I wish to summarise changes brought about to the Construction Contracts Act 2002 (“the Act”) by the operation of the Construction Contracts Amendment Act 2015 (“the Amendment Act”).
The Amendment Act was given royal assent on October 22, 2015. Many of the changes came into force on December 1, 2015, so that when you read this article, many of you will be bound by the amended provisions of the Act. The following is a summary of the effects of the changes.
Removal of the residential/commercial split
The Amendment Act takes out the distinction that was previously made as between residential and commercial building contracts which, in turn, affects the notice provisions that must be included with a payment claim/notice of adjudication.
Any payment claim served must include the notice provisions set out in Form 1 as contained in the 2015 Regulations. Any notice of adjudication must be in accordance with Form 2 of the Regulations.
Application of the Act
The Act now applies to all payments under a construction contract, not just progress payments. It will now cover single payment construction contracts.
Payment claims must now state a claimed amount, and the due date for payment, not just indicate these details as was previously the position. It places a strict requirement for a value to be put on a payment claim and a specific date for it to be paid. Nothing is left to be interpreted by the recipient.
Payment schedules must state, and not just indicate, a claimed amount.
Note: The above changes came into force as of December 1, 2015, so readers using payment claims, payment schedules and notices of adjudication will need to change their forms. This firm can assist with this process.
Changes to the adjudication process
Determinations of rights and obligations are now enforceable in court. The previous position was that parties could be unwittingly involved in adjudications where an adjudicator made a decision upon a contracting party’s rights and obligations, which could not be enforced in the courts. The Amendment Act now allows for all determinations to be enforced.
A new form of notice of acceptance of appointment, namely Form 2A of the Regulations, must be completed by an adjudicator on accepting an appointment. It is no longer possible for an acceptance to be granted conditional on a fee payment. The new form requires additional information such as expected cost, alternatives, time frames, and rights to extension.
Extra steps in time line for the conduct of adjudications
A respondent may request additional time for a response, but this request for extra time must be made within five working days from receipt of the claim. An adjudicator must consider the request using specific criteria justifying an extension. Factors to be considered are “the size and complexity of the claim”, or whether the claim has been served “with undue haste”.
The claimant also has an automatic right of reply to a response, which must be served within five working days of receiving the response. The respondent may, in turn, reply to the reply (rejoinder) at the discretion of the adjudicator, within two workings days of receipt of the claimant’s reply.
These changes to the adjudication process come into operation as at December 1, 2015, in respect of construction contracts entered into after that date or renewed after that date, unless the parties otherwise opt into these provisions.
Related services now subject to the provisions of the Act
The definition of “construction work” has been extended to include design, engineering or quantity surveying work, collectively defined as “related services”. This is a major change, and will cover all contracts between payer and payee for professional services.
The effect will be on the manner in which these parties invoice, how they go about recovering overdue payments, and the fact that any dispute about these services can now travel down the adjudication route.
This change to the Act will not come into force until September 1, 2016, and will apply to any new or renewed related services contract entered into after that date.
The Amendment Act introduces a new part to deal specifically with retentions. This regime applies to any amount that is withheld that has the effect of a retention.
Retention is defined as an amount withheld as security for performance of payee contractual obligations. This regime cannot be contracted out of.
The retention regime will require any party holding retentions to hold these on trust, but not in a separate bank account. A party holding retentions cannot escape his/her obligations to make payment of the retentions because he/she did not get paid. The trust will end once the retentions are paid out or the retentions are used to remedy defective works.
The retention regime will only apply to commercial contracts though. It will only come into force as at March 1, 2017, and will apply to retention monies from that date no matter when those monies were originally held.
It will not apply to contracts with residential occupiers, and will only apply to contracts that have a value above a de minimis amount to be set in the Regulations.
There is some immediate compliance work required by readers in terms of form adjustments when using payment claims/payment schedules/notices of adjudication.
There is compliance work required to be done by “related services” professionals before September 1, 2016. Thereafter, on March 1, 2017, the new retention regime comes into force.
Keep in mind that a failure to use the new form of payment claim could result in you falling outside the protection of the Construction Contracts Act 2002.
Note: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by Legal Vision or Building Today to anyone who relies on the information contained in this article.