The Act is designed to ensure that construction contractors are paid in a timely fashion. It provides a process for determining what payments need to be made and when they are due. If a debtor does not promptly dispute an amount due, they may lose the right to object, and they can only withhold a payment to the extent it is in dispute.
The Act also prohibits “pay if paid” and “pay when paid” clauses.
To benefit from the Act, you need to ensure that your contracting and invoicing processes comply with the Act.
Payment claims
If you are providing a service under a construction contract, then you can make a “payment claim”. This is generally your invoice, but to be a claim under the Act needs to meet certain requirements. A payment claim must:
• be in writing;
• identify the contract, the work done and the relevant period to which it relates.
• indicate the claimed amount and the due date;
• indicate how the due amount is calculated;
• state that it is made under the Act.
If the payment claim is made on a residential occupier then it must be accompanied by a written notice setting out the rights of the debtor to object and the consequences of not doing so.
Payment schedules
If you receive a payment claim and you wish to dispute it you need to respond with a “payment schedule”, which must:
• be in writing;
• identify the payment claim to which it relates;
• indicate the amount (the “scheduled amount”) the debtor accepts will be paid;
• if the scheduled amount is less than the claimed amount, indicate how it was calculated, the reasons for the difference and the reasons for any amount that is being withheld.
Unless the contract specifies otherwise, the payment schedule must be issued within 20 working days of receipt of the payment claim. If no payment schedule is issued the payer is deemed to have accepted the payment claim in full and must pay forthwith. As the creditor, you can then begin debt recovery procedures.
The Act differentiates between a “residential” and a “commercial contract”. A residential contract is a contract where one of the parties is or intends to occupy the house as a dwellinghouse. Other contracts are commercial contracts. This means that subcontractors to builders working on a person’s dwellinghouse have a commercial contract, even though the builder has a residential contract with the owner. “Spec” houses are a commercial contract. If a contractor working on a “commercial contract” is not paid amounts due on time, then they are entitled to suspend work, and may be able to take a charge over the property.
