When entering into a contract for building and construction work it is important for all parties to understand what the process is if a dispute arises over payment of money under the contract.
Regardless of whether the contract is written or oral, if a dispute arises about payment there is a legislated process to resolve the dispute.
The process provides an effective rapid adjudication process for payment disputes.
The rapid adjudication process helps individual parties and the industry with cash flow issues.
It will help you understand the process better if you know what the various terms mean and the steps and time limits involved in the process.
What is adjudication?
Adjudication is a dispute resolution system designed to help resolve disagreements over payment claims, whether they be progress claims or otherwise. It’s quick, cost effective and an alternative to going to court.
Adjudication is when an experienced, registered and independent adjudicator is appointed to review a payment dispute, and if satisfied that some payment is due, make a binding determination for money to be paid.
What is a payment dispute?
A payment dispute arises when the amount claimed, or the amount retained, or the security held by a party to a contract becomes due and has not been paid in full or is paid in part.
The dispute could be a:
- contractor claiming against a principal;
- subcontractor claiming against a contractor; or
- supplier of goods claiming against a subcontractor.
The adjudication process
If a payment dispute arises one party, known as the claimant, lodges a claim.
The claim must be lodged within 90 business days from when the payment was due under the contract or from when all or part of the payment was rejected.
A claim for payment for work or the supply of goods and/or services must be made in accordance with the written contract. In the case of an oral contract the payment claim must:
- be in writing;
- be addressed to the other party to which the claim is made;
- state your name, the date of the claim and the amount claimed;
- if you are the contractor – itemise and describe the obligations performed (to which the claim relates) in sufficient detail for the principal to assess the claim;
- if you are the principal – describe the basis of the claim in sufficient detail for the contractor to assess the claim; and
- be signed by the claimant and given to the party to which the claim is made.
Depending on the circumstances of the claim there may be other formalities that need to be considered.
Appointment of the adjudicator
An adjudicator is appointed, either by agreement between the parties in dispute or by a registered person or organisation that is allowed to appoint adjudicators, known as an appointor.
The adjudicator charges a fee that is usually split between the parties.
The adjudicator has wide powers to decide how to assess the claim, whether to seek more information, to invite the parties to meet in a conference or to inspect or test the work.
The adjudicator’s decision on the payment dispute is binding on the parties and can be enforced through the courts.
The response to the claim
The respondent, the party that benefited from the claimant’s construction work, service or materials, has 14 days to respond to the claim.
A copy of the response must be sent to the adjudicator and the claimant within 14 days of receiving the adjudication claim. The adjudicator can only take into account your side of the story if you respond in time. The adjudicator has a further 14 days to make a decision.
The response must be relevant to the dispute and should:
- challenge any statements or claims that are wrong or not properly described;
- make a clear statement about why you haven’t paid the claim or why you are disputing the amount claimed; and
- where possible, show how your actions relate to your rights under the contract and include any relevant information or documentation.
After the adjudicator’s determination
The determination is final and cannot be appealed.
In most cases, the parties will be satisfied with the adjudicator’s determination and end the dispute. Note however that a payment made pursuant to a determination is a payment ‘on account’ so as to keep the money flowing, and accordingly, where a party is not satisfied, that party can continue to use the dispute resolution processes in the contract or the courts to finally resolve the dispute. If a payment has been made as a result of an adjudication determination, and a court subsequently arrives at a different view, it may order that there be a reimbursement or adjustment made to reflect the Court’s final decision on the matter.
If you are unsure about making or responding to a claim or what you need to do, you should seek advice from a lawyer or a construction industry expert. It is important to adhere to the procedures and comply with the relevant time limits.
If you need more information or if you need assistance or advice on how to proceed please call us on (08) 9335 9877 or request an Introductory Consultation by submitting the form below.