One of the main purposes of the Construction Contracts Act 2002 (Act) is to facilitate regular and timely payments between parties. The Act provides a standardised mechanism for dealing with payments through its payment claim and payment schedule regime. Amendments to the Act mean the payment claim and payment schedule regime applies to both residential and commercial building work. Therefore, it is more important than ever that the clients, contractors and subcontractors understand the requirements and consequences of payment claims and payment schedules.
The requirements for a valid payment claim are set out in section 20(2) of the Act. A payment claim must:-
These requirements are strict, and the courts have been ready to strike down payment claims if they fail to contain the exact details required. For example, in Auckland Electrical Solutions Ltd v Warrington Group Ltd a payment claim was held to be invalid because it was unclear whether the claim contained the correct reference to the Act.
If the payer disputes an amount is properly due then they must respond with a payment schedule under section 21 of the Act. A payment schedule must:-
If the scheduled amount is less than the amount in the payment claim then the schedule must indicate:-
It is also crucial that a payer ensures that they pay the scheduled amount by the due date for payment.
A payer is liable to pay the full amount stated in a valid payment claim if no payment schedule is provided within the timeframe specified in the construction contract (or within 20 working days if no timeframe is specified). If there is no payment made by the due date for payment then:
In the event that a payer disputes a claimed amount they must ensure they respond using a valid payment schedule within the allocated timeframe. The consequences for a payer not meeting these requirements are reasonably severe, the payment claim will become a debt due and the ability to withhold payment is lost.
It is important to get payment claims and payment schedules right. However, people often fall short and serve payment claims or schedules without the correct form and content, or worse, they are not even aware of the requirements or consequences.
If you would like any further information or advice in relation to payment claims or payment schedules then contact Jeroen Vink or another member of the team at Cavell Leitch.