Construction Contracts Act 2002 Timeframes for Payments Suspension of Works
Despite the passing of the Construction Contract Act 2002, the parties are free to agree between themselves on a mechanism for determining:
the number of progress payments under the contract
the interval between payments
the amount of each payment
the date when payments become due.
In most commercial building contracts, the contract conditions themselves will set out in fact when payments become due. For example clause 12 of Conditions of Contract for Building and Civil Engineering Construction NZS 3910:1998, clearly sets out when payment is due under a contract.
In short it provides that progress claims should be submitted month end. Progress claims certificates should be issued by the Engineer within 10 working days after the receipt of the Contractor’s progress claim. Any amount certified by the Engineer shall be paid within 7 working days of the progress claim being certified.
However there are other contracts that remain silent as to when payment of amounts due under a building contract are to be paid. In this instance the Construction Contracts Act 2002 (“the Act”) provides a payment mechanism.
The relevant provisions of the Act are Sections 16 to 18. These sections operate only where the contract itself does not have express terms as to progress payments. A person who has carried out work under construction contract has the right to progress payments being calculated in accordance with Section 17 of the Act.
In short Section 17 states that progress claims are to be calculated in accordance with the relevant period for payment, the value of the construction work, and any relevant provisions in the construction contract. The relevant period is the period commencing on the day of the month construction work was carried out and ending on the last day of that month.
The value of the construction work must be calculated with regard to the contract price for the work, any other rates or prices set out in the contract, any variation to the construction work authorised and if any work is defective, the estimated cost of rectifying the defect. Where a contract does not expressly provide for these matters, then the value of the construction work must be calculated with regard to the reasonable value of the work, the reasonable value of the variation, and if defective then the estimated cost of rectifying the defect.
Section 18 provides that the due date for payment of a progress claim calculated in accordance with Sections 16 and 17, shall be within 20 working days of a payment claim being served.
So, in order for a party to a construction contract to determine the payment mechanism for construction work, his/her first port of call is the contract. If the contract is silent as to the mechanism for progress claims and payment for the construction work, then Sections 16 to 18 set out the mechanism.
But what about suspending works, does one follow the Act or does one still refer to the contract?
A contract may specifically set out exactly when a contractor may suspend works. For example the Conditions of Contract NZS 3915:2000 and NZS 3910:1998 both set out exactly when a contractor might suspend works. However the Act also imposes rights on the Contractor in terms of suspending works which may be more accessible to a Contractor than the contractual terms.
Section 72 of the Act provides that a party who carries out construction work under a construction contract, has the right to suspend work under that contract where a claimed amount is not paid in full by the due date for its payment and/or no payment schedule has been provided by the party who it is claimed is liable for the payment. Or alternatively a scheduled amount is not paid for in full by the due date for its payment, even though a payment schedule indicates that there is a scheduled amount to be paid.
Notice must be served upon the principal seeking that the default in payment be remedied. There is a specific form that a notice must comply with. If payment is not made in full within 5 working days of that notice, then the contractor can suspend work.
The suspension rights provided by the Act, take over from the any suspension rights that are provided for in the contract. They are well worth using as they can bring about a suspension of works a lot quicker.