Resolving payment disputes under the Construction Contracts Act 2004 (WA)

If a payment dispute arises under a construction contract in Western Australia, the Construction Contracts Act 2004 (WA) (“the Act”) provides a rapid adjudication process to resolve the dispute. Other states have similar legislation.

The Act provides a rapid adjudication process for payment disputes, while not affecting the parties ultimate rights under the contract. The idea being to keep the money flowing in the construction industry and to prevent powerful principals or head contractors from forcing sub-contractors into insolvency by withholding payments on the basis of alleged breaches of contract (real or imagined) by the sub-contractor.

The Act applies regardless of whether the construction contract is written or oral.

When entering into a contract for building and construction work it is important to understand what the process is if a dispute arises over payment of money under the contract.

What is adjudication?

In the context of the Act, an adjudication is the determination of a payment dispute arising under a construction contract, by a registered adjudicator.

The Building Commission manages the registration of adjudicators. A list of registered adjudicators and prescribed appointers (bodies that are authorised to appoint adjudicators) can be found here.

The adjudicator’s role is to review the application and any response and will decide whether the application should be upheld or dismissed. If the application is upheld, the adjudicator issues a determination for the payment of money. That determination can then be enforced through the Courts.

However, it is important to note that an adjudicator’s determination is not a final determination of  the parties’ rights and obligations. Any payment made pursuant to an adjudicator’s determination is “on account”, meaning the parties can still go to Court to litigate any unresolved issues (such as allegations of breach of contract etc.) and, potentially, get an order that the money be paid back.

What is a payment dispute?

Under the Act payment dispute arises when:

  • a payment claim is rejected (whether in whole or in part);
  • if an amount due under a payment claim is not paid in full by the due date;
  • if any retention money is not paid by the date it was due to be paid;
  • if any security held by a party under the contract is due to be retuned but has not been returned.

A payment dispute can arise in a number of ways, including (for example):

  • a contractor claiming against a principal;
  • a subcontractor claiming against a contractor; or
  • a supplier of goods or services related to construction work (i.e., not necessarily someone who is actually working on the construction site).

The application process

If a payment dispute arises under a construction contract, the party claiming payment has 90 business days after the payment dispute arose to make an application to have the dispute determined by an adjudicator.

The application must be served on each other party to the contract and either:

  • the appointed adjudicator (if the parties have already agreed on who it will be); or
  • a prescribed appointer.

The applicant must also provide any deposit or other security required by the adjudication requested by the adjudicator or prescribed appointer.

The application must:

  • contain the information prescribed in the Construction Contracts Regulations 2004 (WA) (“the Regulations”);
  • set out the details of, or have attached, the construction contract (or relevant extracts) and any payment claim that gave rise to the payment dispute; and
  • set out, or have attached, all the relevant information, documentation, and submissions, on which the applicant relies.

It is important to note that the Act does not allow for a right of reply to any response that is served. Accordingly, it is important that any application contains all the relevant information on which the applicant wishes to rely.

The response to the application

Once the application has been served, the respondent has 10 business days to serve a response to the application.

The response must:

  • contain the information prescribed in the Regulations;
  • set out the details of, or have attached, any rejection or dispute of the payment claim that gave rise to the dispute; and
  • set out, or have attached, all the relevant information, documentation, and submissions, on which the applicant relies.

The adjudicator can only take into account the respondent’s side of the story if they respond in time.

Serving the application for adjudication and response

An application and response can be served in any of the following ways:

  • delivering the documents personally;
  • by pre-paid post to the last known address of the person to be served;
  • by leaving the documents at the person’s usual or last known home address, or if the person is a principal of a business, at the usual or last known place of business; or
  • in the case of a corporation or other “association of persons”, by delivering or leaving the documents at, or posting the documents to, the principal place of business or principal office in WA.

It is critical to make sure that documents are served within time and this is particularly important when serving documents by post. For instance, when documents are served by post, the date of service is not the date that they are posted, but rather the date that the documents would have been delivered “in the ordinary course of the post”.

The adjudicator’s determination

Once a response is served or after the respondent’s time has elapsed, the adjudicator then has 10 business days to issue a determination (the adjudicator can extend time with the consent of the parties).

Once issued, the adjudicator’s determination is final and cannot be appealed or reviewed, except in very limited circumstances.

As mentioned above, the adjudicator’s determination only deals with the payment claim itself, and not with any underlying contractual disputes. The parties can still go to Court to enforce their rights under the contract.

Conclusion

If you are unsure about making or responding to an application for an adjudication under the Act, you should seek advice from a lawyer. It is important to adhere to the procedures and comply with the relevant time limits.

If you need more information or if you need assistance or advice on how to proceed please contact us.

This article was first published on 1 December 2014 but, due to amendments to the legislation, was significantly revised and updated on 5 September 2019.