WA: A Major Step Towards the Harmonisation of Security of Payment Laws
The Western Australian government will shortly release a consultation Bill to replace the Construction Contracts Act (CCA) with legislation based on the east coast Security of Payments model.
In these stricken times, the focus of WA Attorney-General, John Quigley, on assisting industry participants to be promptly paid what they are due, needs acknowledgment.
The CCA has been the subject of two major government commissioned reviews.
The first recommendation of the Commonwealth ‘Review of Security of Payment Laws: Building Trust and Harmony’ by John Murray AM (the Murray Review) is that:
‘Security of payment legislation should seek to promote prompt payment so as to maintain a contractor’s cash flow. Such an outcome is more effectively achieved through adoption of a legislative regime broadly based on the East Coast Model.’
The second Review was commissioned by the WA government and titled ‘Security of Payment Reform in the WA Building and Construction Industry’ by John Fiocco (the Fiocco Review). This Review strongly supported the first Murray Review recommendation to endorse the east coast model, together with many other Murray Review recommendations.
Mr Fiocco described six policy considerations guiding his recommendations (pp 2-3):
- Any reform should ensure that those who perform construction work, or supply goods and services, receive payment as and when due, and have an effective means for enforcing their contractual rights.
- Any reform should, as far as practicable, promote prompt payment to ensure cash flow through the contractual chain
- Any reform should, as far as practicable, target the types of construction projects, or areas of the industry, most affected by security of payment problems.
- Any reform should be capable of proper enforcement, either through a current regulatory role or framework, or as a consequence of the Government’s position as a major procurer of goods and services.
- The industry should be given sufficient opportunity to adapt to a reform, to avoid stifling economic recovery.
- Any reform should account for broader changes occurring across the Australian building and construction industry, not just in WA.
‘I recommend that the Government engages with the Commonwealth and the other states and territories with a view to implementing most of the recommendations in the Murray Report nationally. I agree entirely with Mr Murray’s opinion that the Commonwealth must take a leadership role if the benefits of national harmonisation are to be realised.’
Adjudicate Today recently commenced providing services as a Prescribed Appointer (PA) under the CCA. The responsibilities of a PA are similar to an Authorised Nominating Authority (ANA) in the east but the adjudication regime being managed is quite different. Writing our new website, designing a process flowchart and developing templates for the prompt payment and adjudication regime in WA (refer www.adjudicate.com.au/wa) brought home the vast differences between the two models.
At the heart of the differences is a fundamental and unarguable fact. The CCA (and the similar Northern Territory Act) deny claimants many rights which are accepted minimum standards in the east. It is these injustices which the WA government is poised to fix.
These injustices explain why both Reviews endorsed the east coast model over the CCA.
The CCA implies (imports) many sensible provisions into contract but only where the written contract doesn’t cover the same provisions. Contractual provisions are paramount in WA. Therefore, and subject to the maximum time limit of 42 days for payment (refer point 2 below) and a prohibition on ‘pay-when-paid’ provisions, contract drafters have a free hand. It is no secret to industry participants that, in the words of the Fiocco Review (p2):
‘…, the power imbalance in the commercial relationship between head contractors and subcontractors often disadvantages subcontractors when negotiating contractual terms or leaves them unable or unwilling to enforce their rights for fear of losing future work.’This article assumes there is a written contract covering the making, responding and timing for dealing with payment claims which therefore replace the CCA implied provisions such to benefit the respondent.
Under the east coast model, the respondent has up to 10 business days after a payment claim is made to either pay the claimed amount or provide a payment schedule with reasons for withholding any payment. Failure to provide reasons for non-payment leads to the creation of a statutory debt which can be enforced in the civil courts. Under the CCA, there is no penalty for failing to provide reasons for non-payment until after adjudication has commenced.
Briefly described, after service of a payment claim the CCA process takes one of two paths.
