If you are involved in the construction industry either as a contractor, subcontractor or developer, this Act will most probably apply to you and your business. The Act - depending on your role in the construction industry - may lead to protecting you from or exposing you to risks. It is therefore important that you know about the Construction Contracts Act 2002 and its provisions.
The Act aims to facilitate regular payments to contractors/subcontractors, provide a quick dispute resolution procedure and provide remedies for the recovery of money owing under construction contracts.
HOW DOES THE ACT IMPLEMENT THESE AIMS?
The Act invalidates “pay when paid” and “pay if paid” clauses in construction contracts. That means that a developer or contractor can no longer make it a term of the contract that they will pay a contractor/subcontractor only once they are paid themselves. These provisions are unable to be contracted out of and apply to everyone involved in construction contracts. The Act encourages the regular payment of contractors and provides a formula for establishing the number, interval, amount and due dates of progress payments if parties fail to specify these in the construction contract. If you are a contractor it is important that you are aware of your rights to progress payments under the Act especially when you are negotiating construction contracts with either a contractor or developer.
The Act entitles a contractor or subcontractor to serve a payment claim for a progress payment on a developer/contractor at the end of the specified period or if no period is specified in the contract at the end of the month. The payer must on receipt of the payment claim either pay the contractor or serve a payment schedule outlining what they believe is owed within 20 working days. If the payer does not make payment in full, serve a payment schedule, or pay the amount they outline in the payment schedule the contractor is entitled to recover that money as a debt. The Act entitles contractors to suspend work if they have not been paid and a payment schedule has not been served, without the risk of being in breach of the contract or being liable for any loss or damage suffered. The Act establishes a new dispute resolution procedure that is designed to be fast, cheap and binding on the parties but also allows recourse to the courts and arbitration.
The Act allows a contractor in some circumstances to register a charge against the construction site. Due to the far reaching provisions of the Construction Contracts Act it is crucial that contractors, subcontractors and developers in construction contracts are aware of their rights pursuant to the Act. This article is a brief summary of the aims of the Construction Contracts Act 2002, we suggest that if the Act applies to you, you contact us to discuss the Act and its implications further.
