The Construction Contracts Act 2002 (the Act) came into force on 1 April 2003. Its purpose is to provide a process for deciding what payments have to be made under a construction contract and when they are due. Typically, when you contract a builder or tradesmen to do work on your house then you have to comply with some sections of the Act.
The Act provides quick and simple procedures to resolve disputes about money due under construction contracts.
All work that meets the definition of construction work is covered. The definition is wide-ranging and covers most of the work which might be done in building, altering or maintaining a house such as:
- the construction, installation, alteration, repair, restoration, maintenance, extension, demolition, removal, or dismantling of any building or other structure
- putting in roadways, pipelines, water mains, sewers, electricity, water, gas, or telephone reticulation
- work done on any heating, lighting, air conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection, security, and communications systems
- any cleaning work carried out as part of the construction work
- preparation for construction work such as site clearance, earth-moving, excavation, laying foundations and scaffolding, and
- site restoration and landscaping, painting and decorating.
When you enter into a contract with a contractor, you can negotiate a payment schedule with them to cover:
- the number of payments
- the amount of each payment
- the date when each one is due.
You can’t have a clause in your contract that says you won’t pay the builder until you get paid by someone else – this is known as a ‘pay if paid’ clause and it has no legal effect.
If you don’t have a payment schedule in your construction contract then:
- At the end of each payment period (usually at the end of the month) the contractor can serve you with a payment claim. This must be in writing.
- Once you receive this, you can either pay the claimed amount before the due date (20 working days after service of the payment claim) or provide a payment schedule to the contractor.
There are serious sanctions if you fail to pay money due under a payment claim. If you don’t agree with the amount being claimed by the builder/contractor, you can give them a written payment schedule stating the amount you think you should pay. A payment schedule needs to set out:
- how you calculated this amount
- why it’s different from their claimed amount
- if you’re withholding some money, why you are doing so.
If you simply don’t pay and don’t give the builder/contractor a written payment schedule, it becomes a debt that they can recover from you in the Courts, along with legal costs.
If you do provide a written payment schedule, but don’t pay the amount you’ve proposed on the date due, they can recover your proposed amount, along with costs, in Court.
In summary, the Act provides a very good way to ensure that money continues to flow throughout the construction contract. No longer can payment be withheld on the basis that other payments have not been made. There is a fast-track adjudication process available for disputes. Under the Act processes are required to adhere to strict time frames. Legal advice is recommended before entering into any construction contract. Our construction law team will be happy to assist.