The purpose of the Construction Contracts Act is to provide a simple process for how and when payments are due for construction work. By following the simple processes outlined in the Act you will avoid timely and costly disputes and maintain crucial cash flow.
Construction work is wide ranging and covers most work that might be carried out in building, altering or maintaining a house as well as commercial buildings.
Payment Claims
When entering into a construction contract you can either negotiate the terms of payment as a part of the contract or rely on the default payment provisions in the Act. If there are no terms for payment in the construction contract the default payment provisions in the Act will apply. Therefore, to ensure they get paid and avoid disputes contractors will need to issue a valid payment claim under the Act.
A valid payment claim must:
- Be in writing;
- Include sufficient details to identify the construction contract to which it relates;
- Identify the construction work and relevant period to which it relates;
- State the amount claimed and provide a due date for payment;
- State how the amount was calculated; and
- State that the payment claim is made under the Construction Contracts Act 2002.
- If the payment claim is made on a residential occupier then it must be accompanied with a written notice outlining the process for responding to the claim and the consequences of not responding if payment in full is not made.
Disputing Payment
Once a valid payment claim has been served on a party they have 20 working days to either pay the amount in full, or if they dispute the amount claimed, issue a payment schedule to the contractor.
A valid payment schedule must:
- Be in writing;
- Identify the payment claim to which it relates; and
- State the amount the party is willing to pay.
- If the scheduled amount is less than the payment claim, the payment schedule must also state:
- How the party calculated the scheduled amount;
- Why there is a difference between the amount claimed and the scheduled amount; and
- The party’s reason why they are withholding payment.
If the payment claim is not paid in full, or a payment schedule is not issued or is invalid, the contractor can enforce the amount claimed as a debt due with legal costs. Work can only be suspended if it is agreed in the contract, or if it is a commercial construction contract.
Resolving Disputes
If there is a dispute between parties to the construction contract they can refer the dispute to adjudication. An adjudicator can make a decision which is binding on all parties to the contract that is enforceable as a Court Judgment. Adjudication is a fast track resolution process. However, nothing in the Act stops a party from filing a claim in the Courts or for arbitration of their dispute.
Any party to the construction contract may initiate the adjudication process by serving a written notice on the other person.
Construction contracts and associated work are usually complex and involve large sums of money. Therefore, it is often prudent to obtain legal advice. First, to ensure that payment claims and schedules comply with the Act, and second, to ensure you avoid disputes or settle them as efficiently as possible.
For more information on this topic, please contact the Rainey Collins office (04 4736850)
or the article author - Alan Knowsley.
