Introduction to the Construction Contracts Act 2004 (WA)
The Construction Contracts Act 2004 (the “Act”) came into effect on 1 January 2005. The Act has introduced new laws to facilitate timely payment for building work by:
- Prohibiting clauses in contracts that slow or stop payment;
- Implying terms into contracts where a contract does not make a written provision; and
- Establishing a system for the rapid adjudication of payment disputes.
In essence, the Act supports security of payment in the building and construction industry. The effect of the Act means that the building and construction industry now has the power to enforce the right to be paid.
The Purpose of the Construction Contracts Act 2004 (WA)
The purpose of the Act is to enforce the right to be paid, which is carried out through good payment practices in the building and construction industry by:
- Prohibiting payment provisions in contracts that slow or stop the movement of funds through the contracting chain;
- Implying payment terms into contracts that are not in writing;
- Clarifying the right to deal in unfixed materials when a party to the contract becomes insolvent; and
- Providing an effective system of rapid adjudication for payment disputes.
The aim of the Construction Contracts Act is to make a significant difference to the working and payment culture of the building industry. The introduction of the rapid adjudication system will result in members of the industry resolving issues concerning payment.
What does the Construction Contracts Act cover?
The Act applies to a construction contract for construction work in Western Australia. It is important to note that the Act covers work in Western Australia regardless of where the contract is executed or if it is in writing or not.
The Act covers contracts for:
- Building work on a site in Western Australia
- Supply of goods to the site and fabrication off-site that includes delivery to site
- Professional work related to construction.
A Construction Contract is defined in section 3 of the Act to mean:
“a contract or other agreement whether in writing or not, under which a person (“the contractor”) has one or more of these obligations-
a) to carry out construction work;
b) to supply to the site where construction work is being carried out any goods that are related to construction work by virtue of section 5(1);
c) to provide, on or off the site where construction work is being carried out, professional services that are related to the construction work by virtue of section 5(2);
d) to provide, on the site where construction work is being carried out, on-site services that are related to the construction work by virtue of section 5(3)(b)” (Construction Contracts Act 2004 (WA), s.3.).
The Act has given “construction work” a very broad definition. In essence, the definition of construction work includes work that could reasonably be considered to be construction work. Examples of construction work include:
Installing, altering, repairing, restoring, maintaining, extending, dismantling, demolishing, or removing, any works, fittings, machinery or plant (Construction Contracts Act 2004 (WA), s.4.).
It is pertinent to note that all persons who either perform construction work or who enter into a construction contract are afforded protection under the Act.
Parties include the following persons:
- The owner
- The principal contractor (builder)
- Suppliers to the site where construction work is being carried out
- Professionals whose service relate directly to the construction work being carried out (e.g. architect, engineer, project manager, surveyor).
Fair Payment terms
Where there is no written contract which overrides the payment provisions such as the right to be paid, how to deal with variations, how to claim payment and how to dispute it, how to deal with issues of ownership of unfixed goods and materials when a contractor becomes insolvent, the status of retention moneys or the rate of interest on late payments, the Act implies certain terms into the contract. ‘Pay if paid’ and ‘pay when paid’ clauses in construction contracts are void.
Rapid Adjudication Process
The Construction Contracts Act 2004 (WA) established a system for the interim rapid adjudication of payment disputes that operates in parallel to any other legal or contractual remedy. The primary aim of rapid adjudication is to keep the money flowing in the contracting chain. The rapid adjudication process provides for an independent adjudication to review an unpaid payment claims, and where satisfied that some payment is due, make a binding determination for payment to be made. The aim of the rapid adjudication process is to keep the money flowing in the contracting chain by enforcing timely payment and remedying lengthy or complex disputes.
Changes in Construction Contracts
Some of the problematic contract provisions are now banned. These include:
- “Pay if paid” or “pay when paid” clauses that allowed one party in a contracting chain to avoid paying its contractors simply on the basis that it had not been paid. The act has established that a party to a construction contract must pay for work done.
- Extremely long payment periods in excess of 50 calendar days. Contracts will be limited to a maximum 50 day period.
The Act clarifies the right to deal in unfixed materials of a party to the contract becoming insolvent. Retention money is held on trust so that it can be returned in the event of insolvency.
Liability limited by a scheme approved under Professional Standards Legislation.