Options for resolving payment disputes

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Tradesperson

It is important to understand that your right to be paid comes from your contract and you need to follow the payment process set out in contract. If the contract is not in writing the Act includes a schedule of payment terms that are implied in your verbal contract.

From time to time you may be involved in a dispute with a client over payment for work you have done on a construction project. The customer or client may be refusing to pay you, withholding security, or disputing the amount they owe. 

If you find yourself in this situation, acting quickly to determine your options is the vital first step in ensuring you get paid for the work you’ve done.

The first option should always be to discuss payment with the client directly. This could be an informal verbal discussion to identify and resolve the reasons for withholding payment, or a formal letter demanding payment. 

However, if this fails to resolve the dispute then you need to consider other options. 

Using a mediation service

Mediation is a form of dispute resolution where parties voluntarily come together to discuss a dispute with the help of an independent mediator. It is a way of engaging in a negotiation with the help of an independent mediator to identify and work through options to resolve the dispute. 

Mediation is a good first option where you and the client wish to maintain a good business relationship and agree that an independent party may assist in working through the issues. It is likely to be quick and cost-effective and may be used prior to, or in conjunction with, other forms of dispute resolution.

There are a number of organisations in Western Australia who provide a mediation service. Alternatively, if you operate a small business or your client is a small business, you can access the subsidised mediation service provided by the Small Business Development Corporation. 

Using the dispute resolution clause in your contract 

Most written contracts for construction work contain what are often called ‘dispute resolution clauses’. These clauses provide the method in which the parties agree to resolve disputes under the contract, including any disputes over payment. There are many different types of dispute resolution clauses that prescribe the methods the parties will use to resolve disputes, which may include mediation, expert determination or arbitration. 
Generally, you will need to first notify the other party of the nature of the dispute, and the resolution will then proceed based on the chosen method of dispute resolution. 

For example, the Australian Standards AS2124-1992 General Conditions of Contract and AS4906-2002 Minor Works Contract Conditions, both prescribe that the parties will notify each other of the details of the dispute and then proceed to formal negotiation and arbitration. 

Where a contract contains a dispute resolution clause the courts will normally enforce these provisions by staying proceedings until the dispute resolution method has been observed. 
But before using the dispute resolution clause in a contract, it is important to be aware of – 

•    the rules that may apply to the chosen method of dispute resolution; 
•    whether a particular person or organisation has been nominated to act as the ‘independent  umpire’; and 
•    what timelines apply to the resolution process.

In many instances, the timelines under dispute resolution clauses can be lengthy, so it is important to also consider what impact this delay may have on your business or cash flow.  

Court action 

Where you do not have a written contract with the customer or client, or where the dispute resolution clause in your contract allows, another option may be to commence court proceedings to recover the money owed to you.

Before commencing court action you should seek legal advice to determine the likelihood of success, the costs involved, and the time it may take to complete the court proceedings. 
Depending on the amount of money owed to you, court action will need to be commenced in the Magistrates Court, District Court or Supreme Court of Western Australia. 

For claims less than $10,000, the Magistrates Court provides a ‘minor case’ process, where parties are generally not permitted to have legal representation during the court proceedings. Otherwise claims up to $75,000 may be heard in the Magistrates Court civil registry. 

For claims up to $750,000 (not including interest), court action must be commenced in the District Court. Claims above $750,000 need to be commenced in the Supreme Court. 

Rapid adjudication under the Act 

Sometimes it may be too costly or lengthy to go to court or use arbitration or you just need the money now. This is where ‘rapid adjudication’ may assist in resolving your dispute. 

Rapid adjudication is a dispute resolution process designed to help resolve disagreements between parties over payments for construction work. It’s quick, cost effective and may be an alternative to going to court or arbitration. Rapid adjudication under the Act operates in addition to your contractual and legal rights. A determination under the Act may be accepted by the parties to a contract, and the dispute resolved. However, if either party wishes, the dispute can still be dealt with more formally under the dispute resolution process in the contract, or through the courts. In this case a determination under the Act makes a payment “on account” pending the outcome of the formal process. 

It doesn’t matter whether your contract is for carrying out construction work or supplying goods and services to the construction industry, or if you have a written or verbal agreement with the customer or client, provided it is for work carried out in Western Australia, or goods and services related to construction work carried out in Western Australia, you may be able to use the adjudication process under the Act. 

Process and time for adjudications 

View a flow chart of the adjudication process

Click here to download the document

Full details of the rapid adjudication process can be found on the payment disputes webpage.

FAQs are answered on the 'Frequently asked questions – subcontractor's payment disputes' webpage.

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