September 03 2014
Making sure you get paid, and on time
Making sure you get paid, and on time, is critical if you’re running any business. If you’re involved in commercial or residential builds, the Construction Contracts Act 2002 outlines a process for progress payment arrangements. The legislation also provides an adjudication process for the quick and efficient resolution of disputes.
What’s covered by the legislation?
Every contract for construction work is covered by the Construction Contracts Act 2002. ‘Construction work’ is broadly defined and includes the construction, repair and demolition of buildings or other structures. Also covered is painting and decorating; installation of roadways, water mains and electricity; and landscaping, site preparation and cleaning work carried out as part of the construction work. Parties to a construction contract cannot contract out of the Act.
Work not covered includes the drilling for, and extracting of, oil or natural gas; the supply of materials; and any work carried out by designers and quantity surveyors.
The legislation applies to both commercial and residential construction contracts. Certain provisions, however, don’t apply to residential construction contracts such as provisions relating to charging orders and the right to suspend construction in particular circumstances.
Progress payments and progress claims
Parties to a construction contract are free to agree between themselves as to the number and frequency of progress payments under the contract, the amount of each of those payments and the date at which they become due. If either party can’t agree on the terms of the progress payments, then the default provisions in the Act apply.
For each progress payment, a payee can serve a ‘payment claim’ on the payer. Payment claims must be in writing, identify the construction contract and construction work to which the progress payment relates, indicate a claimed amount and the due date for payment, indicate how the payee calculated the specified amount and state that the claim is made under the Act. Payment claims served on residential occupiers must also be accompanied by an outline of the process for responding to the demand and an explanation of the consequences for failing to do so.
Once a payment claim is served, the payer can either pay the claimed amount by the due date (by default this is 20 working days after service of the payment claim) or provide a ‘payment schedule’ to the payee. A payment schedule is the payer’s opportunity to contest the amount as set out in the payment claim.
A payment schedule must be in writing, indicate the payment claim to which it relates and indicate a scheduled amount. If the scheduled amount is less than the claimed amount, the payment schedule must indicate the manner in which the payer calculated the scheduled amount, the payer’s reasons for the difference and their reason for withholding payment. The due date for payment remains the same regardless of whether a payment schedule has been issued.
If the payer doesn’t pay any part of the claimed amount or provides a payment schedule before the due date the payee may recover the debt in court.
If a payment schedule is issued by the payer within the time limit disputing the amount of money to be paid, the matter can be referred to adjudication for resolution. This involves the claimant serving a notice of adjudication and an adjudicator being appointed. The claimant then has five working days to serve an adjudication claim and the respondent has five working days to respond. The adjudicator must then issue a decision within 30 working days, which is enforceable by the courts.
The Act is currently being amended. If passed (and we expect this to be sometime next year) the amendments will remove most of the differences between how the legislation applies to residential and commercial construction contracts. Other proposed changes include making the adjudication and enforcement processes more efficient and extending the Act to include design, quantity surveying and engineering work contracts.
Keep yourself updated so that you’re ready to implement any changes into your business when they come into force. As you cannot contract out of the Act, it’s vital that you are aware of your obligations under the new legislation.