Orchiston Architects Ltd
An architecture firm with specific expertise in building disputes
Adjudication & the Construction Contracts Act
- The Key Issues
- Payment Claims
- Adjudication
- Residential Construction Contracts
- Risk Management Issues
The Key Issues
- The Act applies to all New Zealand construction contracts: including those for building and design and quantity surveying.
- It is intended to facilitate regular and timely payments in construction contracts.
- It sets out defaults for the processing and payment of payment claims.
- In every construction contract (as defined) adjudication is available for the resolution of disputes and it cannot be contracted out of, but it does not remove or replace the dispute provisions (if any) provided in the contract terms .
- It applies differently to residential contracts and commercial contracts.
- Construction Work includes construction of all kinds, but does not include materials suppliers, unless they are supplying pre-fabricated components custom-made for the site, for example joinery.
- “Pay if paid” and “pay when paid” clauses are illegal.
- Payment claims not made in accordance with the requirements of the Act may lead to difficulties in collection.
- Late responses to a claim, or responses not in accordance with the Act/Regulations may result in serious consequences
Payment Claims
Progress Payments: Parties are free to agree on the number, interval between, amount of, and due date for payment of progress payments. For the main contract, these terms are set out in the standard (usually NZIA or NZS) conditions of contract. For a subcontract, the terms will be set out in the subcontract agreement. Where there are no such terms or agreements, the Act provides the default: monthly claims, based on the period of work, the value of work done (including variations), the contract sum and any set rates in the contract, with payment within 20 working days after the claim is served.
Payment Claim Procedures: A payment claim will only be enforceable under the CCA if it is in writing, identifies the contract, the work done and the period to which it relates, indicates the claimed amount and the date on which it is payable, indicates how the amount was calculated, and states that it is made under the Act. In the case of residential contracts, the claim must also be accompanied by a copy of Form 1 as set out in the Regulations. The actual wording of the legal requirements for a valid payment claim are available HERE.
A Payment Schedule is the payer’s response to a payment claim if the payer intends to pay less than the sum claimed in a valid payment claim. It need not be issued if the payer pays the payment claim in full. It must be in writing, identify the claim to which it relates, indicate the amount being paid, and the reasons for the difference. Payment is then made (by the due date) of the sum stated in the Payment Schedule. A payment schedule must be issued by the payer within the timeframe set out in the conditions of contract (where there is no such agreement, the Act provides the default of 20 working days), failing which the payer will be liable for the full amount claimed. The actual wording of the legal requirements for a valid payment schedule are available HERE.
The Architect’s (or Engineer’s) Role: If such a person does have the task of checking and certifying the main contractor’s claim, the principal has the right to reject that assessment and to issue a Payment Schedule for an amount other than as certified. The Architect's assessment will be an independent certification as provided for in the Architect's role under the contract terms, and is usually (but not necessarily) issued as a "provisional" payment schedule. Payment will be required on that scheduled sum unless the principal issues a subsequent payment schedule (or instructs the Architect to do so as agent) at some other figure, and that event does not alter the overall timeline for payments due.
Subcontracts: In the case of a subcontractor’s payment claim, the main contractor will be the “payer” under the CCA, and to whom the subcontractor will be forwarding the payment claim. The main contractor either pays the full value of the subcontractor’s payment claim, or issues a payment schedule setting out the lesser payment, with the reasons therefore, and makes payment of that sum. In all cases the due date for payment is set by the terms of the contract, or by the defaults in the CCA if the contract does not stipulate a time.
Failure to pay in part, or on time: Where a claim has been short paid without specifying the reasons in a payment schedule, or is unpaid by the due date, then the sum claimed becomes a debt due enforceable in court. In addition, except in the case of residential contracts, the party whose claim has not been met is entitled (after giving five days notice) to suspend work and to a corresponding extension of time, but not to the costs related to this.
Pay-if-paid, and pay-when-paid provisions: The Act bans any such provisions in a construction contract (or subcontract).
Payment Claim Procedures: A payment claim will only be enforceable under the CCA if it is in writing, identifies the contract, the work done and the period to which it relates, indicates the claimed amount and the date on which it is payable, indicates how the amount was calculated, and states that it is made under the Act. In the case of residential contracts, the claim must also be accompanied by a copy of Form 1 as set out in the Regulations. The actual wording of the legal requirements for a valid payment claim are available HERE.
A Payment Schedule is the payer’s response to a payment claim if the payer intends to pay less than the sum claimed in a valid payment claim. It need not be issued if the payer pays the payment claim in full. It must be in writing, identify the claim to which it relates, indicate the amount being paid, and the reasons for the difference. Payment is then made (by the due date) of the sum stated in the Payment Schedule. A payment schedule must be issued by the payer within the timeframe set out in the conditions of contract (where there is no such agreement, the Act provides the default of 20 working days), failing which the payer will be liable for the full amount claimed. The actual wording of the legal requirements for a valid payment schedule are available HERE.
