On 22 September 2016, the WA Small Business Minister Sean L’Estrange introduced the Construction Contracts Amendment Bill 2016 (WA) into the WA State Parliament, to amend the Construction Contracts Act 2004 (WA). The Bill aims to reflect the government’s response to Professor Philip Evans’ recommendations to improve the operation of and the access to the rapid adjudication process for resolving payment disputes under construction contracts (response). Minister Sean L’Estrange stated the Bill comprised the first raft of amendments, with a second raft of reforms to follow at a later date. The Bill passed the Legislative Assembly on 20 October 2016, and will proceed to the Legislative Council.
The amended Act will be complemented by a Code of Conduct for contractors, the establishment of a compliance unit within the Department of Commerce to monitor compliance with the Code and expanding the Small Business Commissioner’s power to review and mediate disputes. Furthermore, as at 30 September 2016, the government has mandated the use of project bank accounts on public projects valued between AU$1.5 million and AU$100 million to ensure payments to subcontractors when the government contractor becomes insolvent.
The majority of the amendments to the Act reflect the proposed changes in the response.
The key amendments to note are as follows.
1. Business Days
All time limits relating to adjudicating a payment dispute are to be amended from “days” to “business days”. The definition of business days is to exclude weekends, public holidays and the period from 25 December – 7 January. This will be a welcome amendment for both principals and contractors.
2. Time Period to Make Application for Adjudication
A key amendment the Bill introduces is significantly increasing the time limit in the Act for lodging an application for adjudication from 28 days to 90 business days. This was not recommended by Professor Evans – it goes against the purpose of the Act, which is to enable the swift resolution of payment disputes. However, the government believes that this amendment will address a concern that the current time limit is acting as an impediment for some participants, particularly small subcontractors, from accessing the adjudication scheme. The increased time period provides the potential applicant with about 18 calendar weeks to lodge a claim.
3. Time Period to Respond
The Bill amends the time in which a response to an adjudication application can be made from 14 days to 10 business days.
4. Permitting Recycled Claims
A significant amendment to the Act is the change to the definition of “payment claim” to include matters covered by a previous payment claim, permitting recycling of claims. Permitting recycled claims will allow a party whose initial payment claims were rejected or disputed to be included in a subsequent payment claim. There appears to be no limit on how many times a claim can be recycled. The only limit is that a payment dispute will not arise in respect of matters included in a payment claim, that have been the subject of an application for adjudication that has been dismissed or determined.
Permitting recycled claims provides the applicant with increased flexibility to seek rapid adjudication of a payment dispute. However, it may go against the object of the Act where a claim can be made multiple times and then be the subject of an adjudication well after the relevant event occurred. This is exacerbated by the increased time period in which an adjudication application can be made. Essentially, there may not be an absolute time limit placed on when an adjudication application can commence.
5. Contract Payment Terms
The bill reduces the maximum contract payment term from 50 days to 42 days.
6. Substance Not Form
The Bill amends the Act to focus on substantial compliance rather than the form of an adjudication application. The amendments provide that the adjudicator must dismiss an application without determining its merits if the application has not been prepared in accordance with section 26(2)(a), unless satisfied that the application complies with the section sufficiently for the adjudicator to commence adjudicating the dispute. This will ensure the substance of an application will prevail over the form, to the extent to which the adjudicator is satisfied that the application sufficiently complies with section 26(2)(a).
7. Enforcement of Adjudication Determination
Currently, leave of the Court is required in order to enforce a determination as a judgment or order of the Court. The Bill amends the Act’s current position by removing the requirement of leave of the Court and only requiring that, a party that is entitled to be paid an amount pursuant to a determination, file at Court a copy of the determination (certified by the Building Commission), and an affidavit verifying that payment is due and owing.
Potential Impact of the Amendments
The amendments are overwhelmingly favourable to contractors. It is apparent that, by amending the Act, the government aims to improve payment protection for small contractors, therefore mitigating the issues of insolvency and security of payment faced by small contractors in the construction industry.1
Under the current Act contractors have to pay special attention to when payment claims arise, in order to comply with the deadline to make an adjudication application under the Act. When the amendments are implemented the flexibility will be two-fold, as the applicant will have an additional 14 calendar weeks or so to prepare an application and the applicant will have the ability to recycle claims.
The key amendments are conversely unfavourable to principals. The principal’s disadvantage under the Act is exacerbated as there will now be a large imbalance in the time allowed to prepare a response to adjudication. As the applicant will have increased time to prepare an adjudication application there is the potential that the principal will have to reply to very detailed, voluminous claims in a similar amount of time as allowed under the current Act. This could cause injustice, especially in complex and large matters where expert reports are included in the application.
Furthermore, under the current Act, the principal has some level of certainty that once the 28 days for making an adjudication application have expired, they would not be subject to an adjudication application. This will no longer be the case with the contractors’ ability to recycle claims.
Commencement and Transitional Provisions
All the amendments will commence operation on 15 December 2016, other than the reduction in maximum payment terms.
The new 42 day maximum payment term will commence operation on 3 April 2017.
If the time period to apply for adjudication expires before 15 December 2016, but, as extended by the new timeframe for applications of 90 business days, expires on or after 15 December 2016, the application may be made within the extended time period. In effect, therefore, potential applicants with payment disputes that arise on or after 11 August 2016 will have the extended time period of 90 business days to apply for adjudication under the act.