Floodgates to open for Adjudications in Western Australia from 15 December

On 29 November 2016, the Construction Contracts Amendment Bill 2016 received Royal Assent. The Construction Contracts Amendment Act 2016 (the Amendment Act) amends the Construction Contracts Act 2004 (the CCA). The purpose of the Amendment Act is ‘to improve the operation of, and access to, the rapid adjudication process for resolving payment disputes under construction contracts’.¹

Sections 1 (Short title) and 2 (Commencement) commenced operation on 29 November 2016, when the Bill received Royal Assent. The remaining provisions will come into effect on 15 December 2016, except for sections 7 and 20 (amending Section 10 and inserting Section 60) which will come into effect on 3 April 2017. The Amendment Act contains a number of transitional provisions that will accommodate the changes made by the Amendment Act.

Key amendments

The Amendment Act makes a number of key amendments to the CCA that will come into effect on 15 December 2016, including:

• changing the expression of most time periods from calendar to business days;
• changing the times for doing certain things under the Act: the most significant change is the time for applying for adjudication, it has been increased from 28 days to 90 business days after the dispute arises;
• excluding the Christmas vacation period from the definition of business day;
• permitting matters covered by a previous payment claim to be included in a fresh payment claim, commonly referred to as ‘recycling’;
• clarifying that a payment dispute arises ‘if a payment claim is rejected or wholly or partly disputed’;
• modification of the plant construction exclusion and deletion of the artistic works exclusion from ‘construction work’;
• new mechanisms that allow the adjudication process to end where the parties have settled or the applicant wishes to withdraw its application;
• a greater focus on substance over form of adjudication applications; and
• improved enforcement of adjudication provisions.

Further key amendment – maximum payment terms

Sections 7 and 20 of the Amendment Act deal with section 10 of the CCA. Section 10 of the CCA prohibits provisions in construction contracts that allow payment to be made beyond a maximum of 50 days. The maximum payment period will be reduced to 42 days.

This reduced maximum payment period will in all likelihood significantly affect cash flow in the construction industry. Parliament has therefore allowed some transition period to enable parties to prepare for it. The amended prohibition will take effect on 3 April 2017.

Further reforms

The Amendment Act is the first step in a raft of proposed reforms that aim to address the recommendations put forward by Professor Philip Evans following his independent statutory review of the Act in 2015. The Amendment Act will be complemented by:

• the Western Australian Building and Construction Industry Code of Conduct 2016 (the Code)², which will:
  • come into effect on 1 January 2017;
  • apply to new tendering processes for State projects with a value in excess of $10 million (and will be rolled out to all other contracts over time); and
  • be monitored by the Building and Construction Code Monitoring Unit (BCCMU) established within the Department of Commerce;
• expanded powers for the Small Business Commissioner to review and mediate disputes between contractors and subcontracts; and
• Project Bank Accounts being required for certain government construction contracts (Building Management and Works) with a value greater than $1.5 million to speed up the payment process for businesses working on these projects and enable subcontractors to better protect themselves in the event that a head contractor experiences financial difficulty.³

What this means for you

The first tranche of amendments to the CCA contains significant reforms. As a result:

• applicants will have longer to prepare adjudication applications. The extended period of 90 business days will be the longest allowed under comparable Australian legislation;
• applications are likely to become increasingly complex and detailed. There is the potential for amounts claimed under payment disputes to be ever increasing. This alone represents a sharp departure from the original policy position of the WA parliament in 2004 when the CCA was enacted;
• the number of adjudication applications is likely to significantly increase;
• respondents to adjudication applications get little reprieve under the Amending Act, apart from time not running over the Christmas and Easter breaks. The time for preparing responses is still short, consistent with comparable Australian legislation;
• standard form contracts that provide for payment terms greater than 42 days after a claim for payment has been made should now be amended to reflect the amendments to section 10 of the Act that will take effect on 3 April 2017; and
• while there has been some narrowing of the so called ‘mining exclusion’ it may have little practical effect on current interpretation.

This article was written by Michael Hollingdale, Partner and James Moffat, Solicitor.

¹Explanatory Memorandum Construction Contracts Amendment Bill 2016

²Western Australian Building and Construction Industry Code of Conduct 2016:
http://www.commerce.wa.gov.au/sites/default/files/atoms/files/wa_bcci_code_conduct_2016.pdf

³WA Government Media Statement 22 September 2016: https://www.mediastatements.wa.gov.au/Pages/Barnett/2016/09/Construction-Contracts-Act-amendments-introduced.aspx