The Architect’s (or Engineer’s) Role: If such a person does have the task of checking and certifying the main contractor’s claim, the principal has the right to reject that assessment and to issue a Payment Schedule for an amount other than as certified. The Architect's assessment will be an independent certification as provided for in the Architect's role under the contract terms, and is usually (but not necessarily) issued as a "provisional" payment schedule. Payment will be required on that scheduled sum unless the principal issues a subsequent payment schedule (or instructs the Architect to do so as agent) at some other figure, and that event does not alter the overall timeline for payments due.
Subcontracts: In the case of a subcontractor’s payment claim, the main contractor will be the “payer” under the CCA, and to whom the subcontractor will be forwarding the payment claim. The main contractor either pays the full value of the subcontractor’s payment claim, or issues a payment schedule setting out the lesser payment, with the reasons therefore, and makes payment of that sum. In all cases the due date for payment is set by the terms of the contract, or by the defaults in the CCA if the contract does not stipulate a time.
Failure to pay in part, or on time: Where a claim has been short paid without specifying the reasons in a payment schedule, or is unpaid by the due date, then the sum claimed becomes a debt due enforceable in court. In addition, except in the case of residential contracts, the party whose claim has not been met is entitled (after giving five days notice) to suspend work and to a corresponding extension of time, but not to the costs related to this.
Pay-if-paid, and pay-when-paid provisions: The Act bans any such provisions in a construction contract (or subcontract).
Adjudication:
The parties to a contract cannot opt out of adjudication. It is a confidential, binding, and enforceable dispute resolution by an independent person. The determination must be acted upon even if it is later reviewed by the District Court or by dispute resolution provisions (eg arbitration) provided for in the contract.
Any party to a construction contract has the right to refer a dispute to adjudication.
An adjudicator can determine any “dispute or difference that arises under a construction contract”.
Subject to natural justice, the adjudicator may use whatever procedures are suitable in reaching a determination.
An adjudication does not supplant other remedies and dispute resolution processes where they are provided for in the contract. There is no chronological link between the dispute processes provided by the contract and adjudication – they could run in parallel and concurrently - except that the former will prevail over (i.e. may overturn) the latter.
An adjudication is initiated by written notice served by the claimant on the other party or parties to the contract.
(a) The notice must be dated, describe the dispute, the parties, the contract, and the remedies sought.
(b) In the case of residential contracts, the notice must be accompanied by a copy of Form 2 as set out in the Regulations.
The adjudicator is selected by agreement between the parties, or by application to a nominating body (ie AMINZ), or as set out in the Act. An agreement on an adjudicator is not binding on the parties if the agreement was made before the dispute arose.
(a) Within 5 working days of receiving the adjudicator’s notice of acceptance, the claimant must submit the claim to the adjudicator and the other parties.
(b) Within a further 5 working days, or further time that the parties may agree or the adjudicator allows, the respondent may respond likewise.
The adjudicator may, with the written consent of all the parties, determine multiple related disputes at the same time.
Any party to a construction contract has the right to refer a dispute to adjudication.
An adjudicator can determine any “dispute or difference that arises under a construction contract”.
Subject to natural justice, the adjudicator may use whatever procedures are suitable in reaching a determination.
An adjudication does not supplant other remedies and dispute resolution processes where they are provided for in the contract. There is no chronological link between the dispute processes provided by the contract and adjudication – they could run in parallel and concurrently - except that the former will prevail over (i.e. may overturn) the latter.
An adjudication is initiated by written notice served by the claimant on the other party or parties to the contract.
(a) The notice must be dated, describe the dispute, the parties, the contract, and the remedies sought.
(b) In the case of residential contracts, the notice must be accompanied by a copy of Form 2 as set out in the Regulations.
The adjudicator is selected by agreement between the parties, or by application to a nominating body (ie AMINZ), or as set out in the Act. An agreement on an adjudicator is not binding on the parties if the agreement was made before the dispute arose.
(a) Within 5 working days of receiving the adjudicator’s notice of acceptance, the claimant must submit the claim to the adjudicator and the other parties.
(b) Within a further 5 working days, or further time that the parties may agree or the adjudicator allows, the respondent may respond likewise.
The adjudicator may, with the written consent of all the parties, determine multiple related disputes at the same time.
The adjudicator may determine:
- any monies payable
- the dates by which payment is to be made;
- any conditions to be satisfied prior to payment;
- any rights and obligations of the parties arising out of a dispute.