- In the first path, a payment claim is served. The respondent has no requirement to provide reasons for non-payment. After a period determined by the contract but no longer than 42 days after service of the payment claim (contrast 42 days to 10 business days in the east), the claimant (the CCA calls the claimant an applicant) who has not been paid can apply for adjudication. The adjudication application must speculate on the reason(s) for non-payment as no reasons have been provided. Once the application has been made the respondent has 14 days, or as otherwise provided by contract, to provide any reasons for non-payment. The respondent’s reasons may have no relation to any of the grounds advanced in the claimant’s application. Meanwhile the PA is required to appoint, or the parties agree on the appointment of, an adjudicator. The adjudicator has 10 business days in which to determine the application. The respondent’s reasons need not arrive until the adjudicator’s time to determine the application is expiring. Under this path, the claimant has had no opportunity, nor has any statutory right, to address the reasons for non-payment provided by the respondent. The only way through this imbroglio, and ensure procedural fairness for the claimant, is for the adjudicator to be granted an extension of time so the claimant can be given the opportunity to respond to the reasons for non-payment. But the respondent must agree to the extension of time……
In the second path, the respondent replies to the payment claim within the contractual period (maximum 42 days after service of the payment claim) by serving what CCA describes as a notice of dispute (the east coast model calls this the payment schedule). In this case, the claimant knows the reasons for rejection of the payment claim and can frame their application around these reasons. However, unlike the east coast (not Victoria), there is nothing preventing the respondent’s adjudication response containing entirely new reasons for rejection. Meanwhile the appointed adjudicator’s time of 10 business days is counting down and the only way through this imbroglio, and ensure procedural fairness for the claimant, is for the adjudicator to be granted an extension of time so the claimant can be given the opportunity to respond to the new reasons for non-payment. But the respondent must agree to the extension of time……
In either path, an adjudicator with insufficient time to allow the claimant procedural fairness to prepare a response to reasons or new reasons submitted by the respondent, and also time to complete the determination, can either dismiss the application or allow it to time out. Either course, leaves the claimant to make a new application and further delays resolution of the dispute to the disadvantage and cost of the claimant. A distant result from the ideal of prompt payment in the industry.
To summarise, quoting the Murray Review (page 87):
‘If, as in the case of the West Coast Model, a respondent who has failed to respond to a payment claim (for whatever reason) faces no immediate consequences if it fails to reply, then such a system can hardly be said to promote the objective of prompt payment.’
Related to the problem of power imbalance when negotiating contract is the CCA provision allowing for writing a named adjudicator into the contract. In practice, the perception is the main contractor and/or principal can impose their adjudicator onto an unwitting claimant. None of the east coast models allow such appointments, albeit some 18 years ago there existed similar provisions which were removed from the Acts due to their abuse by certain parties.
The Murray Review deals with this issue by recommending (Recommendation 38):
‘The legislation should provide that the parties to a payment dispute may agree on an accredited adjudicator, but such agreement may only be made:
- at the time when the dispute arises
- within 2 business days of the claimant serving a notice of adjudication and a copy of the adjudication application on the respondent, and
- where the dispute relates to a payment claim of more than $250 000.’
The east coast model allows an unpaid claimant to suspend work on giving of two business days’ notice at three different stages:
- the respondent fails to serve a payment schedule within 10 business days (or shorter period if provided by contract) of receipt of the payment claim;
- full payment of a scheduled amount is not paid by the due date for payment; and
- respondent does not pay full or any part of the adjudicated amount.
The CCA permits the claimant to suspend work on three business day’s notice only if the adjudicated amount is not paid. The adjudicated determination can be in excess of two months after service of the payment claim – in sharp contrast to the two weeks after which suspension of work can occur under the east coast model.
By amending the CCA, the WA government aspires to an efficient and functional security of payment regime. Government is acutely aware of the low take up of adjudication applications, as is illustrated by Graph 11 of the Fiocco Review:
The Review continues (p128)
‘…. the gap appears somewhat more pronounced when compared with the total value of construction work done over the last three financial years. For example, in 2016-17 for every adjudication application made, approximately $39 million worth of construction work (including engineering construction) was completed in New South Wales. Conversely, in WA for every adjudication application made, approximately $161 million worth of construction work was completed. This would appear to indicate that adjudication applications are approximately 4 times more likely to be commenced on a dollar for dollar basis in New South Wales than in WA.’
Adjudicate Today looks forward to working closely with the Minister and Building Commission in successfully implementing the pending reforms.
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