12 December, 2016
What you need to know
On 22 November 2016, the WA State Parliament passed the Construction Contracts Amendment Bill 2016 (WA), it will take effect as the Construction Contracts Amendment Act 2016 (WA) (the Amending Act).
The Amending Act will make changes to the Construction Contracts Act 2004 (WA) (the CCA). It will effect the first package of reforms highlighted in the Government's response to the recommendations made by Professor Philip Evans' Report on the Operation and Effectiveness of the Construction Contracts Act 2004 (WA).
The most significant amendments to be effected by the Amending Act include
- prohibiting payment terms exceeding 42 calendar days (down from 50 calendar days);
- providing parties with 90 business days to make an application for rapid adjudication of a payment dispute (up from 28 calendar days);
- permitting adjudication of "recycled" claims (presently these claims are prohibited);
- specifying time periods in business days and excluding the Christmas closure period; and
- providing a process for faster and more efficient enforcement of adjudication determinations through the courts (presently leave of the court is required).
The Amending Act is expected to commence on 15 December 2016 but certain reforms are to be phased in over time.
What you need to do
Prepare for the Amending Act to commence on 15 December 2016.
Amend your standard payment terms before 3 April 2017 to ensure that contracts entered after that date have payment terms of no more than 42 calendar days.
Familiarise yourself with the other measures being implemented by the Government to complement the Amending Act.
Amendments
The Amending Act does not effect any major reforms to the CCA. Rather, it seeks to improve the overall operation and effectiveness of the CCA by widening its application and introducing more flexibility to the process for seeking rapid adjudication. These amendments will ensure that more claimants are able to access adjudications under the CCA.
Prohibited payment terms
To improve the flow of funds in the construction industry, the maximum payment period permitted in construction contracts has been reduced to 42 calendar days from 50 calendar days. This amendment will not commence until 3 April 2017 to allow businesses a sufficient period to adjust their standard payment terms.
Increased flexibility
There are several amendments to improve the flexibility of the CCA, to reduce the number of claims considered to be time barred and to provide adjudicators with additional powers when determining adjudication claims. These include:
- increasing the time limit for making an adjudication application to 90 business days (presently 28 calendar days);
- clarifying that payment claims can include matters that were included in previous payment claims, provided that they have not been the subject of an adjudication application that has been dismissed or determined. This amendment means that payment claims will be able to be "recycled", with the time for making an adjudication application restarting on the latest dispute. However, parties will be prevented from adjudicator shopping;
- focussing on "substance" over "form" by permitting adjudicators to determine payment disputes if satisfied that the application sufficiently complies with section 26(2)(a) of the CCA (presently adjudicators are required to dismiss applications that do not comply);
- requiring adjudicators to dismiss an application if the applicant gives written notice of their intention to withdraw (for example, if the claim is paid before the dispute is resolved);
- providing adjudicators with an express power to issue a determination giving effect to the terms of any settlement reached by the parties to a dispute; and
- providing adjudicators with an express power to determine that they can simultaneously adjudicate more than one payment dispute.
The Amending Act also amends section 6(1) of the CCA to address the confusion identified in several recent decisions regarding when a payment dispute arises. The amendment clarifies that a payment dispute will arise at the time a notice disputing the whole or part of the payment claim is issued, even if the payment claim has not yet become due.
Time Periods
Time periods have been changed. All time limits related to adjudication are now specified in "business days", which are defined to exclude weekends, public holidays and the traditional industry shut-down period between 25 December and 7 January. Consequently, respondents will have longer to respond to adjudication applications in some cases and will no longer have their holidays disrupted by a "Chistmas present" adjudication claim that requires a response during that period. However, the Amending Act does not introduce a provision that deems receipt on a non-business day to be receipt on the next business day, as would typically be included in contracts to ensure that 10 business days is entirely equivalent to 14 calendar days. Consequently, respondents and adjudicators may now have a shorter time available to respond or determine an application (as applicable) if a claim or response (as applicable) is received on a non-business day.
Enforcement of adjudication determinations
Enforcement of adjudication determinations has been improved, by allowing parties to enforce a determination as an order of the court by filing:
- a copy of the adjudicator's determination certified by the Building Commissioner; and
- an affidavit regarding the unpaid amount under the determination.
This amendment will remove the requirement to seek leave of the court to enforce an adjudication determination.
Restricting the exclusions from "construction work"
The Amending Act amends the CCA to restrict some of the existing West Coast model and WA specific exclusions from the definition of "construction work". Consequently, the definition will accord more closely with the East coast model as highlighted in the Table below. These amendments will ensure that claims related to additional types of construction work, ie. construction works in relation to plant and artistic works, have access to the rapid adjudication process provided by the CCA.
Further reforms expected
The Government's response to the recommendations made by Professor Philip Evans' Report on the Operation and Effectiveness of the Construction Contracts Act 2004 (WA) highlighted some additional amendments to the CCA that were being considered. Some of these might be introduced in a second package of reforms to the CCA at a later date. These include:
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introducing penalties for failure to comply with the CCA's prohibitions;
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introducing a three year registration/renewal process for adjudicators;
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amendments to the Construction Contracts Regulations 2004 (WA) to prohibit appointer organisations from charging nomination fees;
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greater administrative oversight of prescibed appointor organisations for the Registrar; and
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the introduction of a statutory retention trust scheme.
Complementary measures
The Government has also indicated that it intends to implement a number of complementary measures as part of a "whole of Government" approach to improving payment protection for subcontractors. These include the introduction of a Code of Conduct, the establishment of a compliance unit within the Department of Commerce, an increased role for the Small Business Commissioner and the roll out of Project Bank Accounts across Building Management and Works construction projects valued at more than $1.5 million from 30 September 2016. Ashurst continues to assist the State with these matters.
Amending Act details
A copy of the bill to be enacted as the Amending Act and the Explanatory Memorandum can be accessed on the State Parliament website.
For further information, please contact:
Richard Guit, Partner, Ashurst
richard.guit@ashurst.com
