The human cost of alleged non-payment of subcontractors in Western Australia was on full display in 2015 as 53-year-old Perth based ceilings contractor Ross McGinn took his own life after allegedly having $2 million worth of outstanding progress payments owing from contractor John Holland on the government run Perth Children’s Hospital Project and being forced to lay off workers.
Whilst the government later reported that an investigation had cleared John Holland over wrongdoing, allegations about non-payment of subcontractors have surfaced on other projects such as Perth Stadium and the Elizabeth Quay redevelopment.
As a result, the government was forced to act. New rules now in force under the amended Construction Contracts Act have extended the time frame which claimants have to apply for adjudication after a payment dispute arises, enabled payment claims to include amounts outstanding from previous claims, shortened the maximum payment period allowable on contracts and simplified enforcement of adjudication claims.
In arguably the most significant change, contractors and subcontractors now have 90 business days from the date which a payment dispute arises in which to lodge an application for adjudication of the claim. Despite being shorter than the six or 12 months allowed in most other states, this is considerably longer than the 28 natural days previously allowed for under the Act.
Contractors Debt Recovery managing director Anthony Igra welcomes this change. Not only will the extended time frame provide claimants with more time to come to the realisation that they are in fact in a payment dispute before the time-frame in which to lodge their claim expires, Igra says, it will also provide them with sufficient time to attempt informal resolution before going down formal channels of adjudication.
Igra says the previous time frame was overly restrictive and that the extra time allowed will improve the way in which the Act can be used to advance the flow of money to subcontractors and suppliers.
“All this is about is opening up a channel for disputes to be finalised and cash to flow down the contractual chain,” Igra said. “This (previous) time limit of 28 days has been an endless blockage to that chain of cash.”
In another change, when making claims for payment under the Act, contractors and subcontractors will be able to include any amounts outstanding from previous claims. This includes amounts which were either covered by a previous claim and which were rejected by the respondent but remain subject to adjudication or claims which were wholly or partly unpaid.
According to Igra, this is another positive change. Payment disputes, he said, tend to arise toward the conclusion of projects when cash flow is tight and where claims are more likely to be not paid or underpaid, and likelier to be underpaid by greater amounts. Typically, he says subcontractors at the end of projects are owed amounts from three to four months’ work of work. Rather than incurring the time and expense of having to pursue separate claims for separate amounts (and potentially having to lodge separate adjudication claims for each of these amounts), he says contractors and subcontractors are now able to bundle these together under the one adjudication claim.
Combined with the extended time frames for the lodgement of adjudication applications, Igra says the ability of claimants to include amounts outstanding from previous claims within the one payment claim represents a fairer and more efficient process by which contractors and subcontractors are able to pursue outstanding amounts.
In another less talked about change, claimants who receive favourable adjudication decisions but still do not receive money owing no longer need to have a court hearing prior to having these decisions enforced. Instead, section 43 now allow enables claimants to enforce determinations by filing in the court a copy of the determination along with an affidavit as to the amount not paid under the determination.
This process remains more arduous compared with those in other states, which enable claimants to have adjudication decisions enforced on an over-the-counter basis by simply taking their adjudication and registering a default judgement. Nevertheless, Igra says the removal of the need for costly and arduous hearing processes to simply have an adjudication decision enforced is welcome.
The last area of significant change will see the maximum payment terms which are allowable within construction contracts or subcontracts reduced from 50 calendar days to 30 days.
In terms of strategies to manage these changes, Igra advises subcontractors to make themselves aware of what a payment dispute is and when in fact such a dispute arises, at which point the 90-day time period for lodging applications for adjudication in fact begins. Once such a dispute has arisen, he suggests allowing at most six and eight weeks to attempt informal resolution before instituting formal adjudication proceedings.
Finally, Igra suggests that subcontractors should take advantage of the recycled claims provision and bundle their current claims with any pre-existing ones which may be outstanding.
Contractors, he says, will be better off under the new regime as they themselves will have longer after a payment dispute arises in which to lodge an application for adjudication against the principal.
Nevertheless, he cautions that contractors should now be aware of the need to be prepared to address payment disputes with respect to their subcontracts over the extended period of 90 business days. Since the time frame in which their subcontractors have in which to lodge a claim is in fact determined by the date at which a ‘payment dispute’ arises, Igra also advises contractors to familiarise themselves with what the Act specifies as having to be contained in a notice of dispute.
Principals or ultimate clients, he said, need to be aware that they will now have to make payment claims every month and are more now more likely than before to face adjudication proceedings where they fail to meet progress claims on time.
Not all are enthusiastic about the changes, however. Speaking of the specific issue regarding recycled claims, Beth Cubit and Glen Warwick, partners at law firm Clyde & Co, wrote on their firm’s web site in October that the new regime could see successive applications under the same contract overlapping in time and being subject to different and potentially conflicting determinations from different adjudicators.
Principals, Cubit and Warwick argue, could find themselves the subject of ambush claims in which a contractor could wait until it builds a large number of disparate claims before submitting a lengthy and complex application for adjudication at a time which is inopportune for the principal or the project. Regardless of circumstances, the principal would be forced to respond to such claims within just 10 business days.
Igra disagrees. He says the latest changes merely bring Western Australia closer to where other states are in terms of having suitable legislation which adequately protects subcontractors.
He says fears associated with the new regime are overblown and that it fact the primary effect of the new rules will be to facilitate speedier payments down the contractual chain.
“What will happen (under the changers)?” he asked. “More subcontractors will get paid, that’s what will happen.”