To facilitate regular and timely payments between the parties to a construction contract, the Construction Contracts Act 2002 provides a payment claim and payment schedule regime. The regime is described as a “pay now, argue later” system. If the principal fails to adequately respond or pay a payment claim within the strict timeframes, the contractor’s claim may be enforced as a debt due and the contractor may have the right to suspend the works.
When does the Construction Contracts Act apply?
The Act applies to all construction work. Construction work is defined broadly and includes alterations, demolition or repair of any works. The Act also applies to design, engineering and quantity surveying work undertaken in respect of construction work.
What is a payment claim?
A payment claim is a contractor’s claim for progress payment for the prior work undertaken, usually claims are made monthly. The amount of progress payment must be calculated with reference to the relevant period for payment and the value of the work carried out during that period. The value of the work depends on the contract price, any rates set out in the contract, any variation work carried out and the cost of remedying any defective work.
A payment claim does not need to be in any particular form, but it must contain the information required under the Construction Contracts Act. The claim must also be accompanied by the prescribed information outlining of the process for responding to that claim and the consequences of not responding to or paying the claim.
Responding to a payment claim
The “pay now, argue later” regime does not leave payment claims immune to criticism. The principal may reply with a payment schedule up to 20 working days after the payment claim is served, or where a date for issue is provided for in the contract then by that date. A payment schedule must be in writing, identify the payment claim to which it relates and state a scheduled amount.
If the scheduled amount is less than the claimed amount, the payment schedule must show how the principal calculated the scheduled amount and give the reasons for the difference between the scheduled amount and the claimed amount.
In any event, either the claimed or scheduled amount must be paid up to 20 working days after the payment claim is served, or if the contract stipulates a date, then by the date stated in the contract.
