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30 May 2017

The rapid pay dispute resolution provisions of the Construction Contracts Act 2004 (WA) were recently amended.

One such amendment in particular has been the source of much consternation among larger construction contractors and principals. That is the amendment which allows a contractor to correct deficiencies in a payment claim by making another one and then adjudicating any dispute in relation to that claim, as if the earlier (deficient) claim had never been made.  The industry has come to refer to this practice as “recycling claims”.

When this practice is compared with invoicing practices across virtually every other industry in Australia, it is difficult to understand what all the fuss is about.  Under any contract governing the sale of goods or services where the right to be paid accrues on demand (that is, when the invoice is rendered), there is generally:

(a)          no legal limit to the time within which the supplier is entitled to invoice; and

(b)          no reason why a deficient invoice cannot be corrected, at any time, by the issuing of an amended invoice.

Nor does the law penalise suppliers in any other industry who issue their invoices late, or reissue deficient invoices, by limiting the action that they can take to enforce their debts in such circumstances.  On the contrary: in WA, s.59 of the Limitation Act 2005 permits legal action to enforce a debt at any time within six years after a valid demand (i.e. invoice) for that debt was issued. If the demand was not validly made in the first place because of some deficiency, then the six-year time for enforcing it will not start until a valid and enforceable demand is made.

In reality, what prevents suppliers of goods or services in any industry from delaying their invoicing and debt recovery action for too long is not the law. It is the commercial reality that if a business does not make sure it gets paid reasonably quickly for what it sells, it will fail together with the human reality that the more quickly a customer is billed, the more likely that customer is to pay their bills on time, or at all, and the more likely defaulting customers are to be found.

Why should it be any different in the construction industry, particularly where contractors are so dependent on maintaining cash flow that legislatures around Australia have seen fit to make special laws to give contractors security of payment? The short answer is: it should not.

In fact, those involved in drafting the original version of the Construction Contracts Act 2004 have confirmed anecdotally that they were surprised when the WA Supreme Court decided in Silent Vector Pty Ltd t/as Sizer Builders v Squarcini [2008] WASC 246 that construction contractors had no right to “recycle” payment claims.  In other words, to those who drafted the laws in the first place, the right to recycle payment claims under construction contracts had always been taken as given and the amendments which now express that right merely give effect to that original intent.


*This is general information only, and does not constitute specific legal advice. Please consult one of our experienced Legal Team for specific advice relevant to your situation.

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