- amending the Construction Contracts Act 2004 (WA) (the Act); and
- from 30 September 2016, introducing mandatory Project Bank Accounts (PBA) and a code of conduct for state government run projects between $1.5 million and $100 million.
The state government has advanced the first of those steps by putting the Bill to parliament. The Bill was passed and has now received Royal Assent and most amendments will take effect from 15 December 2016. Sections 7 and 20, relating to payment terms and the maximum time for payment, will take effect from 3 April 2017.
The amendments to the Construction Contracts Act 2004 (WA)
Michael Mischin, Minister for Commerce, tabled a report prepared by Professor Philip Evans with 28 recommendations in the Legislative Council in August 2016.
The state government drafted a number of amendments consistent with its initial proposals, but has also excluded a number of proposals. The Act is amended by:
- Including a definition of ‘business day’ which excludes Saturday, Sunday and public holidays, as well as the ‘Christmas period’ beginning 25 December until 7 January the following year. References to days in various provisions of the Act have been amended to reflect business days.
- Increasing the application time for adjudication of payment disputes from 28 days to 90 business days.
- Enabling ‘claims recycling’ (by which payment claims which have previously been rejected or disputed by a respondent to a payment claim may be made again later in the life of a contract).
- Reducing the maximum time a head contractor can take to pay a subcontractor from 50 days to 42 days. This will come into effect on 3 April 2017.
- Amending the mining exception under section 4(3), applying it to the fabrication or assembling of items of plant used to extract or process the described substances, as opposed to the previous formulation of ‘constructing any plant’ for ‘the purposes of’ doing so.
- Providing the adjudicator greater discretion to determine the application and to give effect to the parties settlement.
- Removing the requirement to obtain leave from the court before an adjudication determination can be entered as an order of the court and enforced accordingly.
- Including transitional provisions to allow for the new amendments to take effect over a period of time.
The implications of each of these proposed changes are discussed in further detail below.
Change 1: Definition of business day
The practical effect of this amendment is that, in relation to various time frames within the Act, public holidays are not included in those time frames and time stops running over the Easter and Christmas periods.
The time frame to respond to an adjudication application would be changed to 10 business days instead of 14 days. This is a welcome relief to those responding to adjudication applications, as a party will no longer be able to ambush another party with an adjudication application right before the Christmas break when a number of people are on leave and it is difficult to formulate a response.
There is no proposal to change the time frames within which a party must reject, dispute or pay any amounts in response to a payment claim. Those time frames in clause 7 of Schedule 1 of the Act would remain expressed in days, being calendar days.
Change 2: Increasing the time for adjudication applications
The amendment changes the 28 day period under section 26 of the Act to 90 business days. This increases the time by which a party must prepare and serve any application to have a payment dispute adjudicated.
The current, comparatively short, time frame for marking an adjudication application was a concern expressed to the Small Business Commissioner in the course of a 2013 investigation into subcontractor insolvencies. The proposed change addresses the concern that the 28 day period impedes the ability of smaller subcontractors to access the rapid adjudication scheme. It is directed towards striking a better balance between accessibility for smaller contractors and maintenance of the rapid nature of the scheme.
The Society of Construction Law Australia’s (SoCLA) Legislation Reform Subcommittee has previously suggested that a 90 day period be applied, noting that, among other things, the near equivalent Northern Territory security of payment legislation provides for 90 days and New South Wales’s security of payment legislation provides for a period of 12 months.
The 90 business day period in the amended Act is longer than the 90 calendar day period that SoCLA had suggested. Further, though there is some ambiguity in the drafting, when combined with the proposal to enable claims recycling the amendments have the potential to provide for an even greater period within which adjudication applications can be made.
Change 3: Enabling claims recycling
The amendments respond to a body of case law which does not allow the adjudication of ‘recycled claims’. The definition of ‘payment claim’ in the amended Act includes a payment claim that includes matters covered by a previous payment claim.
This amendment allows a party whose initial claim for a progress payment under a construction contract has been rejected or disputed to include those disputed matters in a subsequent progress payment claim.