The outcome of the adjudication will need to be followed through in other contract administration tasks unless or until it is superceded by events or the outcome of other dispute processes.
Residential Construction Contracts
A Residential Construction Contract is where one of the parties to the construction contract is, or intends to be, a residential occupier of the building to which the contract applies. However, each subcontractor in a residential contract will have a Commercial Construction Contract with the head contractor.
A copy of Form 1 of the Regulations is required to be submitted as part of the claim procedure.
Some provisions of the Act do not apply to Residential Construction Contracts:
(a) Unless specifically provided for in the contract, a claimant (main contractor) does not have the right to suspend work when payment is not made in full, or is only partly made but without reasons given.
(b) A contractor is unable to seek a charging order over the land to secure payment.
A copy of Form 1 of the Regulations is required to be submitted as part of the claim procedure.
Some provisions of the Act do not apply to Residential Construction Contracts:
(a) Unless specifically provided for in the contract, a claimant (main contractor) does not have the right to suspend work when payment is not made in full, or is only partly made but without reasons given.
(b) A contractor is unable to seek a charging order over the land to secure payment.
Risk Management Issues
Main Contractors will need to process claims from subcontractors properly and in due time. If not, they will be potentially exposed to liability for the claimed amount irrespective of its justification. A Main Contractor’s failure to pay a subcontractor in full without issuing a Payment Schedule would give the subcontractor leverage over contract time, and (if an adjudication follows) the subcontractor could seek a charge over the site. That may disrupt the financing arrangements of the Principal, and bring considerable pressure on the Contractor from the Principal.
An architect or similar independent contract administrator will need to process claims from subcontractors properly and in due time. Failing to do so may expose the Principal to liability for the claimed amount irrespective of its justification. The contractor also gains leverage over contract time, and (if an adjudication follows) could seek a charge over the (non-residential) site: that may disrupt financing arrangements.
The Act denies a Main Contractor on a residential project from suspending work for non-payment. The Act refers to suspension of “work” by the contractor, and thus allows the possibility of suspension of particular work – rather than the whole job - to leverage due payment. If this tactic is used, it must be made very clear to all concerned, otherwise a dispute over late completion is sure to follow.
Main Contractors should ensure that all their subcontractors are bound by the terms of the Main Contract, in particular, to co-ordinate the timing and terms of progress claims. This is usually specified in the P&G section of a specification, but it would be sensible to reconfirm it when seeking each subcontract quote.
The Principal may rightly avoid acting upon a non-conforming Payment Claim. Whilst the contractor may (eventually) obtain recovery through adjudication, the quickest remedy would be to submit a complying Payment Claim – whether it be for the same or a different amount.
Main Contractors on residential contracts should ensure that they provide the Principal with a copy of Form 1 of the Regulations when submitting a Payment Claim as a progress claim, failing which their claim may not be recognised, nor be enforceable.
An architect or similar independent contract administrator will need to process claims from subcontractors properly and in due time. Failing to do so may expose the Principal to liability for the claimed amount irrespective of its justification. The contractor also gains leverage over contract time, and (if an adjudication follows) could seek a charge over the (non-residential) site: that may disrupt financing arrangements.
The Act denies a Main Contractor on a residential project from suspending work for non-payment. The Act refers to suspension of “work” by the contractor, and thus allows the possibility of suspension of particular work – rather than the whole job - to leverage due payment. If this tactic is used, it must be made very clear to all concerned, otherwise a dispute over late completion is sure to follow.
Main Contractors should ensure that all their subcontractors are bound by the terms of the Main Contract, in particular, to co-ordinate the timing and terms of progress claims. This is usually specified in the P&G section of a specification, but it would be sensible to reconfirm it when seeking each subcontract quote.
The Principal may rightly avoid acting upon a non-conforming Payment Claim. Whilst the contractor may (eventually) obtain recovery through adjudication, the quickest remedy would be to submit a complying Payment Claim – whether it be for the same or a different amount.
Main Contractors on residential contracts should ensure that they provide the Principal with a copy of Form 1 of the Regulations when submitting a Payment Claim as a progress claim, failing which their claim may not be recognised, nor be enforceable.
Search
Orchiston Architects LtdPO Box 41033EastbourneLower Hutt 5047New Zealandph 04 5627 438
email: orchiston@buildingdisputes.co.nz
email: orchiston@buildingdisputes.co.nz
This website provides general advice as at January 2021 and which is not to be construed as legal or specific advice. It is provided (a) in the prospect that my skills and experience in architecture can be used for your project; and/or (b) in the hope that it will help you avoid a building dispute, but if not, that you will seek my help sooner rather than later. The copyright on its content remains with Orchiston Architects Ltd.