The Latest

Payment Under Residential Construction Contracts

Payments Under Residential Construction Contracts

With the commencement of the Building (Residential Consumer Rights and Remedies) Regulations 2014 on 1 January 2015, it is also time to revisit the progress payment terms in residential construction contracts and under the Construction Contracts Act 2002.

The Construction Contracts Act 2002 and the regulations under that Act commenced on 1 April 2003. This legislative framework has been with us for some time.

The principle is that parties to a residential construction contract are free to agree between themselves on:-

1. The number of progress payments under the contract;
2. The interval between those payments;
3. The amount of each of those payments;
4. The date when each of those payments becomes due.

This remains under the new residential construction contract regulations.

If the residential construction contract did not set out those details, the Construction Contracts Act 2002 did not imply or prescribe a set of default progress payment terms for residential constructions contracts; only that the builder was entitled to progress payments and when served with a progress payment, the home owner had to either pay or object within 20 working days.

Whereas, the Building (Residential Consumer Rights and Remedies) Regulations 2014 has abridged this by now having default terms (set out in Schedule 3).

The default payment term is:-

                4              Payments

                4.1          The building contractor is entitled to progress payments in accordance with this clause.

                4.2          The amount of a progress payment must be calculated by reference to-

(a)          the relevant period; and

(b)          the value of the construction work carried out, or to be carried out, during that period; and

(c)          any other relevant provisions of the contract.

                4.3          For the purposes of clause 4.2,-

(a)          the relevant period is-

(i)           the period beginning on the day of the month on which construction work was first carried out under the contract and ending on the last day of that month (ie, the first period); and

(ii)          each subsequent month

(b)          the value of construction work must be calculated with reference to-

(i)           either-

(A)         the contract price for the work and any other rates or prices set out in the contract; or

(B)          if the contract does not expressly provide for the matters referred in subsubparagraph (A), the reasonable value of the work; and

(ii)          any variation to the construction work authorised under the contract; and

(iii)        if any work is defective, the estimated cost of rectifying the defect.

4.4          Progress payments are payable 20 working days after a written demand for payment (made in accordance with the contract) is received or deemed to be received.

4.5          The building contractor is entitled to submit payment claims in accordance with Part 2 of the Construction Contract Act 2002.

The negotiation now is really about why those default terms should be displaced. However, the general principle remains that the parties are free to negotiate the payment terms as they see fit.

The takeaway here for home owners is to check that the stages at which progress payment may be made under the construction contract satisfactorily correspond to the actual build and construction of your home.

If you are uncertain about what this might mean then ask the builder. If you are still uncertain seek legal advice or consider engaging another builder.

The takeaway for builders is that with the commencement of the Building (Residential Consumer Rights and Remedies) Regulations 2014, it is no longer sufficient to (somewhat) arbitrarily state any due date in your construction contract.

If you are seeking timely and prompt payments and wish to negotiate due dates for payment (sooner than the default 20 working days), consider carefully the reasons why earlier due dates are necessary.

We strongly recommend that builders in this area of the construction industry seek legal advice and to review their standard residential construction contracts.

• Posted By: Tristram Lock on Thu, 5th Feb 2015 @ 14:23:18

Add a comment