Chapter 15 Security of Payment Legislation Western Australia
The security of payment legislation in WA is the:
- Construction Contracts Act 2004 (WA) (WA Act);
- Construction Contract Regulations 2004 (WA) (WA Regulations).
Construction Contracts Act 2004 (WA) (WA Act)
The WA Act is different to the security of payment legislation in other states, including:
- the WA Act provides for adjudication of ‘payment disputes’, not adjudication of ‘payment claims‘;
- either party to the construction contract can apply for adjudication;
- any payment dispute can be adjudicated – there are no requirements to identify progress claims as claims being made under the WA Act;
- an adjudication application may only be made within 90 business days after a payment dispute arises;
- there is no right to a default debt under the WA Act if the respondent does not respond to the payment claim;
- a respondent is not limited to the issues raised in its response to the payment claim in any adjudication;
- a payment dispute can also arise in relation to payment of retention or the return of security; and
- the parties can agree for applications to be made to a particular prescribed appointing authority and are bound to apply to that authority only.
The parties to a construction contract are free to agree their own mechanism for payment and are not bound by a statutory process of payment claims and schedules, subject to the prohibited provisions under the WA Act.
The terms set out in the WA Act providing reasonable terms for payment will only be implied into the construction contract if the contract does not contain payment provisions. To the extent a construction contract contains provisions which are prohibited under the WA Act, these will be of no effect.
This contrasts with security of payments Acts in other jurisdictions which will override the requirements of the contract to the extent that they contradict the payment provisions in those Acts.
Draft legislation is being debated by the WA parliament which would bring the state of WA new legislation more in line with the east coast of Australia. The new Building and Construction Industry (Security of Payment) Bill 2020 was introduced into parliament and received its second reading on 23 September 2020. The Bill will repeal and replace WA’s existing security of payment regime under the WA Act. The Bill will not apply retrospectively. This means the existing WA Act will continue to apply to contracts entered into before the Bill commences operation. For more information read WA’s proposed security of payment laws .
When does the legislation apply?
The WA Act applies to a contract to perform construction work or provide related goods and services on a site in WA. The definition of construction work is similar to that in the NSW Act, as are the exemptions.
However, the WA Act also excludes:
- drilling for the purposes of discovering or extracting oil or natural gas;
- constructing a shaft, pit or quarry, or drilling, for the purposes of discovering or extracting any mineral bearing or other substance;
- fabricating or assembling items of plant used for extracting or processing oil, natural gas or minerals; or
- construction related to any watercraft.
The construction contract can be written or oral or a combination of both. Even if a construction contract states that it is governed by the law of another state, the WA Act will still apply if it is for construction work on a site in WA.
Construction contracts cannot include:
- ‘pay when paid‘ provisions, for example, where a contractor makes its liability to pay a subcontractor or supplier dependent on payment to the contractor by a principal;
- any provision requiring payments later than 42 days after being claimed, otherwise the provision will be deemed amended so that payment is required within 42 days of being claimed; and
- any provision allowing the parties to contract out of the WA Act or waive any rights under the WA Act.
How to make a claim
If a construction contract does not contain written provisions about the contractor’s right to claim progress payments for obligations performed under the contract, then that right will be implied into the contract.
A progress payment claim:
- is a claim made under a construction contract by either a contractor or a principal for payment of an amount in relation to the performance or non-performance by the contractor of its obligations under the construction contract; and
- does not prevent the contractor from making any other claim for moneys payable under the contract.
If there is nothing written in the contract, the content of a payment claim is implied into the contract.
Specifically, a payment claim made under the WA Act, in the absence of payment provisions in the contract, must:
- be in writing;
- be addressed to the party to which the claim is made;
- state the name of the claimant;
- state the date of the claim;
- state the amount claimed;
- if the claim is made by the contractor, itemise and describe the obligations that the contractor has performed and to which the claim relates in sufficient detail for the principal to assess the claim;
- if the claim is made by the principal, describe the basis for the claim in sufficient detail for the contractor to assess the claim;
- be signed by the claimant; and
- be given to the party to which the claim is made.
A contractor can also claim for payment of retention or return of security if the payment or return has not occurred by the due date under the contract. These circumstances constitute a ‘payment dispute’.
What must a principal do when faced with a claim?
To avoid the terms implied by the WA Act from operating, owners or principals should ensure that their contracts are in writing and have provisions as to payment, variations and progress payment claims.
