Written by Shane
Created: 01 August 2017
For many credit controllers, credit managers, debt collectors and other professionals, the Construction Contracts Act 2002 is confusing and part of the confusion relates to how to recover money that is owing under the Act.
So basically what is the Construction Contracts Act 2002.
The act sets out to achieve three basic objectives:
The first, by making conditional payment provisions and “pay if paid” claims in construction contracts unenforceable and by making express provision for progress payments and the procedure for making and responding to payment claims for progress payments.
Secondly, by providing for the adjudication of disputes relating to construction contracts.
Thirdly, by setting out remedies for a party’s failure to pay or to comply with the determination of an adjudicator.
Section 6 of the Construction Contracts Act 2002 sets out what type of work is regarded as a construction contract. Be careful that the Act does apply.
Section 12 of the act states that the parties to a construction contract cannot contract out of the act.
Section 13 of the act stipulates that there is a prohibition of conditional payment provisions.
The act allows the parties to freely agree upon a mechanism for determining progress payments. If the parties do not, then Section 16-18 of the act sets out the default provisions of making and responding to payment claims.
You, the payee may serve a “payment claim” on a payer requiring the payer to make a progress payment. A payment claim must :
a.be in writing;
b.identify the construction contract to which it relates;
c. identify the work to which the claim relates;
d.indicate the claimed amount and the due date for payment;
e.indicate the manner in which the payer calculated the amount; and
f. state that it is a payment claim under the Construction Contracts Act 2002.
A payer (debtor) has 20 working days (unless the construction contract provides otherwise) to respond to the payment claim with what is called a “payment schedule”. A payment schedule must:
a.be in writing;
b.identify the payment claim to which it relates;
c.indicate the amount that will be paid; and
d.if the amount to be paid is different than the payment claim, give reasons as to why there is a difference;
e.if the amount to be paid is less than the payment claim give reasons as to why an amount is being withheld.
If the payer does not provide a payment schedule within 20 working days the payer will be liable to pay the whole amount of the payment claim within the time provided in the contract or, if the contract does not provide a time, within 20 working days of the service of the payment claim.
Construction Contracts Amendment Act 2015
On all contracts from 1 December 2016 every payment claim must include a prescribed “notice to payer” This is a prescribed form and must be in the correct form without defect. You run the risk of your claim failing if the prescribed form is not correct.
If the prescribed form has not been sent with the payment claim or is defective, then you have not complied with Section 20 of the act.
In summary, a payment claim is served on the payer, requiring the payer to make a progress payment. The payer has 20 working days (unless otherwise provided) to respond to the payment claim with what is called a payment schedule. If the payer does not provide a payment schedule within 20 working days, the payer will be liable to pay the whole amount of the payment claim within the time provided in the contract; if the contract does not provide a time, within 20 working days of service of the payment claim. If the payer does not pay and the payer is a limited liability company, you can serve a Statutory Demand under S289 of the Companies Act 1993 demanding payment; but before doing so you must make sure that a dispute has not been raised.
This article is not legal advice and is of a general nature only.
Do not act upon anything contained in this article without first obtaining independent legal advice-01 August 2017.