Don’t throw the past away
You might need it some rainy day1
INTRODUCTION
It is raining in WA and so it is time for those with “east coast” adjudication experience to dust off their payment claim and payment schedule templates because everything old is new again.
That is because after nearly two years of waiting, on 23 September 2020, the Attorney General, Minister Quigley, introduced the Building and Construction Industry (Security of Payment) Bill 2020 (WA) (Bill) into Parliament.
The Bill has been in the works for quite some time and implements some of the recommendations in the Review of Security of Payment Laws: Building Trust and Harmony (Murray Review dated December 2017)2 and the Final Report to the Minister for Commerce: Security of Payment Reform in the WA Building and Construction Industry (Fiocco Report dated October 2018).3
It will replace the existing Construction Contracts Act 2005 (WA) (CCA) with a regime that is more consistent with the model used in the East Coast.
This article discusses the Bill generally, and draws comparisons with the existing CCA and East Coast model.
WHICH CONSTRUCTION CONTRACTS WILL IT APPLY TO?
The Bill only applies to “construction contracts” (broadly defined) entered into in WA after the date of commencement.
However, the Bill does not apply to certain construction contracts, for example:
- Home building work contracts with homeowners valued less than $500,000;4 and
- Contracts for drilling or extracting oil or natural gas, or constructing a shaft, pit or quarry for mining.5 Noting that the extent of the “mining exclusion” has been reduced in comparison to the exclusion currently found in the CCA.6
SECURITY OF PAYMENT PROCESS
The Bill implements several significant changes compared with the CCA and more closely aligns with the East Coast model. For example, the Bill provides for:
- Tight statutory timeframes in the payment process for submission of payment claims and payment schedules (which can’t be contracted out of);
- A limited, mandatory timeframe for the submission of an application for adjudication; and
- Review of adjudication determinations by an experienced adjudicator in limited circumstances.
Progress Payments
The Bill creates a statutory entitlement to receive payment and make a claim for payment.7
A party to a construction contract must make progress payments for the work undertaken within 20 business days from the date of the claim (for payments by a principal to a head contractor) or 25 business days from the date of the claim (for payments to a subcontractor), unless payment is due at an earlier date under the construction contract.8
Payment Claims and Payment Schedules
Unless an earlier date is agreed under the construction contract, a party to the contract (claimant) can make a payment claim on or after the last day of each month during a construction project.9 The Bill introduces limitations on the ability to claim payment which may only be made on the later of any date agreed under the contract or 6 months after the works the subject of the payment claim being completed.10 Whereas, final payment claims are to be made before the later of a contractual date, 28 days post expiry of the defects liability period, or 6 months after the works are completed or the supply of the related goods and services have been supplied.11
A payment claim must contain specified information and, importantly, must state that it is made under the legislation.12
Upon receipt of a payment claim, a party (respondent) can pay the claim in full by the due date or issue a payment schedule within 15 business days after the payment claim is made, unless the contract provides for an earlier date.13
The payment schedule is a vital document under the new regime (similar to NSW and Victoria) which must be in writing and in the approved form (if any), identify the relevant payment claim, indicate any proposed payment amount or that the respondent doesn’t propose to make any payment.14 If the scheduled amount is less than the claimed amount or no payment is proposed, the payment schedule must indicate why the scheduled amount is less or no payment is proposed and, if the payment is withheld, the reason the respondent is withholding payment.15
Importantly, a respondent’s failure to issue a payment schedule within the time allowed results in liability to pay the full amount claimed by the due date, may result in the loss of entitlement to file a response if an adjudication is commenced (noting, as discussed below, that a further opportunity to provide a payment schedule is required) and make an adjudication review application that challenges an adjudicator’s determination of the amount payable.16 The respondent will also lose entitlement to bring a cross-claim or defence in the event of any court action (see Alternative: Court Proceedings section below) if no payment schedule is provided and the claimant seeks judgment for the claimed amount.17 If a payment schedule is provided, the respondent is limited to the contents of the payment schedule when responding to an adjudication application.18
Adjudication Process
The adjudication process is similar to the process in NSW and Victoria. There are two streams.
