Construction Contracts Act 2004 (WA)

Adjudication of payment disputes

Overview of the CCA

The Construction Contracts Act 2004 (WA) (CCA) is designed to ensure the prompt flow of payments to contractors, subcontractors and suppliers in the building and construction industry.

It provides for rapid adjudication of payment disputes, so as to ensure contractors and those further down the contracting chain get timely payment. Certain terms are also prohibited from being included in construction contracts and certain terms are implied into contracts if they are not already dealt with in the contract.

The object of the adjudication process is to determine the dispute fairly and as quickly, informally and inexpensively as possible, to keep money flowing in the contracting chain.

The CCA applies to all ‘construction contracts’ which are contracts to carry out ‘construction work’ or provide related on site services in WA. The CCA applies even if the construction contract was not in writing.

‘Construction work’ is broadly defined in section 4 of the CCA and includes such things as civil works and reclamation of land. Significantly, it also includes certain forms of preparatory work and the supply of goods and professional services related to construction work.

While originally the CCA excluded from the definition of construction work the construction of any plant for extracting or processing oil, natural gas or other minerals, the definition now only excludes ‘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.’ (see, s.4(3)(c)). This means that the CCA now covers contracts for civil works in constructing an oil & gas or mining plant.

However, drilling for the purposes of discovering or extracting oil or natural gas, and constructing a shaft, pit or quarry or drilling for the purposes of discovering or extracting mineral bearing substances, remains excluded for the operation of the CCA.

Payment claims

A ‘payment claim’ means a claim made under a construction contract:

• by the contractor to the principal for payment of an amount in relation to the performance by the contractor of its obligations under the contract; or
• by the principal to the contractor for payment of an amount in relation to the performance or non-performance by the contractor of its obligations under the contract.

Recent amendments to the CCA changed the definition of ‘payment claim’. A ‘payment claim’ now includes a payment claim that includes matters covered by a previous payment claim. This allows the previously prohibited ‘recycling’ of payment claims. This means that if a contractor does not make an adjudication application within the time limit, it does not lose the right to have that payment claim adjudicated – it can issue a fresh payment claim for the same works. Once an adjudication application is made however, and that payment claim is determined, the payment claim cannot be recycled any further.

Before applying for adjudication under the CCA, it is important to ensure that the payment process set out in the construction contract is followed.

Implied payment terms

The provisions in Schedule 1 Division 4 of the CCA will be implied into a construction contract that does not have written provisions about how a party is to make a claim to another party for payment.

If the construction contract is silent as to timing, the CCA provides that a payment claim can be made at any time after the contractor has performed any of its obligations.

Similarly, if a construction contract does not set out how a payment claim should be responded to, the provisions in Schedule 1 Division 5 of the CCA will be implied into the construction contract.

Division 5 states that if a party that receives a payment claim believes that the claim should be rejected or disputes that whole or part of the claim, the party must within 14 days of receiving the claim, give the claimant a notice of dispute.

Payment dispute and applying for adjudication

A payment dispute arises if:

• a payment claim is rejected or wholly or partly disputed;
• by the time when the amount claimed in a payment claim is due to be paid under the contract, the amount has not been paid in full;
• by the time when any money retained by a party under the contract is due to be paid under the contract, the money has not been paid; or
• by the time when any security held by a party under the contract is due to be returned under the contract, the security has not been returned.

After a payment dispute arises, the party seeking payment has 90 business days to lodge an application. Importantly, a business day means a day other than a Saturday, Sunday or public holiday or a day in the period beginning on 25 December in a year and ending on 7 January in the following year.

In the case of a ‘recycled’ payment claim, the party seeking payment has 90 business days to make an application for adjudication from the latest time the claim was disputed or not paid.

Making an adjudication application

To make an application for adjudication, a party must:

• prepare a written application;
• serve it on each other party to the contract;
• serve it on the registered adjudicator or prescribed appointor, as applicable; and
• provide any deposit or security for the costs of the adjudication that the adjudicator or the prescribed appointor requires.

In the event the parties agree on an adjudicator, the application for adjudication is served directly on that adjudicator.  

If the contract does not specify an adjudicator, the application must be made to a ‘prescribed appointor’. The prescribed appointors are listed in regulation 11 of the Construction Contracts Regulations 2004 and include, amongst others, The Australian Institute of Building, the Australian Institute of Project Management and The Australian Institute of Quantity Surveyors. Once served with an application, the appointor will appoint, within 5 days after being served, a registered adjudicator to adjudicate the payment dispute.

The written application must contain certain minimum details and it is common practice to include in the supporting submissions the following information:

• background information: details as to the facts that gave rise to the application;
• jurisdiction: the reasons as to why the adjudicator has jurisdiction to determine the merits of the payment dispute including:
• how the contract meets the definition of ‘construction contract’ & ‘construction work’;
• why the payment claim was validly made under the contract;
• details of the payment dispute that arose under the contract;
• why the adjudication application was prepared & served in accordance with the CCA;
• that no prior decision on the payment dispute has been made; and
• that the payment dispute is not too complex to fairly determine;
• amount owing: details as to why the amount claimed is due and owing and the basis upon which it is calculated; and
• adjudicator’s decision: a submission outlining the decision which is sought from the adjudicator.

