WA security of payment reforms: The new adjudication process
08 Sep 2022
Time to read: 1 MIN
Owners and principals (including mining and energy resources companies in some circumstances) must ensure they are able to respond to contractor or subcontractor payment claims quickly, efficiently, and rigorously in issuing their “payment schedules”.
Contracts entered into after 1 August 2022 will be subject to a revised statutory adjudication process, which differs to the existing process under the Construction Contracts Act 2004 (WA) (CCA). The changes will significantly impact the way construction contracts are currently administered and managed, with parties having to manage and comply with shortened time frames for completing various steps, along with newly introduced obligations for claimants and respondents alike.
Key consideration: narrowing of the mining exception
The-called “mining exception” under the CCA has been substantially narrowed under the SOPA. The third limb of the exception — referring to the fabrication and assembly of items of plant used for extracting or processing oil, natural gas, or any mineral bearing or other substance — has been removed. As a result, the revised adjudication process may apply to new developments by mining and energy companies and related service providers (where it did not previously).
The major differences between the adjudication process under SOPA and CCA are outlined below.
Who can make payment claims
Progress payment claims will only be able to be made by parties “up the contractual chain” — by subcontractors to head contractors and head contractors to principals or owners.
Only progress payment claims will be capable of being adjudicated.
Claims can be made “up” or “down” – including by principals against head contractors or head contractors against subcontractors.
In contrast to the SOPA, certain payment claims “down the contractual chain” – by principals against head contractors, or head contractors against subcontractors – can also be adjudicated.
The introduction of the "payment schedule" as a key document
Introduces the “payment schedule” (akin to a payment certificate) which will serve as a respondent’s formal response to a payment claim (in line with the adjudication processes operating on the East Coast).
Respondents (owners, principals and head contractors alike) will need to give careful consideration to these documents, particularly if they intend to only pay part of (or none of) the sum claimed by a given claimant. Any and all reasons for part or non-payment (including legal arguments) will need to be set out in their payment schedules.
If they fail to include any pertinent reasons in the payment schedule or to lodge a payment schedule at all, they will not be able to address those reasons in any adjudication response they later want to issue in response to claimant (subcontractor or contractor) adjudication application or indeed, to issue an adjudication response at all. They will effectively be hamstrung in their ability to defend the claimant’s payment claim and / or adjudication application.
There is no statutory obligation for a respondent to give or issue a “payment schedule”.
Shorter timeframes for compliance will apply for various stages of the adjudication process, requiring contracting parties to move more quickly than they did under the CCA process.
For example, under the SOPA:
- sums claimed in payments claims will need to be paid (depending on who is being paid) within 20 Business Days or 25 Business Days after a payment claim has been made; and
- adjudication applications will need to be made within 20 Business Days from claimants first becoming entitled to make them.
The other timeframes are summarised in the interactive presentation.
For example, under the CCA:
sums claimed in payments claims will need to be paid within 42 days; and
adjudication applications will need to be made within 90 Business Days from a payment dispute arising.
The introduction of two streams
The new adjudication process may involve one of two different “streams” – which will apply or occur will turn on whether the respondent issues a payment schedule to the claimant within time.
If a payment schedule is issued within time, the adjudication process will likely continue conventionally.
If a payment schedule is not issued within time or at all, the claimant will be required to give the respondent a “notice of intention to adjudicate” – effectively giving the respondent a “second chance” to lodge a payment schedule and to secure its ability to defend an adjudication application brought by the claimant.
If the respondent then fails to issue a payment schedule (again), the respondent will not be entitled to respond to any adjudication application brought or to bring a review application in respect of an unfavourable adjudication determination.
There is currently only one stream for the adjudication process.
Key consideration: responding to payment claims
Critically, owners and principals (including mining and energy resources companies in some circumstances) must ensure they are able to respond to contractor or subcontractor payment claims quickly, efficiently, and rigorously in issuing their “payment schedules”. Failure to include pertinent information and detail in payment schedules may substantially reduce an owner or principal’s ability to respond to or defend a payment claim or subsequent adjudication application.
Click here to request access to an interactive presentation which highlights the key steps required under the revised process, timings for compliance, and the anticipated pitfalls you should be mindful of now the first stage of the SOPA has come into force.
Watch a quick walk through here.
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8/09/2022 7:00:00 AM
Construction and Major Projects
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.