Contract law change

Contract law change

The Construction Contracts Bill, expected to become law in September, could effect significant change to the way industry deals with payment structures in construction contracts, and provide for the rapid resolution of payment disputes through adjudication.

The bill has been modelled on UK legislation, with similar provisions also existing in New South Wales and Victoria.

The legislation will have several important ramifications for industry in Western Australia.

Under current law, disputes where parties cannot agree in relation to payment go through a court or arbitration process before a ruling can be received.

Under the new legislation, certain provisions, if not expressly provided for, are implied.

The implied provisions mainly relate to a contractor’s entitlement to be paid and include the right to progress payments and implied adjudication.

Within 28 days of a dispute arising, either party can issue proceedings, and the other party then has 14 days in which to respond.

Within 14 days from the response, an adjudicator appointed by agreement or a nominated party is required to make a decision.

This decision is binding, and means that any payment found to be outstanding has to be paid.

The decision can be appealed by instituting further proceedings, but payment must be made on the arbitrator’s decision.

Hollingdales senior solicitor Jennifer Wiggins, who has worked in the UK with its equivalent legislation, said the impact would be positive.

“Insolvency is a real risk for many small contractors and subcontractors when waiting for these disputes to be heard,” she said.

“The legislation will be used extensively by aggrieved parties, who will take the opportunity to go to adjudication and have a decision made within 14 days of the response, with moneys paid in a time period stipulated by the adjudicator.

“This should have a huge impact on the industry, particularly at the smaller end where clash flows are integral to survival.”

Pay-when-paid clauses will be prohibited under the legislation, while clauses that require payment to be made more than 50 days after payment is claimed will be read as requiring payment to be made within 28 days after a claim.

Ms Wiggins said industry needed to make sure that contracts were compliant with these requirements.

Main Roads contracts manager Glynn Logue said the legislation was positive for industry, and would be of particular advantage to the lower end of the contractor scale.

“If a contractor feels that they haven’t been fairly dealt with then they can go through the dispute resolution mechanisms and have a ruling relatively soon,” Mr Logue said.

“However, my only concern is that principals have only 14 days in which to reply and prepare a defence, and the adjudicator makes a ruling based on this submission.

“I am aware that, in contracts with other organisations, some sub-contractors have had adverse payment terms and have difficulty receiving their payment notwithstanding entitlement, and the legislation will fix this problem.

“It is a concern that some people might seek to take advantage of the legislation, although a majority of industry would not conduct themselves in that manner.”

A representative from a Western Australian contracting and subcontracting company said the legislative changes were something that had been needed, and would open the industry up and make it more honest.

He also acknowledged the shortcomings of the proposed changes.

“The bill will create masses of paperwork, but will put the right pressure on industry to pay sub contractors expediently,” the source said.

“Security of payment is a problem for a lot of contractors and sub contractors and, generally, this bill is a very positive move.”