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PLEASE NOTE: This article was published on the date listed below and may now contain information that has since been updated or changed. We have retained this article as it may still contain helpful comments. However, we advise you to make an appointment to see us for the most up to date information on this topic.

June 2003

Construction Contracts Act 2002

Attempting to address problems in the Construction Industry

The Act came into force on 1 April 2003 and aims to address the major problems in the construction industry. The Act came about from a need to address power imbalances between developers, main contractors, and subcontractors mainly to solve problems with payments and dispute resolution.

The Act affects anyone who is involved in the construction industry, either providing or receiving services. If you arrange or perform any kind of construction work to be undertaken, you may be affected.

What is Construction?

Construction is very widely defined, and covers types of work that you may not expect to be covered. It includes (naming a few):

  • Construction, installation, alteration, or demolition to any building or structure affixed to land.
  • Any works to form part of land including roads, waterways, electricity, water and gas reticulations, and industrial plant.
  • Fittings for heating, lighting, air-conditioning, security and communication systems.
  • Landscaping, painting and decorating, and site excavations.
    If you engage a contractor to revamp your office, install a new air-conditioning or phone system, engage a landscaper or decorator, the Act will apply.

Key Aspects 

The following are the key aspects of the Act.

  • Pay if paid clauses are banned.
  • An entitlement to periodic payments, and the right to suspend work on giving 5 working days notice, if payments haven’t been received.
  • A fast track disputes procedure – the right to refer a dispute to an adjudication process.
  • A right to place a charge over the construction site if money is outstanding.
  • The Act only applies to contractors – not contracts between employees and employers.
  • There is no contracting out of the provisions of the Act.

Pay if Paid – No Longer

Subcontractors have greater measures of protection under the Act. Any provision in a contract which makes payment conditional upon the other party receiving payment is unenforceable.

Default Provisions

Unless a contract expressly deals with progress payments, the following will apply to all construction contracts (except residential construction contracts):

  • Right to progress payments for work - contractors are entitled to payment on a monthly basis (“Pay Period”) for work carried out unless the contract provides otherwise.
  • Set procedure for payment - a payment claim may be given by a contractor at the end of the Pay Period, and if so, must be paid within 20 working days of receipt.

The Act sets out a very specific procedure for dealing with or responding to payment claims – if you don’t follow the correct procedure – you will miss the boat!

Adjudication

Where there is a dispute either party may refer a claim to adjudication. Adjudicators may be appointed by agreement or a nominating body. 
Residential Construction Contracts

The Act recognises the fact that most homeowners will be unaware of the implications of the Act. Most people will assume that it applies only to industrial or commercial construction contracts.

As a consequence, the default provisions for progress payments, the right to suspend work or to put a charging order over the person’s property, do not apply to Residential Construction Contracts unless specifically dealt with in the construction contract.

Conclusion

If you are involved in the construction industry or a construction project you need to check your contracts and provisions to ensure they are in line with the new Act. Contact us for guidance in that regard.