After a prolonged period of consultation and build-up, the Construction Contracts Amendment Bill 2016, along with its Explanatory Memorandum and clause notes, has been unveiled.
The proposed amendments to the Construction Contracts Act 2004 follow a statutory review completed by Professor Philip Evans and a number of recent high-profile payment disputes on Government-owned projects.
Only some of Professor Evans' 28 recommended changes are being made to the act, with the government deferring or delaying its decisions with respect to the other recommendations. This means that, despite being touted as the sector's 'biggest shakeup' in a decade, the existing legislative framework largely stays the same and many of the recommendations have not been adopted. However, a handful of significant changes have been made to how the regime operates and will have a real impact on the industry.
The proposed changes, however, are overwhelmingly contractor-friendly and below we consider their practical effect.
A broader window to bring a broader range of claims
Generally, the effect of the substantive proposed changes is to allow for a broader window of time in which contractors may make an adjudication application in respect of a broader range of claims.
The most significant change proposed is for contractors to now have 90 business days to make an application for adjudication once a payment dispute has arisen (as opposed to 28 days). Coupled with the fact that it also proposed that contractors may make "recycled claims" (claims that have been included in previous payment claims and rejected), contractors are likely to be significantly favoured under the amended Act when making applications.
Notably, no commensurate changes are proposed to extend the period of time in which principals may respond to adjudication applications. Although the existing 14 day period for a response has been amended to 10 business days, the time period will remain substantially the same unless public holidays or the Christmas/New Year period intervenes. In that regard, a new definition of "business day" has been proposed, which excludes Saturdays, Sundays, public holidays and the Christmas and New Year period from 25 December until 7 January. This amendment will bring Western Australia into line with the eastern states in terms of providing for a standstill for adjudications over the Christmas and New Year period.
Good news for contractors
Given the much longer period afforded to contractors for applications, and the fact that claims may include recycled claims or components thereof, it is likely that applications may be lengthier and more complex in the future.
It is more likely that successive applications under the same contract will overlap in time, and be subject to determination by different adjudicators at the same time. If claims are being recycled, this could lead to conflicting determinations by adjudicators in relation to claims which are being determined in parallel.
The biggest risk for principals arising out of the proposed changes is an adjudication application by ambush. For example, a contractor may wait until it builds a large number of disparate claims before submitting a lengthy and complex adjudication application at an inopportune time for the principal or the project (however the progress claim from which it arises may be simplistic). The principal will still only be afforded 10 business days to respond.
While there was plenty of build-up that gave rise to the proposed changes, that build-up occurred at a time of unprecedented construction activity in Western Australia and in the wake of a number of high-profile disputes. As construction activity and disputes decline in Western Australia, it will remain to be seen whether the changes will meet their stated aim of providing greater protection to subcontracts, or whether they will have the effect of increasing disputes and risk for all project participants. Contractors will now have a broader window of time in which they may make adjudication applications in respect of a broader range of claims.
As margins tighten there has never been a more important time to effectively resolve payment disputes. Moreover, as larger contractors consolidate both nationally and internationally, efficiently managing legal disputes across different jurisdictions with different legislation is becoming increasingly important.
The proposed changes are currently open to comment by interested parties and, following passing of the Bill and Royal Assent, all sections apart from sections 7 and 20 will commence operation on 15 December 2016.
Summary of substantive changes
The substantive changes proposed include:
- Extension of time for applications: claimants will have 90 business days after a dispute arises to apply for adjudication.
- Recycled claims: payment claims may now include matters that were covered by a previous payment claim and rejected, but not been adjudicated; or not paid (in whole or in part).
- A new definition of "business day"/Christmas standstill: "business day" excludes Saturdays, Sundays, public holidays and the Christmas and New Year period from 25 December until 7 January.
- Clarity on when a "payment dispute" arises: consistent with the common law that has developed, a payment dispute will now arise when the claimant is first notified that its claim is rejected in whole or in part.
- Substance over form: an adjudicator may now proceed to determine an application as long as the application sufficiently complies with the Regulations.
- Maximum payment period: payments under construction contracts are to be made within 30 business days (as opposed to 50 calendar days).
- Resolving payment disputes before determination: An applicant may give notice to the adjudicator and respondent(s) and withdraw its application. An adjudicator may also make a determination in terms agreed by the parties.
- Mining exclusion clarified: Only fabrication and assembly work used for extracting or processing oil, natural gas and other mineral substances will be excluded from the operation of the Act.