A summary of the Construction Contracts Act

Tuesday, December 6, 2016

The Construction Contracts Act 2002 (the Act) was enacted with three specified purposes:

  • to facilitate regular and timely payments between the parties to a construction contract;
  • to provide for the speedy resolution of disputes arising under a construction contract; and
  • to provide remedies for the recovery of payments under a construction contract.

The Act was ushered in after a spate of large construction company collapses which resulted in the liquidation of many smaller construction businesses and the bankruptcies of many sole traders, after their invoices went unpaid by the head contractors. One of the principal effects of the Act was to put an end to pay-when-paid and pay-if-paid provisions.

When does the Act apply?

The Act applies to all construction contracts that relate to the carrying out of construction work in New Zealand, whether the contract is in writing, oral, or a mixture of both, and whether it is for commercial or residential construction.

The parties to a construction contract cannot contract out of all or any part of the Act. Any provisions in a contract which attempt to contract out of the Act are of no effect.

What work does the Act apply to?

Construction work is very widely defined in the Act. It includes not only the actual construction of any building or other structure, but also the installation of associated electrical, plumbing, heating, ventilation, security and communication systems.  In addition, construction work includes any alterations, repair, maintenance and demolition to any buildings or any element of a building. Also included in the definition is work that is necessary for any other construction work, including:

  • site clearance, earthmoving, excavation, tunnelling, and boring;
  • laying foundations;
  • erecting, maintaining, or dismantling scaffolding or cranes;
  • prefabricating customised components of any building or structure, whether carried out on the construction site or elsewhere; and
  • site restoration, landscaping, and the provision of roadways and other access works.

Following a recent amendment to the Act, construction work also includes design and engineering work and quantity surveying work. This will capture work done by professional consultants, which has previously been left outside the framework of the Act.

What are the effects of the Act?

The Act sets a process for invoicing for work, known as making a “payment claim”, and for responding with any objections to that invoice, by providing a “payment schedule”. If a payment claim is properly made, and is not responded to using the payment schedule process, which has strict requirements, then the claim must be paid immediately, even if there is a dispute between the parties.

If there is a dispute between the parties to the construction contract, the Act also establishes a complete process for the speedy adjudication of the dispute. This process can be instigated by either party, and is an alternative to using the court system.  The adjudication decision is final, in that it cannot be appealed to the courts. However, a party who was unhappy with the process may apply for a judicial review of the process followed.

For more information, please contact a member of our Constructon & Projects team.