SECURITY OF PAYMENT LEGISLATION

WESTERN AUSTRALIA



The security of payment legislation in WA is:

Construction Contracts Act 2004

(WA) (WA Act)



When does the legislation apply | How to make a claim | What must a principal do when faced with a claim | Adjudication


The WA Act has substantial differences from the security of payment legislation in other states, including:

  • 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 28 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 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.

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.


This contrasts with other Acts which will override the requirements of the contract to the extent that they contradict the payment provisions in those Acts.

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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 constructing a plant for the purpose of processing minerals, oil or natural gas and does not cover construction related to artistic works or 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 50 days after being claimed, otherwise the provision will be deemed amended so that payment is required within 50 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.

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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'.

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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.

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Adjudication



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; or
  • the claim has been rejected or been wholly or partly disputed.


When to apply for adjudication



Within 28 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 the 28-day period has expired, the contractor will be barred from making an adjudication application in relation to that particular dispute under the WA Act.

The prescribed appointor must, within 5 days of being served with the application, appoint an adjudicator for the dispute and notify all parties.

The 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 not recycle claims if the first opportunity to have them adjudicated within 28 days of the 'payment dispute' was not taken advantage of. A fresh entitlement to make such a claim may however arise after making a final payment claim.


How to respond to an adjudication application



When a principal has been served with an application for adjudication it must prepare and serve within 14 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 14 days of the date of the service of the response, or if there was no response, 14 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 application has not been prepared and served as required;
  • a finding has already been made; 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 three 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 with the leave of the court.

The State Administrative Tribunal (SAT) may review an adjudication determination on the basis of procedural or other nominated grounds. The WA Act states that, except for a SAT review, there is no right of appeal or review from an adjudicator's determination.


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Updated 30 June 2012