This may give rise to an ambiguity as to when a payment dispute is be taken to arise in relation to a recycled claim that is rejected outside the period of 90 business days from when the amount claimed was first due. The time for serving an adjudication application may yet be taken to have elapsed in such a case, because proposed amendments to clause 6 define a payment dispute, among other things, as arising on the earlier of a payment claim being rejected or the amount claimed being due and not paid in full.
If the amended Act is intended to remove such a limitation on recycled claims being adjudicated, then a question arises whether the purposes of the Act are achieved if disputes are not rapidly resolved because a claiming party can delay commencing the adjudication process by recycling the claim.
The legislature has, however, sought to target and prevent ‘adjudication shopping’ where claims can be repeated or ‘recycled’ in different adjudication applications in the hope of a favourable result. It has done so by establishing that a payment dispute does not arise where the payment claim includes matters that have already been dismissed or determined under an adjudication application.
Change 4: Reducing maximum time for payment
The amended Act reduces the time period for payments from 50 days to 42 days. The amendment seeks to encourage prompt payment and increase cash flow in the building and construction industry. It follows the Department of Commerce’s bulletin earlier this year reminding contractors of their rights under the Act in response to revelations that some construction contracts had greater payment terms than 50 days.
The time period was amended from 30 days in the first draft of the Bill to 42 (calendar) days during the second reading speech of the Legislative Assembly. The government apparently intended the earlier-included time period to be 30 business days, an interval that is approximately 42 calendar days. The amendment to the Act provides for this amendment to come into effect on 3 April 2017, allowing businesses some time to amend their contracts and payment systems if necessary.
Change 5: Amending the mining exclusion
The amended Act changes the mining exclusion in section 4(3) of the Act to give it a narrower and more precise application. The Hon. L’Estrange has stated that the amendment is to make it clear that only the fabricating and assembling of items of plant used for extracting or processing oil, natural gas or minerals is excluded and that normal construction work associated with processing facilities is not excluded. This responds to a perceived uncertainty among parties and adjudicators as to whether the exclusion applied to individual items of equipment (i.e. a catalytic cracker within an oil refinery) or the whole project (i.e. the oil refinery itself).
Change 6: Greater flexibility to adjudicator
The amended Act gives greater flexibility to the adjudicator to:
- hear the application despite the form not being in accordance with the regulations under the Act, showing a preference for substance over form; and
- issue a determination giving effect to the terms of any settlement reached between the parties.
Change 7: No leave of the court required to enforce determination
The amendment removes the requirement to obtain leave from the court before the adjudication determination can be enforced.
The courts have stated that there is a predisposition in favour of granting leave in that the party resisting enforcement had to show why the determination should not be enforced. However, the purpose of this change is to reduce delay, complexity, legal costs and the ability for a party to frustrate the enforcement process by contesting the grant of leave.
Now the party resisting enforcement will need to make its own separate application seeking to vary, set aside or appeal the court order. The party resisting enforcement will have a high threshold to overcome, particularly in light of recent jurisprudence demonstrating the court’s reluctance to overturn adjudicators’ determinations on the ground of jurisdictional error.
Change 8: Transitional provisions
The amendment also provides transitional provisions about how the amendments will come into effect. What is particularly important about these is the timeframes. If a party whose right to make an adjudication application has lapsed prior to 15 December 2016 by failing to make the application, that right is available following 15 December 2016 provided 90 business days have not elapsed from the date of the payment dispute.
Other amendments not included in the Bill
Michael Mischin stated that the Bill is only the first of two tranches of amendments that are being developed, with more reforms to be introduced next year. Mr Mischin did not specify all other changes that were being developed. The WA government has flagged potential changes, but the Bill does not include amendments in relation to:
- introducing a penalty regime for non-compliance with the Act;
- making it an offence to intimidate, coerce or threaten a person or business in their access to remedies available under the Act; or
- developing express statutory trust arrangements for retention money on high-value construction projects, which will protect retention moneys during insolvency events.