If a construction contract does not set out how a party must respond to a payment claim, the WA Act provides that when the party receiving the payment claim either:
- believes it has not been made in accordance with the contract; or
- disputes part or the whole of a claim,
that party must, within 14 days of receiving the payment claim, issue a notice of dispute to the claiming party.
A notice of dispute must:
- be in writing;
- be addressed to the claimant;
- state the name of the party giving the notice;
- state the date of the notice;
- identify the claim to which the notice relates;
- if the claim is being rejected because it is not made in accordance with the contract, then it must give reasons why;
- if the claim is being disputed, the notice must identify each item of the claim that is disputed and give reasons why it is disputed; and
- be signed by the party giving the notice.
In the case of a claim that has not been disputed, the party receiving the payment claim must, within 28 days, either pay the part of the claim that is not disputed, or pay the whole of the claim.
Adjudication of disputes
Where a payment dispute arises under a construction contract (for example, when a principal issues a notice of dispute, or when a principal simply does not make a payment due), a contractor (or a principal) can apply for adjudication under the WA Act.
A ‘payment dispute’ arises if:
- by the time the amount under a payment claim is due, the claim has not been paid in full;
- the claim has been rejected or been wholly or partly disputed; or
- by the time any retention money or security is due to be paid or returned, the money or security has not been paid or returned.
When to apply for adjudication?
Within 90 business days of a payment dispute arising, the contractor may make a written application for adjudication, and serve it on the principal and the adjudicator. The parties may nominate an adjudicator in the contract or a prescribed appointor who is required to nominate the adjudicator. The adjudicator or prescribed appointor may require the contractor to lodge a deposit or security for the costs of the adjudication.
If an application for an adjudication is taken to be dismissed on the basis that no decision has been made and the time for making a decision has elapsed, any further application for adjudication must be made within 20 business days after the previous application is taken to be dismissed.
The prescribed appointor must, within 5 days of being served with the application, appoint an adjudicator for the dispute and notify all parties.
An adjudication application must:
- set out the details of the construction contract involved (or relevant extracts);
- set out the payment claim that has given rise to the dispute; and
- attach the information, documentation and submissions on which the contractor will be relying in the adjudication.
A contractor may recycle payment claims if it does not proceed to adjudication within 90 business days of making a payment claim, although each claim can only be adjudicated once.
How to respond to an adjudication application
When a principal has been served with an application for adjudication it must prepare and serve within 10 business days a written response to the application on the contractor and the adjudicator.
The response must set out or attach details of the rejection or dispute in relation to the payment claim and attach all the information related to the dispute.
The adjudication procedure
The adjudicator is required to determine the payment dispute within 10 business days of the date of the service of the response, or if there was no response, 10 business days after the last date on which the response was required to be served.
The adjudicator may dismiss the application without considering the merits of the application if:
- the contract is not a construction contract;
- the applicant gives written notice that it wishes to withdraw the application;
- the application has not been prepared and served as required, unless the adjudicator is satisfied that the application complies with the formal requirements for an application sufficiently for the adjudicator to commence adjudicating the dispute;
- a finding has already been made in respect of the particular payment dispute; or
- the matter is too complex and there is not enough time to make the determination.
The determination made by the adjudicator must be in writing, comply with the WA Regulations and give the reasons for the decision in the adjudication. It must set out the amount to paid and the date by which it must be paid, including interest, or in the case of security to be returned, the date by which it must be returned and any interest.
The determination will be binding on the parties, even if there are other proceedings relating to the dispute and payment (if any) must be made by the date specified in the adjudicator’s determination.
Right to suspend work
In the event that a determination is made in favour of a contractor and the principal is required to make payment by the specified date and does not, the contractor may, upon 3 business days’ notice, suspend the works under the contract until payment is made.
Effect of adjudication determinations
Payments made under adjudication determinations are made on account.
This means an adjudication determination remains binding on the parties even if arbitration or other legal proceedings have been commenced but only until such other proceedings are concluded and finally determine the matter.
In the meantime, an adjudication determination may be enforced by filing a copy of the determination that the Building Commissioner has certified and an affidavit as to the amount not paid under the determination in a court of competent jurisdiction.
The WA Act states that, except for a SAT review, there is no right of appeal or review from an adjudicator’s determination. The SAT may review an adjudication determination on the basis of procedural or other nominated grounds.