New Construction Contracts Act becomes law on 1 April

The Construction Contracts Act was passed in late 2002, and becomes law on 1 April.

Peter Degerholm, chief executive of the New Zealand Building Subcontractors’ Federation Inc. says that the Act aims to improve cashflow in the building industry.

“The Act provides new processes for claims and payments that will help those that do work to get paid fairly and on time, and new ways to enforce overdue payments,” Peter says.

The Act applies to the whole industry – residential, commercial and civil construction and maintenance work - and even covers prefabrication work. As it affects every new construction contract or subcontract after that date, everyone in the industry, including homeowners, need to know about it.

“There is also a completely new form of dispute resolution, called adjudication. This will allow those disputes and differences that so often block payments, to be sorted out quickly and economically,” he said.

“Regardless of whether contracts are written or oral, the parties are affected whether they like it or not, because they cannot ‘contract out’. That means ‘pay-when-paid’ clauses are ineffective, and they have the right to suspend work or adjudicate disputes, regardless of what is in their contract.” Peter says.

Peter has just completed a nationwide seminar series about the Act, in association with Andrew Hazelton, addressing over 5,000 people in 20 locations throughout New Zealand in the past month.

“Our audiences have included a mix of contractors, subcontractors and industry professionals. Obviously we have explained the Act, but we have concentrated on explaining how contractors and subcontractors can improve their cashflow, by aligning their present claim and payment processes with the Act.”

“Our presentations have been well received, but this is just the start because there are many others who are not aware of the impending changes” says Peter. “Conditions of contract are being upgraded, and people will need to learn more about the changes in the coming months.”

Industry payment behaviours must change

Peter admits to being disappointed, but not at all surprised, at the ‘knee jerk’ reaction of some payers, seeking to protect their position by offering unreasonable payment times.

“The Act clearly indicates, through default payment arrangements, that payment times on contracts should not exceed 20 working days. Yet we are seeing contracts that would not allow contractors to be paid until 30, or even 55 days, after their claim is submitted. Clients will simply have to accept the reality that the law has changed, and must expect to pay contractors more promptly”, he says. “It seems that some central and local government agencies are presently the slowest payers. They will have to move quickly to tighten up payments, in order to comply with the spirit of the new legislation.”

Peter acknowledges that a settling-down period is necessary, but is determined to ensure that unfair payment terms are challenged.

“After all, it is in subcontractors’ interests to ensure that main contractors get paid promptly – then they will have no problem paying their subs on time.”

New book launched

Peter has just released a new book about the Act entitled Managing Contractors Cashflow – Making the Construction Contracts Act work for you.

The book is now being sent out to those who attended the seminars, and is available through Rawlinsons Media Ltd for $45 plus P&P.

“This book is aimed at contractors and subcontractors, explaining the Act in simple terms, and giving practical advice. It includes a copy of the Act and related regulations,” said Peter.

The book explains the Act in simple terms, along with practical advice and forms to help understand and apply it. There is even a cartoon section, to dramatise the effects of the changes on the parties to contracts.

“Most subcontractors don’t want to read dry text books, so this has been presented quite differently. I know that payment behaviours in the industry will only change when payees understand their rights and obligations. I hope this book will help to establish clear industry guidelines,” he says.

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