.
On contract structuring: Understanding that a bond and retention are interchangeable under the Act is also useful when structuring contracts. Cash retentions held on trust carry ongoing administrative obligations. A properly structured performance bond carries none of those trust account requirements on the holder's side. There are real operational reasons to prefer bonds over cash retention, and the Act creates the formal mechanism to make that substitution.
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.
Calling notice tracking and alerts
The Act guarantees a 5-business-day buffer before any performance security (bond or cash retention) can be called. bondtrack tracks received calling notices and alerts users before that window closes, so you are never caught off guard by a surprise recourse.
Statutory payment claims for bond returns
Under the WA Act, contractors can issue statutory payment claims to compel the release of unreturned bonds and bank guarantees. bondtrack generates these claims, giving contractors with instruments from completed projects a formal, procedural path to recovery.
Bond substitution for cash retention
The Act gives contractors the right to substitute a compliant performance bond for cash retention through the payment claim process. bondtrack helps you manage which instruments are eligible, track substitution status, and ensure bond compliance requirements are met.
Centralised audit trail for written notices
Every calling notice is a formal document that must identify the contract, the contractual basis, and the circumstances. bondtrack's centralised portal captures and organises these notices against the relevant instrument so you always have a complete, dated record.
Portfolio visibility to push back with confidence
Because principals face real procedural consequences for calling bonds without proper written notice, contractors can challenge non-compliant calls. 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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