Focus: Impact of reforms to Construction Contracts Act 2004 (WA)
25 October 2016
In brief: Proposed amendments to the Construction Contracts Act 2004 (WA) will, if passed, result in significant changes to the adjudication process in Western Australia. Partner Jeremy Quan-Sing (view CV), Senior Associate Fiona Potter and Law Graduate Thanushar Sridaran report on the potential impacts of the changes.
How does it affect you?
- If passed by parliament, the Construction Contracts Amendment Bill 2016 (WA) (the Bill) will come into effect on 15 December 2016.
- Overall, the amendments are likely to increase the number of payment disputes adjudicated under the Construction Contracts Act 2004 (WA) (the Act). With more time to prepare, applicants are likely to serve larger and more complex adjudication applications.
- More of the mining, oil and gas industries may now be captured by the Act due to the narrowing of the 'mineral processing exclusion' under the Act.
- Applicants will now have 90 business days to prepare an adjudication application, replacing the previous 28 day timeframe. The timeframe that a respondent has to prepare its response has essentially remained the same (changing from 14 days to 10 business days).
- Significantly, the amendments to the Act will allow the 'recycling' of payment claims, which was not previously possible. Post-amendment, although an adjudication application will have to be commenced within 90 business days of a payment dispute arising, if an applicant fails to do so, there is nothing to stop them simply reissuing a 'fresh' payment claim concerning the same works and starting the process again.
- The new defined term of 'business day', which excludes weekends, public holidays and the Christmas period, will be a welcome relief to parties responding to adjudication applications. It will address the previously common tactic of applicants timing payment claims so that adjudication applications could be served on the eve of public holidays.
- For construction contracts entered into after 3 April 2017, any payment clauses that provide for payment more than 30 days after a payment claim is made will be ineffective and will be read as requiring payment within 30 days. This is a change from the current position under the Act which prohibits terms allowing payment more than 50 days after a payment claim.
The Bill is at the Second Reading stage in the Lower House of the WA Parliament. If the Bill is passed by Parliament, it will come into effect on 15 December 2016.
The Bill arose from the Report on the Operation and Effectiveness of the Construction Contracts Act 2004 (WA) by Professor Phil Evans, which was compiled and released following a public call for written submissions and meetings with stakeholders concerning the operation of the Act.
The table below summarises the main changes introduced by the Bill and the impact of these amendments on parties to construction contracts, if introduced:
Prohibition on payment terms greater than 30 days
The prohibited provisions have been amended such that construction contracts cannot have payment provisions that allow for contractors to be paid more than 30 days after payment is claimed (section 10).
For construction contracts entered into after 3 April 2017, payment terms cannot be greater than 30 days, and will be read to provide for payment in 30 days if they purport to do so (currently payment terms greater than 50 days are prohibited).
This will increase cash flow for contractors at the expense of principals who now have to make payment in shorter time.
Extended timeframe for preparing adjudication applications
Applicants now have 90 business days rather than 28 calendar days after the dispute arises to serve an application for adjudication (s26(1)).
Applicants will have more time to put their claims together which will likely lead to more claims, and possibly more detailed claims with greater complexity. This will increase the time pressure on respondents who still have essentially the same timeframe to respond – 10 business days.
Introduction of 'business days'
Respondents must now serve their response within 10 business days, rather than 14 calendar days, after receiving an adjudication application (s3, s27(1)).
This benefits respondents. As 'business days' excludes public holidays and 25 December to 7 January inclusive, this will ease the pressure somewhat if adjudication applications are served, for example, at the commencement of the Easter or Christmas holiday periods.
Permitting 'recycling' or 'resubmitting' claims
The definition of payment claim now includes payment claims with matters covered by previous payment claims (s3, see also s6(1) and s26(1)).
However, the Bill also now provides that payment disputes do not arise if a payment claim includes matters which were the subject of an application which has already been dismissed or determined by an adjudicator (s6(2)).
