Understand your building contract
In a recent High Court case, a couple had engaged a builder to build their new house. After they had made several progress payments on the work, they received a payment claim from the builder for the final amount owing.
Under their building contract, the couple needed to serve a payment schedule on the builder within a certain time frame, setting out the matters in dispute if they wanted to dispute the builder’s claims.
The couple were not happy with the amount of the builder’s claim, and also believed they had a counterclaim against the builder for defective building work.
However, because they did not serve the payment schedule on the builder within the time frame provided in the contract, the builder was able to claim not only the full amount, but also interest and debt recovery costs.
This case is an important reminder to ensure you understand your building contract, and know what to do if you are not happy with the work.
You should also be aware that if your building contract does not specifically provide a time frame for you to dispute an amount owing, under the Construction Contracts Act you need to provide a payment schedule within 20 working days.
To make sure you avoid get- ting yourself in a situation like the one above, here is a list of vital things to be aware of in relation to the Construction Contracts Act, which affects almost all construction contracts except some residential construction: Progress payments. Unless agreed otherwise, the new Act gives contractors the right to receive monthly progress payments whether or not they are stipulated in the contract (except for residential contracts). Pay when paid clauses. Progress payments may not now be subject to a condition that these are only payable if and when the head contractor is paid. ‘‘Pay when paid’’ and ‘‘pay if paid’’ clauses are no longer permitted, and if included in a contract are now invalid. Claims for payment. Payment claims may be served on the owner or head contractor at the end of each month unless the contract specifies a different period.
The payer must then within 20 working days pay either the amount claimed, or such other amount as the payer sets out in a payment schedule (which must explain the reasons for any difference between the claimed amount and the schedule amount).
If the payer does neither, the contractor may give notice of intention to suspend work, and/ or recover the money due as a debt. Suspension of work. Contractors are legally entitled to suspend work if they have not been paid.
Any provision in a contract attempting to prohibit this action is invalid. This does not apply to residential contracts. Charging orders. A contractor (except for residential contracts) can apply for a charging order against a construction site owned by the employer or an ‘‘associated person’’ to the employer under a construction contract. Disputes resolution. A dispute resolution procedure called ‘‘adjudication’’ applies.
This is intended to offer a quick and cheap method of settling differences between parties, as an alternative to arbitration or court proceedings.
Courtesy of Rainey Collins Lawyers, ph 0800 733 484. Email aknowsley@raineycollins. co.nz.