In June, the Building Commissioner of Western Australia Peter Gow announced a review of the Construction Contracts Act 2004 (the CCA). The review will be carried out by Curtin University’s Professor Philip Evans.
Introduced in January 2005, the CCA introduced a variety of reforms to Western Australia’s building and construction sectors. It introduced the contracts adjudication process, mirroring the “security of payment” legislation found in other States, and prohibited certain terms in construction contracts, such as “pay when paid” clauses. The CCA also implies certain other terms into construction contracts where a contract is silent on them.
The CCA permits any contractor carrying out works under a construction contract to apply for a rapid adjudication of any payment dispute. Typically, this will involve monthly progress claims; milestone payments agreed between the parties at the outset of a major construction project. These progress claims will be paid throughout the course of the project and are often essential for the liquidity of any subcontractor carrying out the works. As progress claims often depend on certain milestones being achieved, disputes can arise where there the principal and contractor disagree about the scope or sufficiency of works undertaken.
Nevertheless, the CCA has notoriously strict and unforgiving time limits. Any application for adjudication must be prepared and served within 28 days of any payment dispute arising. An adjudicator is then appointed under the CCA to determine which, if any, progress claims under the application are payable. Adjudicators are typically building professionals with experience in drafting or administering construction contracts. They typically comprise quantity surveyors, architects and construction lawyers. They are obliged to act quickly and make their adjudications within 14 days of any response being received.
The CCA permits a quick and informal means of determining payment disputes on account to ensure that cashflow for larger projects continues unimpeded, despite any differences that may exist between the parties. Essentially, whilst the project remains on foot, the parties agree to disagree. They preserve their rights to argue over the underlying merits of their dispute at a later stage, without allowing their disagreement to bring the project to an immediate, and potentially irreversible, halt.
The adjudication process has seen a steady rise in use over the past few years; in 2012/2013, 208 applications worth $228 million were adjudicated under the CCA (1). Nevertheless, in the past 12 months, there has also been a considerable rise in the volume of adjudications that have resulted in subsequent litigation. These have included disputes surrounding the adjudication procedure as well as disputes relating to their enforcement. Given the rise in popularity of the adjudication process as a dispute resolution tool and the significant value of progress claims which are adjudicated upon, these developments are perhaps unsurprising. Nevertheless, it will be interesting to note the outcome of this review, and the broader implications it may have for the construction industry throughout Western Australia once these findings have been published.
For further information on this article or for any further questions on the adjudication process, contact Robert Ross, director of Composite Law for advice.
1 Building Commission media release, 10 June 2014