The consequence of this amendment is that a payment claim can be made as many times as a contractor wishes, although each claim can only be adjudicated once.
Under the current Act, once a payment dispute arises, a party has 28 days within which to bring an adjudication application in relation to the underlying payment claim. If it does not make an application within that 28 day period, it permanently loses the ability to have the payment claim adjudicated.
Once the amendments take effect, a payment claim can be recycled. Each time it is rejected an opportunity arises for the contractor to make an adjudication application within 90 business days of the rejection. If the contractor does not make an adjudication application within the 90 days, it does not lose the right to have that payment claim adjudicated. It can simply issue a fresh payment claim for the same works. If it is not paid when due, or rejected, a new opportunity to submit an adjudication application within 90 days will arise.
This recycling can continue until an adjudication application is made. Once an adjudication application is made, and the payment claim determined or dismissed, the payment claim cannot be recycled any further.
More of the mining, oil and gas industries could potentially be covered by the Act
The Act only applies to 'construction work'. The Act originally excluded from the definition of 'construction work' 'construction of any plant' for extracting or processing oil, natural gas or other minerals. The new exception will be narrower, only excluding 'fabricating or assembling items of plant' used for extracting or processing oil, natural gas or other minerals (s4(3)(c)).
While the definition of 'fabricating' is unclear, the amendment Is clearly aimed at narrowing the scope of the 'mineral processing exclusion'.
Now, for example, earthworks related to the construction of an oil processing facility will not be subject to the exclusion, whereas the 'fabrication and assembly' of the components of that facility likely will.
The new language does create some uncertainty which will no doubt be the subject of applications for judicial review.
Greater flexibility to settle or withdraw applications
Under the proposed changes, if an applicant withdraws an application, the adjudicator must dismiss the application without making a determination (s31(2)(a)(ia)).
By consent, the adjudicator may also now make a determination on terms agreed to by the parties (s31(2A)).
Previously, once the statutory adjudication process had been commenced, there was no clear means by which the parties could consensually stop the process if, for example, they had settled the dispute.
Parties now have an ability to withdraw applications and negotiate settlements to the dispute after the application is served.
Easier enforcement mechanism
The Bill removes the requirement for parties to seek leave from the courts to enforce a judgment.
Instead, upon filing a copy of a determination certified by the Building Commissioner as a true copy and an affidavit as to the amount not paid, a determination could simply be taken to be an order of the court (s43).
Adjudication determinations will now be much easier to enforce. It will not require an application to the courts for leave to enforce as a judgment. Enforcement as a judgement is now available simply by filing a certified copy of the determination along with a supporting affidavit.
It is not clear how this new system of enforcement will operate when an application for judicial review of an adjudication determinations has been made. Under the old system, if leave was sought, various factors, including any jurisdictional challenges might be considered by the court.
No doubt case law will develop around this, to preserve the court's power of judicial review of determinations.
As a whole, the amendments to the Act introduce several benefits for applicants in terms of shorter contractual payment periods, longer timeframes for preparing adjudication applications and permitting recycling of claims. The Bill also provides some relief to respondents with the introduction of 'business days'.
Participants in mining, oil and gas industries should be aware of the potentially increased scope of application of the Bill for construction contracts in their industries, if introduced.
If the Bill is passed by Parliament, it will come into effect on 15 December 2016. Of further interest is the Government's proposal to complement the legislation by:
- introducing a Code of Conduct for contractors;
- establishing a compliance unit within the Department of Commerce to monitor compliance with the code;
- expanding the power of the Small Business Commissioner to review and mediate disputes between contractors and subcontractors; and
- introduce Project Bank Accounts across Building Management and Works construction projects valued at more than $1.5 million.
Allens will continue to follow the developments in this space.
- Jeremy Quan-SingPartner,
Ph: +61 8 9488 3790
- Nick Rudge Partner,
Ph: +61 3 9613 8544
- Michael IlottPartner,
Ph: +61 7 3334 3234
- Leighton O'BrienPartner,
Ph: +61 2 9230 4205
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