The Construction Contracts Act 2002 governs the payment claim process (Payment Regime) between parties to construction contracts (the Principal and the Contractor) in New Zealand.
Payment Regime
The Payment Regime is designed to assist the Principal and the Contractor in payment disputes. It effectively sets up a ‘pay first, argue later’ arrangement that aims to promote cashflow and liquidity in the construction sector. It applies to all levels, whether Principal/Contractor or Contractor/Subcontractor and to a broad range of construction work, including new construction, alteration, repair, maintenance, demolition, removal or dismantling of any building or structure attached to land.
The Payment Regime is set out in three stages:
- (a) A payment claim is issued by the Contractor (Payment Claim).
- (b) If the amount owing under a Payment Claim is disputed, a payment schedule is issued by the Principal (Payment Schedule).
- (c) Adjudication where a dispute is not resolved between parties.
- (a) be in writing;
- (b) contain sufficient details to identify which construction contract the payment relates to;
- (b) identify the construction work and the relevant period to which the payment relates to;
- (d) state the claimed amount and due date for payment;
- (e) indicate how the claimed amount was calculated;
- (f) state that it is made under the Construction Contracts Act; and
- (g) be accompanied by a written notice (in the prescribed form) outlining the process for responding to the Payment Claim and he consequences if no response is given by the due date for payment.
- (a) be in writing;
- (b) identify the Payment Claim to which it relates; and
- (c) state the amount that has been approved under this Payment Schedule (approved amount).
- (d) reasons as to why there is a difference between the claimed amount and the approved amount;
- (e) evidence of how the approved amount was calculated; and
- (f) where the Principal is withholding payment of the claimed amount, provide reasons of why they are withholding payment. This will usually be the same reasons as in (d).
While the Payment Regime is not a mandatory process for parties to construction contracts, incorporating it into payment practices will provide protection under the Construction Contracts Act 2002 where a dispute arises.
Payment Claim
A Payment Claim is a demand for payment made by the Contractor to the Principal which sets out their claim to be paid for construction work carried out to date under the construction contract (claimed amount). A Payment Claim can be issued alongside or be incorporated into an invoice. Unless the construction contract provides otherwise (i.e., milestone payments), a Payment Claim can be issued to the Principal once per month.
For a Payment Claim to be made in accordance with the Construction Contracts Act, it must:
The Principal must pay the claimed amount within 20 working days (unless the construction contract specifies otherwise) from the date of which a Payment Claim is received.
If the Principal receives a Payment Claim but does not pay within the specified timeframe, or fails to issue a Payment Schedule in response, the claimed amount will be treated as a due debt and must be paid by the Principal. The Contractor may suspend all works until payment is received or commence legal proceedings through the court or via an adjudicator and claim costs.
Payment Schedule
A Payment Schedule may be issued by the Principal in response to a payment claim where a Principal disputes the claimed amount.
To comply with the requirements under the Construction Contracts Act, the Payment Schedule must:
Where there are discrepancies between the claimed amount and the approved amount, the Principal must also include the following:
If the Contractor disagrees with the Payment Schedule issued by the Principal, the next step for both parties is to either initiate the dispute process as set out in their construction contract or refer the dispute to adjudication under the Construction Contracts Act. If any amount is not disputed, it must be paid.
Key information for the Contractor to be aware of
If you are the Contractor to a construction contract, the payment regime serves as a powerful debt collection tool. Provided that you issue a Payment Claim in accordance with the above requirements, you will receive the benefits under the CCA. If you are party to a construction contract where the Principal has not paid or issued a Payment Schedule in response to your Payment Claim within the prescribed timeframe, you are entitled to payment of the entire claimed amount set out in the Payment Claim.
Key information for the Principal to be aware of
If you are the Principal to a construction contract, you should be aware of your options and obligations once you receive a Payment Claim. On receipt of a Payment Claim, the first thing to consider is when a Payment Schedule is required to be issued. This may be difference to the payment timeframe. It is 20 working days unless varied in the construction contract It is important to note that if you do not respond with a Payment Schedule within the required timeframe, the full amount set out in the Payment Claim will be due and payable. If the Payment Schedule is for less than the Payment Claim, the undisputed balance will be payable.
If you have any questions regarding the Payment Regime or would like assistance with reviewing your construction contracts and/or standard invoices for compliance, please feel free to contact us.
