A New Tool To Improve Cashflow For Sub-Contractors

The Construction Contracts Act 2002 A New Tool To Improve Cashflow For Contractors And Subcontractors Industry Seminar Series Now Under Way

The Construction Contracts Act comes into effect on 1 April 2003, and will affect every new construction contract from that date.

Under the new Act, contractors and subcontractors will be able to receive their progress payments faster, provided that they understand and comply with the new rules for their claims, and for paying subcontractors.

Peter Degerholm, chief executive of the New Zealand Building Subcontractors Federation, says that few people understand just how much this new legislation will impact on them and on industry payment practices.

“It is not only builders and subcontractors who must change the way they do their claims and payments. The Construction Contracts Act affects everyone in the construction industry, including owners, developers, architects and quantity surveyors. Everyone must comply with the new payment requirements. As it also affects house building, even homeowners will need to understand what it means, if they are planning building or renovating.”

Peter Degerholm said that the Construction Contracts Act will fix some of the undesirable industry payment behaviours that have developed over recent years. Payments should no longer be blocked by disputes and pay when paid clauses, as the Act addresses these problems with new mechanisms for payment, dispute resolution and enforcement.

He says that the Act has three main sections:

Claims and payments

“There are new processes for claims and payments. Contractors and subcontractors can be assured of their rights to fair and timely payment, and ‘pay when paid’ clauses are banned.” Peter Degerholm says that, while these processes are quite similar to present payment arrangements, there are very strict time limits, and consequences for failing to comply.

If you submit your claims properly, there are a number of ways for you to enforce payment. If you receive a claim that you don’t agree with, and don’t respond in time, you will have to pay the full claim.

Adjudication

There is a new fast-track dispute resolution process called “adjudication” for sorting out disputes over payments, or anything affecting contracts. Adjudication can be done without lawyers, and disputes must be sorted out in around 30 days. The outcome can be quickly enforced in court.

“It’s a dispute resolution revolution”, says Peter Degerholm, “and I wouldn’t be surprised if adjudication is taken up by other industry groups when they see how effectively it sorts out disputes.”

He explains that adjudication under the Construction Contracts Act may be confused with the ‘leaky homes’ adjudication service, which is completely different and not at all related.

“Adjudicating a dispute under the Construction Contracts Act doesn’t even need lawyers involved, and it’s very quick”.

3. Enforcement

Peter Degerholm says that, under the Act you will have the legal right to suspend work when your payment is genuinely overdue, whether that is an overdue progress payment, or a payment from an adjudicator.

“Of course you have to have given all the right notices, but this right can’t be taken away. And if you do suspend work no one else can be brought into finish the work, and you get an extension of time” he says.

“There are also ways that you can very quickly enforce payments through the courts. It will be possible in some circumstances to place ‘charging order’ on the site. A charging order is a bit like the liens that were available until 1987, but it should be far more effective.”

INDUSTRY SEMINAR SERIES BEING HELD

“Obviously, for these changes to be effective, everyone must understand them”

Peter Degerholm is conducting an industry seminar series in 20 locations nationally. The first session, at WestpacTrust Stadium in Wellington on 18 February, will be opened by the Minister of Commerce, Hon Lianne Dalziel.

This is a 2-hour presentation, to explain the Act as simply as possible, and what contractors and subcontractors can do to improve their cashflow. Seminar details are available at www.nzbsf.org.nz “The seminars are pitched at small contractors and subcontractors, although they will be of interest to architects, engineers, quantity surveyors and lawyers.”

“I have given many presentations in recent years to promote the need for change. I am really excited about the opportunity to lead in the implementation of the changes now that the Act has been passed. I believe this is a fantastic opportunity for the building industry to improve its image.

The seminar series is supported by the Subcontractors Federation, Registered Master Builders and NZ Contractors Federation and other member associations of the Construction Industry Council. Placemakers have demonstrated their support for the seminar by exclusively sponsoring the series, as an important part of their new LIFT education programme.

Peter Degerholm says that the Construction Contracts Act encourages best payment practices by providing immediate commercial consequences for bad practice. “This can only be good for the whole industry.”

BOOK BEING PUBLISHED

Attendees will also receive a copy of Peter’s book, Managing Contractors’ Cashflow – Making the Construction Contracts Act work for you. This provides an easily understood explanation of the Act, and practical guidelines for cashflow management, the Act, regulations and recommended model forms. It will also reinforce the seminar presentation.

Peter’s book is being published by Rawlinsons, specialist construction industry publishers, whose Rawlinsons New Zealand Construction Handbook is now in its 18th year of publication. The book will be released in mid March.

SEMINAR REGISTRATION

Registration details can be obtained from the New Zealand Building Subcontractors Federation Inc at 0800 SUBCON (0800 782 266) or www.nzbsf.org.nz .

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