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The Payment Claim Regime

How to ensure compliance with the requirements of the Construction Contracts Act 2002 (CCA)

The Payment Claim and Payment Schedule regime is now well bedded in, and applies to all contracts that relate to construction work.  As well as the work carried out on site, “construction work” also includes design, engineering work, or quantity surveying work that relates to the types of construction listed in the CCA.

The Payment Claim regime is a useful way for those providing construction work/services to secure regular and timely payment of invoices, even if some items are in dispute.  We note, however, that mistakes are common regarding the technical requirements of the regime, meaning that invoices cannot be enforced using the CCA. 

Once a Payment Claim has been issued, it will be payable within the relevant timeframe unless a Payment Schedule is issued in reply.  A contract can specify a payment period or, if the contract does not set out a payment period, payment is due within 20 working days of the Payment Claim being served.  If a Payment Schedule is issued in reply, the amount that the Payment Schedule says is owed needs to be paid.

This regime applies to construction work, including design work, engineering work, and quantity surveying work.

It is essential that invoices comply with all of the requirements in the CCA.  If the invoice does not comply with any of the requirements, then it isn’t a valid Payment Claim, which can cause issues with obtaining payment and consequently cashflow.

This was reinforced in August 2020 by the High Court in PHI Construction Ltd v Insight Plumbing (NZ) Ltd [2020] NZHC 1944.  Even though both parties were commercial parties who were experienced in using the Payment Claims regime, the Court held that valid Payment Claims had not been issued.  Although technical quibbles might not render a Payment Claim invalid, failing to comply with the substantive requirements of the Act meant that Insight could not rely on the CCA to enforce payment of the invoice.

The benefits in issuing Payment Claims are that unless the payer fails to pay the full amount claimed, or issue a Payment Schedule, the full amount in the Payment Claim becomes due debt which can be enforced.  In addition, the party carrying out construction work can suspend work under the CCA until the invoice is paid.

In Fletcher Construction Company Ltd v Spotless Facility Services (NZ) Ltd [2020] NZHC 1942, the High Court determined in August 2020 that there were defects in the Payment Schedule issued by Fletcher.  Because Spotless had issued a valid Payment Claim and had not been paid, it was entitled to suspend work until it received payment.

The CCA requires a Payment Claim to state that it is a Payment Claim under the Act, and that it:

  • It is in writing;
  • Has enough details to identify the construction contract it relates to;
  • Identifies the construction contract and the relevant time period that it relates to;
  • States the claimed payment amount and the due date for payment (20 working days from issuing a Payment Claim, unless the contract specifies a different time)
  • States how the payment amount has been calculated.

Finally, the invoice has to attach the following information:

  • An outline of the process for responding to the Payment Claim;
  • An explanation of the consequences of not responding to a Payment Claim; and
  • An explanation of the consequences of not paying the claimed amount in full or (if a Payment Schedule has been issued) the consequences of not paying the scheduled amount.

There are similar requirements for Payment Schedules as well, and Payment Schedules need to explain the reasons that some of the Payment Claim has not been paid.

It is important to ensure that terms of trade and invoices are all up to date to make sure that they meet all these requirements. If you need any assistance….