Payment Claims and Payment Schedules under the Construction Contracts Act 2002

One of the regular questions we hear in the construction industry is once I have done the work, what is the first step to ensure I get paid?

The first answer we often hear is: issue an invoice. The correct answer is: issue a payment claim.

A payment claim gets the benefit of the payment enforcement protections set out under the Construction Contracts Act. If you simply send an invoice, you do not get the benefit of the payment enforcement protections.

The most important payment enforcement protection set out in the Construction Contracts Act is if the payer fails to pay the amount set out in your payment claim by the due date for payment (which is 20 working days after the payment claim is served, unless the contract states otherwise) and does not send a valid payment schedule indicating what they would pay instead, the amount set out in your payment claim becomes immediately due and owing.

You can then enforce the payment claim immediately, under section 22 and 23 of the Construction Contracts Act.  The payer must pay not only the debt owing but also any actual and reasonable costs of recovery (including your legal fees or debt recovery fees if you have to chase the payment).

If the debt remains unpaid after the due date, you may also serve notice under section 23(2)(b) of the Construction Contracts Act of your intention to suspend the carrying out of construction work under the construction contract until payment is received.  The defaulting party then has five working days to pay the outstanding amount.

For these reasons, issuing a payment claim puts you in a strong position to ensure you are paid.

The only way a payer can dispute the amount set out in your payment claim is by responding within the 20 working day timeframe under the Construction Contracts Act (unless the contract specifies a different timeframe) by issuing a “payment schedule” (see below ‘what is a payment schedule’).

Payment claims must:

• be in writing;
• contain sufficient details to identify the construction contract to which the payment relates;
• identify the construction work and the relevant period to which the payment relates; and
• state a claimed amount and the due date for payment;
• indicate how the payee calculated the claimed amount;
• state that it is made under the Construction Contracts Act; and
• be accompanied by a written outline of the process for responding to the claim and an explanation of the consequences of not responding to a payment claim and not paying the claimed or scheduled amount in full.

If an invoice is issued without the above requirements, it will not be a valid payment claim under the Construction Contracts Act.

We have designed a draft payment claim with all the required information for you to use. Please do not hesitate to get in touch with a member of our construction law team if you would like a copy.

Under Section 21 of the Construction Contracts Act, payment schedules allow a payer to dispute the claimed amount by sending the payee a written payment schedule. They must be provided within 20 working days (unless the contract specifies a different date) if the payer wishes to raise a dispute.

If a payer does not provide a valid payment schedule satisfying the above requirements within 20 working days (unless the contract specifies a different date), the payer becomes liable to pay the whole of the claimed amount on the due date for payment.

Payment Schedules must:

• be in writing;
• identify the payment claim to which it relates; and
• state the amount they are proposed to pay (the scheduled amount).

If the scheduled amount is less than the claimed amount, the payment schedule must indicate:

• indicate how the payer calculated the scheduled amount;
• the payer’s reason or reasons for the difference between the scheduled amount and the claimed amount;
• in a case where the difference is because the payer is withholding payment on any basis, the payer’s reason or reasons for withholding payment.

These allow the payee to make an informed decision if they disagree with the payment schedule as to whether to initiate the dispute process under the contractor to pursue the unapproved amount in an adjudication.

We recommend adjudication. Adjudication under the Construction Contracts Act is a common dispute resolution process that is fast and cost-effective for resolving unpaid payment claims. Most straightforward adjudications from start to finish take only around six weeks.

Where can I get more information?
If you have any questions about any of the topics in this article, please do not hesitate to get in touch with a member of our construction law team.

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*Disclaimer – this article is an overview of the topics discussed and is not to be taken as legal advice. We recommend speaking to a legal professional before undertaking any activity relating to matters discussed in this article.