Construction contracts Act 2004 Implied contract terms

Prohibition on use of certain terms 

The Construction Contracts Act 2004 (the ‘Act’) introduced laws to facilitate prompt payment for building work. As a result of the Act, note that ‘pay if paid’ and ‘pay when paid’ clauses in construction contracts are void. A contract term requiring payment to be made more than 50 days after the payment is claimed is read as requiring payment to be made within 50 days of the claim. 

Implied terms when there is no written contract

Where there is no written contract term covering basic payment provisions the Act implies terms into the contract including: 

• a contractor’s right to be paid 
• how variations are to be paid and dealt with 
• a contractor’s entitlement to claim progress payments 
• when progress payment claims can be made 
• how to make progress payment claims 
• that interest is payable on overdue payments 
• when ownership of goods passes from a contractor 
• duties as to unfixed goods in the event of insolvency of the principal 
• duties relating to the holding of retention moneys in trust. 

Making payment claims 

The Act sets out strict requirements for progress payment claims. Before any entitlement to payment arises, a payment claim must be given to the party whom the claim is against. The claim must comply with the requirements of the Act and it is to: 

• be made at the time specified in the contract (reaching a progress claim stage or periodical payments). If no time is stated, then a claim can be made at any time after the performance of any obligation under the contract for which payment has not been made 
• be in writing, addressed to the party to whom the claim is against and given to that party 
• to state the name of the claimant, the date and the amount of the claim 
• to contain a sufficient description of the work performed or details of the basis for the claim for the claim to be assessed 
• to be signed by the claimant. 

If a contractor gives a progress payment claim, the contractor is not prevented from making other claims for payment under the contract. 

Time for payment of a claim 

A party that has been given a payment claim must pay the claim in accordance with the contract. To dispute the claim, unless the contract otherwise has written provision, that party has 14 days from receiving the claim. A notice of dispute must comply with the Act. If the claim is not disputed, unless the contract otherwise has written provision, payment must be made within 28 days of receiving the claim. 

Note that HIA has prepared some sample notices to assist members in complying with the procedural requirements of the Act where a payment dispute proceeds to rapid adjudication. 

The above is intended to provide general information in summary form. The content does not constitute specific advice and should not be relied upon as such. Formal advice should be sought by members and customers with respect to particular matters before taking action.