A new builder sent an invoice to a homeowner for large-scale renovations he was carrying out.
When the homeowner didn't pay, the builder tried to enforce his rights by claiming the non-payment breached the Construction Contracts Act.
He was shocked to discover his invoice didn't qualify as a "payment claim" under the Act, forcing him to pursue payment through a different process than the one outlined in the Act.
The Construction Contracts Act (CCA) contains critical provisions regarding payment arrangements and claims in construction contracts.
The CCA's definition of "construction" is broad and includes:
- Construction, erection, installation, carrying out, alteration, repair, restoration, renewal, maintenance, extension, demolition, removal, or dismantling of any building, erection, edifice, or structure;
- The installation in any building or structure of fittings including heating, lighting, air conditioning, ventilation, power supply, drainage, sanitation, water supply, fire protection, security, and communications systems;
- The internal or external cleaning of buildings or structures carried out in the course of construction;
- Site clearance, laying foundations, and excavation;
- Erecting, maintaining, and dismantling scaffolding or cranes;
- Painting or decorating;
- Design or engineering work carried out in respect of the construction; and
- Quantity surveying work carried out in respect of the construction.
Conditional payments
The CCA prohibits conditional payment provisions, commonly known as "pay when paid" or "pay if paid" clauses.
A typical example is when Party A's obligation to pay Party B depends on Party A first receiving payment from Party C.
Default payment arrangement in the absence of express terms
The CCA provides a default payment mechanism when there is no written contract or when the contract doesn't specify payment details such as calculation methods, schedules, due dates, or fixed amounts.
Under this default arrangement, the contractor has the right to progress payments.
The amount of a progress payment must be calculated by reference to:
- The relevant period for that payment;
- The value of the construction work carried out, or to be carried out during that period; and
- Any relevant provisions in the construction contract (i.e. retention of money).
A progress payment period runs from the construction work's start date to one month afterward (the "first period"). Subsequent progress payments occur monthly after this first period.
The value of construction work should be calculated considering:
- The contract price for the work or any other rates/prices set out in the contract (if there is one);
- Any variation to the construction work authorised under the contract; and
- If any work is defective, the estimated cost of rectifying the defect.
Without a contractual payment clause, payment is due 20 working days after a payment claim is served to the client.
Payment claims
A valid payment claim must:
- Be in writing;
- Contain sufficient details which can identify the construction contract to which the payment relates;
- Identify the construction work and relevant period of payment;
- State a claimed amount with a due date for payment;
- Indicate the method of calculating the payment; and
- State that the claim is made under the CCA.
The contractor must also provide an outline of the payment claim response process and explain the consequences if the client fails to respond or pay.
If the client fails to pay
If the client fails to pay the claimed amount or engage in the payment process, contractors may initiate court proceedings to recover the claim plus legal fees. If you need assistance with initiating your court proceeding, fill out our contact form.
The contractor may also suspend work for non-payment, but only after providing notice to the client. This notice must state the grounds for suspension and specify that it's provided under the CCA.
Such work suspension does not constitute a contract breach, and the contractor won't be liable for any resulting loss or damage suffered by the client.
No exclusion of payment rules
The CCA's rules cannot be excluded from contracts, even by mutual agreement. Any contract provision attempting to do so is void and ineffective.
Effective payment arrangements are vital for your project's success. It's essential to seek legal advice early to ensure you're protected in all scenarios.
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