Valid Payment Claims

The Construction Contracts Act provides a simple process for how and when payments are due for construction work

The payment claim process was designed to address two major issues in the building and construction sector; cash flow blockages at the top of the chain, and the time and expense involved in dispute resolution. By following the simple processes outlined in the Act, you will avoid timely and costly disputes and maintain cash flow, a critical factor in running any successful business.

What is a payment claim?

A payment claim is essentially a request for payment for work that has been undertaken, more commonly referred to as an invoice. For payment claims to be valid, they must include all of the following criteria:

• Be in writing. You can use your own template or an accounting system like Xero;

• Identify the construction contract it relates to;

• Identify and carefully describe the construction work you are requesting payment for;

• Identify the time period the work was done in;

• State the amount claimed;

• Identify how the amount claimed was calculated;

• Include the correct due date for payment;

• It must say “This is a payment claim under the Construction Contracts Act 2002”; and

• It must be accompanied by a Form 1. This is a written notice outlining the process for responding to the claim and the consequences of not responding if payment in full is not made.

Avoid these common mistakes

Your payment claim can be made up of multiple documents. For example, the invoice itself along with labour details and descriptions of the work undertaken. If a dispute does arise, showing that you have made the effort to follow the Construction Contracts Act process, will be in your favour.

There are a few common reasons why a payment claim may be invalid. These include:

• It is addressed to the wrong party. Your payment claim should be addressed to the party named in the contract.

• No-one can make sense of your payment claim. Ensure all details are clearly communicated, ambiguity is your enemy;

• The payment isn’t actually due yet or you are not entitled to issue the claim at this particular point in the contract;

• The claim was calculated on a charge-up basis despite the claim being fixed price;

• The Form 1 included was out of date, had mistakes in it or it was not attached;

• The claim doesn’t say which project it relates to.

Note that it’s unlikely you could enforce a fully compliant but fictitious or blatantly excessive payment claim.

What happens if a client disputes a payment claim?

When a valid payment claim has been issued and the client disputes the amount of the claim, their only defence is to issue a valid payment schedule that follows the requirements of the Construction Contracts Act. This includes being received in writing by a certain deadline, with a payment schedule and the amount they are prepared to pay along with their reasons for disputing the claimed amount. The deadline for a dispute to be raised is as stated in your building contract. The contracts of both New Zealand Certified Builders and Registered Master Builders state this as being five days.

The Construction Contracts Act allows you to claim back actual and reasonable legal costs for recovery of a payment claim.

Sleep easy, knowing that your payment claims are compliant. My Smart Office can help by reviewing your current invoice template to ensure you have the best chance of payment on time, every time.

If you need help enforcing a valid payment claim, get in touch with Geoff Hardy, a construction law specialist at Martelli McKegg Lawyers on (09) 379 0700 or geoff@martellimckegg.co.nz.

Our thanks to Geoff Hardy and the construction team at Martelli McKegg Lawyers for contributing content to this article.

This information is not intended to be relied upon as legal advice.

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