The applicant’s position may be supported by statutory declarations of lay witnesses (e.g. employees) that are familiar with the underlying facts and issues pertaining to the application. It may also be supported by expert opinion.

Responding to an adjudication application

A party who has been served with an adjudication application must respond to it within 10 business days after service, by preparing and serving a written response on the other parties and adjudicator.

It is good practice to serve the response in a manner that can be tracked. This also applies for service of adjudication applications.

If a response is not received in the stipulated timeframe, the adjudication process continues, and the adjudicator will make a determination of the dispute in the absence of information from the respondent.

Like the application for adjudication, the response must also contain minimum information. The responsive submissions may include arguments that:

• the adjudicator does not have power to determine the dispute, for example, because the applicant did not comply with the CCA or the contract is not a ‘construction contract’ within the meaning of the CCA; and
• the applicant is not entitled to payment because of set off rights, defective work or non-compliance with the contract.

The respondent’s response may also supported by statutory declarations of lay witnesses and expert opinion.

The determination process

An appointed adjudicator must, within 10 business days after the date of the service of the response or 10 business days after the last date on which a response was required to be served:

• dismiss the application without making a determination of its merits (for example, if the contract concerned is not a construction contract); or
• determine on the balance of probabilities whether any party to the payment dispute is liable to make a payment, or return any security, and if so, determine the amount to be paid or returned and any interest payable.

The adjudicator may, with the consent or the parties, extend the time for making a determination.

The adjudicator may also request a party to make further written submissions or provide additional information or documentation and may set a deadline for doing so.

The adjudicator’s decision must:

• be in writing and state the amount to be paid (and any interest) and the date it is to be paid or the security to be returned and the date on which it is to be returned;
• give reasons for the determination; and
• be given to the parties to the adjudication and to the Building Commissioner.

If the adjudicator dismisses the application, he or she must give reasons for doing so and communicate the decision and reasons in writing to the parties. 

Costs

The parties are jointly and severally liable to pay the costs of the adjudication; however, as between themselves, the parties are liable to pay those costs in equal shares. In order for an adjudication application to be heard, the adjudicator may require one or more parties to pay a deposit or security for the costs of the adjudication.

The adjudicator has discretion to make a costs award against a party in some circumstances. However, this is exceptional and the usual outcome is that each party will bear its own costs of making or responding to an adjudication application.

Binding nature, appeal and enforcement

The determination of an adjudicator is binding on the parties to the construction contract under which the payment dispute arose. This is the case even where separate proceedings relating to the payment dispute have been commenced before an arbitrator or court.

There are only limited circumstances where a determination of an adjudicator on an adjudication can be appealed or reviewed.

There are avenues to enforce an adjudicator’s determination. If a determination requires the principal to pay the contractor an amount the contractor may give the principal notice of its intention to suspend the performance of its obligations.

A party entitled to be paid an amount under a determination may also enforce the determination through the courts. Once the determination is filed with the relevant court, the determination will be taken to be an order of the court.

Practical considerations

While an adjudicator’s decision is only an interim decision which is subject to the outcome of more formal dispute resolution processes such as litigation or arbitration, an adjudication determination can have a significant bearing on the final resolution of a dispute. Not only does the third party adjudicator give a considered and independent view on the claim, the determination also determines who controls the money in dispute in the interim.

Common practical features that emerge in the adjudication process are:

• the process in relatively cheap and fast;
• an application for adjudication is often subject to detailed scrutiny from the principal and their lawyers as to whether the various jurisdictional preconditions have been met. It is therefore important for the claimant to comprehensively deal with the jurisdictional issues in its claim document;
• claimants are often unaware that the CCA applies not only to the construction project itself, but also to preparatory works and to the supply of goods and professional services related to construction work. This substantially broadens the scope of what can be the subject of an adjudication application;
• while the CCA does not apply to certain types of contract in the mining and oil & gas industries (as outlined above), the restrictions are not as wide as often thought;
• the CCA is not only used by small to medium industry players, but is also used by major corporates and joint ventures on large infrastructure and project developments. It is often used as a significant strategic instrument by such claimants; and
• such claimants often spend considerable periods of time preparing comprehensive claim materials, including supporting statutory declarations and expert reports. The respondent to the application then only has 10 business days to provide a full response. If a party anticipates that an adjudication claim may be made against it, it is essential for that party to commence work to protect its position immediately, and not wait until the application for adjudication is made.

Possible changes to the CCA

In 2018, the State Government of WA released a report on security of payment reform titled Security of Payment Reform in the WA Building and Construction Industry by John Fiocco. The Fiocco Report made a number of recommendations and supports the view that WA adopt a security of payment model akin to that of the East Coast.

The Attorney-General, John Quigley, previously indicated that a bill would be submitted to parliament in 2020, which would adopt the recommendations contained in the Fiocco Report. An exposure draft bill was recently released, and it remains to be seen what changes will ultimately be made.

 The material in this article is provided only for general information. It does not constitute legal or other advice.

Contact Grondal Bruining on  +61 8 6500 4300 for advice specific to your circumstances.

Dean Grondal – Principal, GRONDAL BRUINING

Ph: +61 8 6500 4320

Email: [email protected] 

Web: www.grondalbruining.com.au

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