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What is a claim?
Payment Claims are submitted by a Payee (the party performing the work) to the Payer (the party receiving the work) so that they may be paid accordingly.
The claim may be made pursuant to contract and/or the Construction Contracts Act 2002 (the CCA).
Section 20 of the CCA sets out strict requirements for the claim:
(2) A payment claim must—
(a) be in writing; and
(b) contain sufficient details to identify the construction contract to which the payment relates; and
(c) identify the construction work and the relevant period to which the payment relates; and
(d) state a claimed amount and the due date for payment; and
(e) indicate the manner in which the payee calculated the claimed amount; and
(f) state that it is made under this Act.
(3) A payment claim must be accompanied by—
(a) an outline of the process for responding to that claim; and
(b) an explanation of the consequences of—
(i) not responding to a payment claim; and
(ii) not paying the claimed amount, or the scheduled amount, in full (whichever is applicable).
However, the above information may not be required if the process for payment claims is set out differently within the contract between the parties.
Parties are expressly free to agree on alternative payment processes pursuant to section 14 of the CCA.
When is a claim recieved ?
If the contract between the parties is written and sets out expressly how a payment claim may be served on the payer, then this is appropriate and the prescribed method is valid.
In lieu of a written contract, the CCA and associated regulations take effect. This dictates how and when valid notices (and other documents) are sufficiently served:
Section 80 of the CCA sets out:
“80 Service of notices
Any notice or any other document required to be served on, or given to, any person under this Act, or any regulation made under this Act, is sufficiently served if—
(a) the notice or document is delivered to that person; or
(b) the notice or document is left at that person’s usual or last known place of residence or business in New Zealand; or
(c) the notice or document is posted in a letter addressed to the person at that person’s place of residence or business in New Zealand; or
(d) the notice or document is sent in the manner (if any) prescribed in regulations made under this Act.”
A keen eye may have spotted that emails are not mentioned within the Act, but subsection (d) does introduce other ‘regulations’.
The Construction Contracts Regulations 2003 (the regulations) provides additional guidance.
The regulations specifically address email delivery in sections 9 and 10.
Section 9 introduces the ability to email Payment Claims with the proviso that the requirements of section 10 are met:
“9 Additional modes of service
(1) In addition to the modes of service specified in section 80 of the Act, any notice or any other document required to be served on, or given to, any person under the Act or these regulations is sufficiently served if—
(a) it is sent by fax; or
(b) it is sent by email or other means of electronic communication and the requirements of regulation 10 are met.
(2) A notice or document sent by fax under subclause (1)(a) is, in the absence of proof to the contrary, served or given if the fax machine generated a record of the transmission of the notice or document to the fax machine of the recipient, and the date of the record is taken to be the date of receipt of that notice or document.
(3) A notice or document sent by email or other means of electronic communication under subclause (1)(b) is, in the absence of proof to the contrary, regarded as having been served or given,—
(a) in the case of an addressee who has designated an information system for the purpose of receiving emails or other electronic communications, at the time the email or communication enters that information system; or
(b) in any other case, at the time the email or communication comes to the attention of the addressee.
(4) For the purposes of subclause (3), information system means a system for producing, sending, receiving, storing, displaying, or otherwise processing emails or other electronic communications.”
Section 10 of the regulations then sets out some caveats regarding the availability of information and permissions:
“10 Requirements for service by email or other means of electronic communication
(1) A notice or document may be sent by email or other means of electronic communication under regulation 9(1)(b) only if—
(a) the information in the notice or document is readily accessible so as to be usable for subsequent reference; and
(b) the person to whom the information is required to be served or given consents to the information being given in electronic form and by means of an electronic communication, if applicable.
(2) For the purposes of subclause (1),—
(a) a person may consent to use, provide, or accept information in an electronic form subject to conditions regarding the form of the information or the means by which the information is produced, sent, received, processed, stored, or displayed:
(b) consent may be inferred from a person’s conduct.”
When the claim is recieved
Understand the claim
An unfortunately common mistake in the industry is to reject a claim as incorrect because the basis of the claim is not understood.
Care should be taken to try and understand the position of the claimant as comprehensively as possible so that the contractual strengths of different positions may be known. Often disputes occur without the parties adequately setting out their respective positions.
A helpful exercise when seeking to understand the claim and/or in the case of a dispute is to find areas of common ground to narrow the field of potential disagreement.
When receiving a claim it is helpful to communicate queries and other notes early in the piece.
The CCA and many standard forms require prompt payment. This is usually preceded by a process to evaluate the claim (see Payment Schedules below) which means queries and/or other discussions must happen promptly.
A common failing within the construction industry, likely not entirely unrelated to an increase in overworking, is a scenario where the payer does not seek to adequately understand the claim until time deadlines approach.
