Construction Contracts Act 2002 (CCA)

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Most owners will be aware an Act of Parliament governs construction contracts (commercial and residential) and imposes various obligations on both the contractor and the principal of the contract (i.e. the owner or Body Corporate).

One of the key issues governed by the CCA is the process of making payments and the format of claims.  In this regard:

  1. Since December 2015 payment claims under construction contracts must be accompanied by a Form 1 notice.  The Form 1 notice is a prescribed form in the Regulations which explains the process for the principal to respond to a payment claim.  It also sets out the consequences of not responding in time and not paying the claimed or scheduled amount.
  2. If the correct form is used, then if a payer does not respond within the requisite time set out the payment schedule, then the principal is liable to pay under s 22 the entire amount of the claim on the due date for the payment.
  3. Where Section 22 applies, the Courts and adjudicators will enforce the contractor’s right to payment and not circumvent it simply because the principal may have a counter claim or disagrees with the claimed amount.
  4. From the contractor’s perspective it is important the form is correct, as an invalid payment claim will not trigger the default obligations on the payer to pay.
  5. The case law indicates Courts will not require strict adherence to the CCA requirements and therefore a technical non-compliance will not normally invalidate a payment claim.  Importantly “the complete absence of a Form 1 notice is a substantive breach and therefore invalidates the entire payment claim”.
  6. To object to a payment claim, the principal needs to set out the reasons for the difference between the amount in the claim and the amount the principal schedules to pay.  In this respect the Court has affirmed:
    • Deductions by way of a percentage is acceptable, subject to there being sufficient reasons for the percentage figure.
    • The absence of reasons for scheduling lesser percentages for variations was, in the recent Fletcher v Spotless case found to be inadequate because of the absence of reasons.
    • Fletcher’s referencing “under assessment” was also held insufficient for the purposes of Section 21(3) as there was no indication of the purpose of the assessment.
    • Where contra charges are made, there needs to be specific detail as to how the charges arose and the basis upon which they were calculated.

Key Message for Principals and Body Corporates

  1. The Fletcher case demonstrates the payment schedule must indicate reasons for each deduction.
  2. The sufficiency or otherwise of the reason and the consequence of an insufficient reason is, to some extent, dependent on the size of the deduction and the context of the payment claim as a whole.
  3. Where a relevant deduction is significant, more detailed reasons are likely to be required and non-compliance is more likely to invalidate the entire payment schedule.

In drafting payment schedules, where deductions are made, the key is to give the contractor “full and unequivocal notice of all areas of differences or dispute” to enable it to assess future options.