Does the Construction Contracts Act impact your business?

You may be of the view that the Construction Contracts Act 2004 (WA) (CCA) has no application whatsoever to your business – particularly if your business is not primarily concerned with providing construction and infrastructure services.  However, the CCA has proved to have a broader application than originally expected whereby it:

• where necessary, injects certain implied terms into “construction contracts”;
• prohibits and/or amends certain provisions; and
• provides for the use of a speedy and cost-effective adjudication mechanism.

What kinds of contracts does the CCA actually apply to?

The CCA applies to construction contracts involving the performance of or supply of goods related to “construction work”.  Construction work includes:

• civil works (including roads, railways, harbours, electricity lines or cables, pipelines for water, gas or oil and/or pathways, ramps and tunnels);
• the construction of buildings or structures (including the fixing  of and installation of anything into those structures);
• renovation, repair or demolition works; and/or
• any work needed to prepare for or complete construction works.

Certain works are not subject to the application of the CCA, including drilling or the construction of plant for the purpose of discovering or extracting oil or natural gas and works the subject of the “mining exclusion”, being works involving the construction of a shaft, pit or quarry for the purposes of discovering or extracting any mineral bearing or other substance or of any plant for the purposes of extracting or processing oil, natural gas or any mineral bearing or other substance.  The application of the “mining exclusion” in a practical sense has proved difficult, resulting in a situation where some mining “construction works” will be covered by the CCA and where others will not.  It is important for parties involved in the mining industry or mining support services to understand which kinds of mining “construction works” will be covered by the CCA.

In effect, parties need to bear in mind that the CCA applies to non-core construction works such as renovations or the installation of electric cables and certain activities undertaken in the mining industry, as well as the traditional construction of commercial buildings and homes.

Amending contracts: Implied and prohibited terms and provisions

Parties subject to a “construction contract” need to be aware of the application of the CCA from the initial negotiation phase of producing and entering into that contract, all the way through to the final stages of the contract, when lodging final payment certificates and observing certain notice requirements.  This is because the CCA can operate to amend or alter construction contracts by implying certain “implied terms” into the contract or by prohibiting or altering certain terms/provisions.

Implied terms: Where a construction contract, for whatever reason, lacks certain necessary or express terms, the CCA will operate to imply those missing terms into the contract.  The terms that may be implied into a construction contract include, among others:

• how to deal with variations and/or retention money;
• the contractor’s entitlement to be paid and how to claim progress payments;
• the payment of interest on overdue payments; and
• the duties of parties as to unfixed goods on insolvency.

Prohibited or altered terms: The CCA also prohibits the inclusion of certain terms or provisions in construction contracts and in some instances, provides for the amendment of a prohibited term in order to render the contract fair and/or workable. Those terms/provisions prohibited from inclusion include:

• those which make the liability of a particular party to pay money under the contract to another party contingent on whether the first party is paid money by another person (“pay when paid” provisions); and
• those which enable a party to make a payment to another party under the contract more than 50 days after payment is claimed (where these kinds of provisions are included, the term will be amended to be read as requiring payment “within” 50 days of payment being claimed).

Adjudication: Quick and effective dispute resolution

One of the most important mechanisms available to parties subject to a construction contract is the adjudication process.  Where a party is engaged in or subject to a payment dispute, that party may seek to have that dispute put to an adjudicator for consideration.  A payment dispute will arise if:

• when a payment claim is due to be paid, the amount has not been paid in full or has been rejected or disputed;
• when an amount retained by a party is due to be paid, the money has not been paid; or
• when security held by a party is due to be returned, the security has not been returned.

It is important for parties who wish to lodge an application for adjudication or who are required to respond to such an application to understand the tight time requirements that form part of the adjudication process.  A party lodging an application for adjudication must do so within 28 days of the payment dispute arising and a party served with an application must lodge a response (should it choose to do so) within 14 days of being served with that application.  If a party fails to observe those time limits, they may prejudice their position in relation to that dispute.

Lavan Legal comment

The CCA was created with the intention of injecting fairness into construction contracts where necessary and to provide parties with a readily usable and cost effective way to manage payment disputes, as well as a mechanism that would allow construction projects to carry on in a timely and flowing manner.  It is important for businesses to appreciate that the CCA is not only concerned with large scale construction and infrastructure projects and that if it does apply to them, that they may need, in certain circumstances, to act quickly in order to protect their interests.