This may lead to situations where payments are certified ‘on account’, and/or may lead to situations where payment claims are queried late or not at all, with payment claims being rejected on the basis of a lack of supporting information.
Responding to the claim
Ensure the terms of payment are understood early on.
Payment Claim response deadlines are very important, often being conditions of the contract between the parties.
Depending on the contract, and certainly in the case of the CCA, a failure to respond to a payment claim within a set period of time is fatal to any ability to ‘not pay’ the entire claim.
If the construction contract is silent on payment terms to the contrary, the terms of the CCA are enlivened. The CCA sets out how Payment Claims must be responded to if the payer seeks not to pay the entire sum claimed:
Section 21 sets out:
“21 Payment schedules
(1) A payer may respond to a payment claim by providing a payment schedule to the payee.
(2) A payment schedule must—
(a) be in writing; and
(b) identify the payment claim to which it relates; and
(c) state a scheduled amount.
(3) If the scheduled amount is less than the claimed amount, the payment schedule must indicate—
(a) the manner in which the payer calculated the scheduled amount; and
(b) the payer’s reason or reasons for the difference between the scheduled amount and the claimed amount; and
(c) in a case where the difference is because the payer is withholding payment on any basis, the payer’s reason or reasons for withholding payment.”
Consequences of not providing a Payment Schedule
Section 22 of the CCA sets out that if the payer does not issue a Payment Schedule, the full amount of the claim must be paid:
“22 Liability for paying claimed amount
A payer becomes liable to pay the claimed amount on the due date for the payment to which the payment claim relates if—
(a) a payee serves a payment claim on a payer; and
(b) the payer does not provide a payment schedule to the payee within—
(i) the time required by the relevant construction contract; or
(ii) if the contract does not provide for the matter, 20 working days after the payment claim is served”
If the total value of the contract depends on measurable quantities of work, then care must be taken to adequately measure the works as the project progresses.
This process is to avoid scenarios where works are ‘closed in’ and not readily available for measurement.
The parties are advised to agree on interim quantities on a regular basis to avoid a backlog of unmeasured works. Delineation of areas and/or programme durations may be used to compartmentalise agreed quantities of works and reduce the potential for disagreement.
Site inspections & measures
In any given situation, the claim process involves a payee proposing a value of work for which it seeks to be paid. It follows that the payer may want to verify that the works claimed for have been adequately performed, giving rise to an entitlement to payment.
Inspection of the work is often required to validate progress or completion.
When inspecting works it is beneficial to take photographic evidence of the inspection and note the specifics of each image.
Measurement of the works via site inspections and/or drawing take-offs should be presented in the proper manner, using industry standards that regulate the set out of such information (refer NZS 4202:1995 & ANZSMM 2018).
The contract may set out specific ad hoc requirements for claim certification, however, if the contract is silent the CCA applies.
Valuation pursuant to the CCA
Section 17 of the CCA sets out how payments must be valued:
“17 Amount of progress payment
(1) The amount of a progress payment must be calculated by reference to—
(a) the relevant period for that payment; and
(b) the value of the construction work carried out, or to be carried out, during that period; and
(c) any relevant provisions in the construction contract (including, without limitation, provisions relating to the retention of money or liquidated damages).
(2) For the purposes of subsection (1)(a), the relevant period for a progress payment under a construction contract is—
(a) the period commencing 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 (the first period); and
(b) each month after the first period.
(3) For the purposes of subsection (1)(b), the value of construction work must be calculated with regard to—
(a) the contract price for the work; and
(b) any other rates or prices set out in the contract; and
(c) any variation to the construction work authorised under the contract; and
(d) if any work is defective, the estimated cost of rectifying the defect.
(4) If the contract does not expressly provide for the matters referred to in subsection (3)(a) and (b), the value of construction work must be calculated with regard to—
(a) the reasonable value of the work; and
(b) the reasonable value of any variation to the construction work authorised under the contract; and
(c) if any work is defective, the estimated cost of rectifying the defect.
Communication and prompt action are essential to successful payment claim management.
Frequent and regular comparisons of the basis for entitlement, and joint exercises between the parties to measure and establish the payable value are often beneficial methods to find agreement. Slight differences between the parties are discussed during the exercise before each party has committed to their position.
Significant differences in opinion as to how the claim process works should be addressed early on and finalized so as not to drag on and increase litigation risk for both parties.
Care should be taken when entering into a construction contract that the parties agree to undertake the payment claim process in an agreed manner i.e. by email if suitable. This is to avoid jurisdictional disputes and to provide certainty to the parties that the claims and/or payment schedules are valid.
Payment claims and Payment schedules under the CCA are draconian in nature and must be strictly complied with to avoid statutory liability to pay claims.