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The WA Construction Contracts Act is WA’s response to the ‘Security of Payment’ Act found in the other Australian states.

We have run a handful of matters under this Act, and as a piece of legislation that purports to help contractors seek payment, it is a broken down tricycle stuck in the mud. Recent media has covered the struggle of WA subcontractors who have no mechanism to get paid. They are urging the government to adopt the Security of Payment model used in other states, and you can’t blame them.

The WA Act is bound in so many constraints and limitations, it effectively excludes the vast bulk of scenarios under which a contractor would want to use an adjudication process to recover payment. It is no wonder it remains far less utilised than the Acts in others states. The strength of the Security of Payment Act, or the ‘Australian Model’ as it is sometimes called, is that it acknowledges the typical situations under which payment disputes arise and the Acts are drafted accordingly. This allows the vast bulk of payment disputes to fall within the ambit of the Act and so parties can use it to resolve payment disputes.

Let’s look at a typical scenario:

A subcontractor carries out work over several months. The subcontractor issues an invoice each month. About half way through, the client underpays its invoices/claims. The subcontractor continues working. The next month, another claim is made and that is underpaid by an even bigger margin. This goes on for a few more months and by the end of work, the subcontractor issues its final month invoice, by which time it is owed maybe 40 to 50 per cent of the value of completed work. The parties go back and forth arguing over the final payment for typically up to three to six months. By this time, the subcontractor has exhausted all informal options and makes a payment claim under the Act for the entire amount unpaid under the contract. The entire disputed amount can then be determined by an adjudicator in one determination and resolve all matters that had been disputed for many months.

But not in WA.

Under the WA Act:

  • You cannot consolidate amounts owed under separate invoices, even if it’s under the same contract.
  • You cannot allow yourself any time to seek an informal outcome on payment. You’ve only got 28 days.
  • You cannot claim amounts owed under separate invoices.
  • You cannot re-claim amounts owed under invoices once the 28 days have expired. Ever.

The net result is that in WA, if an invoice is either unpaid or underpaid, you have to take that invoice to adjudication immediately. If you don’t, you lose the chance to ever have the work the subject of that invoice decided in adjudication. Forever. Then when you are underpaid next month, you need to go to adjudication it again. And that means new adjudication fees each time, thank you very much.

Let’s look at the details: The WA Act provides that a ‘payment dispute’ is said to arise either when an invoice is not paid in full on its due date for payment, or when you receive a Notice of Dispute from your client contesting the claimed amount within 14 days of sending the invoice. This is where the clock starts ticking. As a contractor, you have only 28 days after the payment dispute arises to lodge matter for adjudication.

That’s it. Don’t take it to adjudication within 28 days, and you lose the opportunity forever. In its recent report, the Federal Government’s Senate Economics Committee into Insolvency in the Construction Industry commented that ‘28 days is far too short. In 28 days you often don’t even know if you’re in a payment dispute.’ Too true.

Now if you look at these constraints, you will see that the mechanism of the WA Act simply does not accommodate the common scenarios that arise in payment disputes.

It makes adjudication a first resort

Subcontractors and their clients do not need to be pressed into adjudication immediately. They want time to see if they can settle their differences, with adjudication as a last resort. This process might take typically several months. In WA, it’s a first resort or else it leaves the subbie high and dry. In other states, you have from six to 12 months to make a payment claim; In WA, it’s 28 days!

You cannot reclaim for unpaid work

Even if the subcontractor sends its last invoice for a job, and then has that adjudicated, all the previous unpaid or underpaid invoices are now too late to be adjudicated or claimed. This is because the WA Act does not allow the resubmission of unpaid claims. In other states, you can include in a payment claim unpaid amounts the subject of previous claims. That allows you to claim the entire unpaid amount under the contract in one go. Not in WA. You cannot include any amounts unpaid from previous invoices.

Adjudication in WA, for some reason, is also a lot more expensive than other states where large six figure disputes can be determined for an adjudication fee of about $3,000. In WA, you’ll find yourself in five grand territory pretty fast. Imagine having to do that every month!

Essentially, the WA Act (and its Northern Territory relative) does not serve the needs of WA contactors. It does not address itself to the nature of payment disputes in the construction industry. It is like trying to fit a tea cosy over a toaster. It just does not fit. The proof is there in its relatively small use, the queue of unpaid WA subcontractors, and the many headlines coming from WA featuring huge insolvencies leaving thousands of subcontractors owed hundreds of millions.

Despite this, and the pleadings of various trade associations representing subbies, the WA Government refuses to be moved to adopt the model of adjudication that is successful in other states.

 
  • Thank you for shinning light on this 'frustrating' legislation. Whilst using the word "client" reflects a relationship in the 'typical scenario', it misrepresents who the contractual principal is allowing readers to believe that this is a problem caused by developers or owners. Substituting "client" with "Contractor", "Principal Contractor" or "Head Contractor" more accurately descries the contractual relationship and the cause of so much dissatisfaction.
    Problems in the our industry, nationwide, are more rooted in unsophisticated parties to the contract … in short, getting a builders license in any State is simply too easy and open to abuse, resulting in licenses awarded to operators who may meet trades standards but don't meet business administration standards.

  • That construction industry small business and consumers lose $3 billion / annum to pre-planned insolvency [phoenixing] and a further estimated $10 billion / annum to the wrongful withholding of money tells us there is no real Security of Payment legislation in Australia that is worth a cracker. It is a name only. I agree with your assessment of W.A. The opposition in W.A are developing new S.O.P policies. The take over of the adjudication marketplace in QLD by the regulator has been a disaster for small business seeking payment adjudication – statistics tell us so. The Qld amendments removed small business' statutory payment rights, disadvantaged subcontractors rights to recover retention money and then disadvantaged their rights at adjudication seeking to recover that money. The Act was dismantled. The same amendments and flawed legislative review process is now underway in S.A. Public statements in S.A expressing concern following the collapse of Home Australia are hollow and at odds with the proposed amendments to the S.O.P Act . Serious allegations regarding the conduct of this review should be answered and not swept under the carpet. The responsibility for the erosion of industry small business' payment rights should be placed firmly at the feet of state politicians and peak industry groups who set and control the agenda. This applies in W.A.

  • Anthony – The Construction Contracts Amendment Bill 2016 [W.A] appears to address some of the issues you raise?

  • As Tony said, thank you Anthony for shining light on this rubbish legislation. Contractors and subcontractors should have ample time to work things out amicably before going to adjudication. And you should not have to go to adjudication for every single invoice. What a croc!

Position Partner – 300x 600 (construction – expire July 31 2018)
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