Section 2: What does the Act do?
For anyone working in the construction industry, the Act provides a number of very important protections to ensure fair conduct and cash flow. The Act:
- Provides that contracts with payment on terms greater than 50 days shall be read as requiring payment within 50 days (be aware that from 3 April 2017 the maximum permitted payment terms in construction contracts reduces from 50 calendar days to 42 calendar days).
- Prohibits ‘pay if paid’ or ‘paid when paid’ clauses in contracts.
- Implies certain terms in contracts where the parties have not made a written provision or have only entered into a verbal agreement. This includes:
- rights to progress payments;
- when claims for progress payments can be made;
- how claims for progress payments should be made;
- interest on overdue payments;
- when ownership of goods supplied for construction work passes;
- clarifying the right to deal with unfixed goods on insolvency; and
- holding of retention money.
- Provides a rapid adjudication process for resolving payment disputes.
The Act came into effect on 1 January 2005. Similar legislation currently operates in all other Australian States and Territories. However, there are some features to the Act that make it unique to Western Australia.
Frequently asked questions
What is a contract?
A contract is a legally binding agreement between two or more parties; it can be written or oral.
What are ‘paid if paid’ or ‘paid when paid’ clauses?
These are clauses in contracts that make one party’s (usually the subcontractor) right to receive payment entirely dependent on the other party (head contractor) having already received payment from another party (owner or principal) for the work carried out. The Act deems such clauses unenforceable, and the party who is subject to this clause may instead make a claim for payment at under the implied provisions after performing its obligations under the contract.
What happens if my contract states “I will be paid within a period greater than 50 days from submitting a payment claim?”
In such instances, the Act provides that the contract shall be read as requiring payment within 50 days of making a payment claim. This means the head contractor (or principal) is required to pay you within 50 days of submitting your payment claim or invoice. (Be aware that from 3 April 2017 the maximum permitted payment terms in construction contracts reduces from 50 calendar days to 42 calendar days.)
What happens if I don’t have a written contract?
To protect yourself, you should only carry out building work for another person where you have a written agreement in place. This ensures that in the event of a dispute the rights and obligations of each party are easily identifiable. However, if you don’t have a written agreement then the Act implies certain requirements which are detailed throughout this guide.
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