September 22 2016
If you’ve received an invoice from a construction company or related service provider which says, “This is a payment claim under the Construction Contracts Act 2002” and you’re not sure what that means, here’s a quick brush up on the changes that have come into force.
As well as setting out duties and obligations on both those commissioning building work and those undertaking it, The Construction Contracts Act 2002 (CCA) is designed to ensure prompt payment of invoices from contractors, and to identify and resolve disputes quickly and cost-effectively. If you’re providing this service or commissioning work, you should be familiar with this legislation.
Important changes to the CCA came into force on 1 December 2015. These included:
- Requiring ‘payment claims’ on commercial construction contracts to include certain specified information. This was only necessary on residential contracts before 1 December 2015.
- Enabling adjudication decisions on ‘rights and obligations’ under construction contracts to be enforced in court. Previously only decisions on payments could be enforced in this way.
More changes took effect in September 2016
The CCA now covers additional construction services, referred to as ‘related services’. These include: engineering and design, and quantity surveying services.
Related service providers can take advantage of the payment, enforcement and dispute mechanism provisions in the legislation. On the flip side, these service providers are also subject to the obligations under the CCA. If you’re commissioning such work, you can also use the dispute resolution options. Talk to a commercial lawyer to understand your obligations when faced with a payment claim.
Also be aware that in broadening the definition of ‘construction work’ under the CCA to include design, engineering and quantity surveying work carried out in New Zealand, the definition of ‘construction site’ has also been broadened. It now includes these related service providers’ sites or premises, even if those services aren’t always provided on the actual construction site.
Be aware of the concerns with adjudication provisions
The CCA changes were driven by issues with consumer protection, but they’re not free from controversy. In particular, there’s concern over how the adjudication provisions will work when a claim is made in relation to related services.
The default position is five days for responding to a claim. This tight time frame may cause problems as it’s likely claims against related services will be based on negligence and therefore more complex, legally and factually, than a determination of rights under a building contract. A claim may also be made well after the work in question has been completed, and accessing documents and witnesses may prove problematic.
Claims will most certainly involve insurers. Parties risk losing any insurance cover if they take any steps on the claim which prejudices their insurer’s position. Another concern is that standard cover won’t extend to such claims.
There is considerable pressure to respond to a claim in five days, and it may not be possible to formulate a response, liaise with insurers and get acceptance of cover in this time frame. You will need to act promptly, communicate often and early with your insurer or broker, and to be familiar with the process. Make sure your contact your commercial lawyer straight away too.
What you need to do as a related services provider
As a related services provider, you should become familiar with the Act’s obligations and how it works.
- Review your agreements and terms of trade to ensure they are compliant.
- Ensure any invoices are structured as payment claims and include the prescribed information. This will ensure you can rely on the Act’s prompt payment mechanisms.
- Speak to your professional indemnity insurer to check that your policy covers any claims under the Act. Also check on any special procedures they may have in place to deal with such claims.
What you need to know if you’re commissioning related work
If you are commissioning related services you should ensure you’re aware of how to respond to a payment claim. You will need to pay it or dispute it within the legislation’s strict time frames. In the case of a dispute, you will have the option to use a less expensive, rough and ready adjudication process to resolve disputes instead of resorting to court proceedings.
But wait there’s more...
Another significant change to the CCA will take effect from 31 March 2017 when retention monies on commercial contracts will automatically be held on trust. We’ll write more about these changes closer to the time.
If you are building, thinking of building, or involved in the construction industry, these changes could affect you. Make time to talk to our commercial lawyers for sound advice and guidance.