The parties can agree to a particular adjudicator or if not provided for under the contract, the claimant can choose the authorised nominating authority and is not bound by a contract that designates or restricts authorised nominating authorities.19
If the respondent provides a payment schedule (and has not paid or has certified an amount which is less than the amount claimed):
- The claimant must make an application for adjudication within 20 business days (rather than 90 business days under the CCA);20 and
- The respondent has 10 business days after receiving a copy of that application to give a response to the adjudicator,21 which is limited, where an amount is withheld by a principal, to the reasons for withholding payment in the payment schedule.22 There is 1 further business day to provide the adjudication response to the claimant.23
If the respondent does not provide a payment schedule and does not pay the full amount claimed before the progress payment due date:
- The claimant must provide notice of their intention to apply for an adjudication within 20 business days after the progress payment due date;24
- The respondent has a further 5 business days to provide the claimant with a payment schedule25 (the respondent cannot file a response in any following adjudication if a payment schedule is still not provided);26 and
- The application for adjudication must be made within a further 20 business days.27
The adjudication determination is issued within 10 business days of the adjudication response, the last date on which the response could have been given or within 10 business days of the date the adjudicator was appointed if the respondent is not entitled to give an adjudication response (for example, no payment schedule is received).28 Parties may also agree to extend the time for determination by up to 20 business days.29
Alternative: Court Proceedings
If a claimant makes a payment claim and the respondent does not pay the claimed or the scheduled amount (in full) by the due date for payment, the claimant may, as an alternative to an adjudication, recover the unpaid portion of the claimed or scheduled amount owed as a debt due to the claimant in court proceedings.30
Review of Adjudication Determinations
Similar to Victoria, the Bill introduces a regime that certain types of adjudication determinations can be reviewed by a senior adjudicator in a strictly limited scope, replacing the limited right of review to the State Administrative Tribunal under the CCA.31
Parties are entitled to a review of adjudications where the adjudicated amount is less than the claimed amount and the difference exceeds the minimum amount prescribed by the regulations, or the adjudicator did not have jurisdiction to determine the application and the claimed amount exceeds the minimum amount under the regulations (for respondents, provided that a payment schedule was issued within the requisite time).32
Also consistent with Victoria, a party can make an adjudication review application within 5 business days after receipt of the adjudicator’s determination.33 The respondent to the adjudication review application must respond within 10 business days.34 The determination is made within 10 business days subject to any agreed extensions.35
KEY DIFFERENCES BETWEEN WA MODEL AND EAST COAST MODEL
A review of the legislation in NSW and Victoria indicates that the Bill contains some important differences:
- Timeframes applying for the various stages in the process are not consistent across the States (see comparison table set out at the end of this article). The WA model is procedurally similar but applies timeframes which are the same or longer than the East Coast;36 and
- The WA Bill includes additional provisions relating to:
- approval of model forms of construction contracts (not mandatory);
- penalties where the construction contract is not in writing and does not contain mandatory information;
- “unfair” time bars being given no effect (we will explore this important addition in a separate article); and
- retention money trusts (we will also explore this regime in a separate article).
WHAT NEXT?
The Bill aims to provide greater protection to contractors, subcontractors and suppliers by implementing stricter regulations and shorter timeframes on the process of payment in the construction industry.
As the Bill largely mirrors the East Coast model, existing case-law will help guide the interpretation of the legislation. However, the Bill does contain some new, novel requirements (especially the provisions relating to “time bars” mentioned above) which we will discuss in more detail in future publications.
It is important to consider the changes under the Bill for any ongoing or future negotiations for construction contracts that will be executed after the Bill is enacted (perhaps early 2021) to ensure contractual drafting adequately addresses the relevant requirements. Changes will also be required to template payment claims and payment schedules to ensure compliance.
Please click here to view a table summary of the key differences between the WA model and East Coast model.
If you would like to discuss the security of payment process further or require advice for future contracts, please contact the HWL Ebsworth Lawyers Construction team.
This article was written by David Ulbrick, Partner, Kate Morrow, Special Counsel, and Vania Fung, Solicitor.
Update: the Building and Construction Industry (Security of Payment) Act 2021 (WA) (Act) was assented to on 25 June 2021.
The Act will have a staged commencement, with different provisions commencing at varying times under the Act.
The details set out in this article remain current and valid under the Act.
1 Carole Bayer Sager / Peter Woolnough Allen, “Everything old is new again” (Warner Chappell Music Inc, 1974).
2 John Murray, Review of Security of Payment Laws: Building Trust and Harmony (Review, December 2017).
3 John Fiocco, Final Report to the Minister for Commerce: Security of Payment Reform in the WA Building and Construction Industry (Final Report, October 2018).
4 Bill, s 10(1).
5 Bill, ss 6(3)(a)-(b).
6 The exclusion of “fabricating or assembling items of plant used for extracting or processing oil, natural gas or any derivative of natural gas, or any mineral bearing or other substance” in the CCA is not included in the Bill.
7 Bill, ss 17(1), 22(1).
8 Bill, ss 20(1)-(2).
9 Bill, ss 23(2)-(3).
10 Bill, s 23(4).
11 Bill, s 23(5).
12 Bill, s 24(1).
13 Bill, s 25(1).
14 Bill, s 25(2).
15 Bill, s 25(3).
16 ss 25 – Notes, 26, 28(2)(b), 34(1), 39(3)(a).
17 Bill, s 27(3)(b).
18 Bill, s 34(3). Note this is not the case in Victoria.
19 Bill, ss 29(1), (3).
20 Bill, ss 28(1), (4).
21 Bill, s 34(1).
22 Bill, s 34(3).
23 Bill, s 34(4).
24 Bill, s 28(2)(a).
25 Bill, s 28(2)(b).
26 Bill, s 25 – Notes.
27 Bill, s 28(4).
28 Bill, s 37(2).
29 Bill, s 37(3).
30 Bill, s 27(2)(a).
31 Bill, Division 3. Note however that the scope of review in Victoria is more limited.
32 Bill, ss 39(1)-(3).
33 Bill, s 39(5).
34 Bill, s 45(1).
35 Bill, ss 47(2), (3).
36 Note that a key difference between the proposed WA model and the Victorian model is that the later doesn’t allow a claimant to recover “excluded amounts” (which include, amongst others, time-related costs, change in legislation, latent conditions, damages and some disputed variations).
37 Building and Construction Industry Security of Payment Act 1999 (NSW).
38 Building and Construction Industry Security of Payment Act 2002 (VIC).
