Construction Contracts Act

The Construction Contracts Act 2002 reformed the law in New Zealand in relation to construction contracts and the resolution of disputes arising under building and construction contracts.

Generally the Act applies to every construction contract entered into since April 2003 whether it is governed by NZ law or not and whether the construction contract is written, oral or partly written and partly oral. 

It is not possible to contract out of the provisions of the Act so all parties are bound by its provisions including those related to payment claims and payment schedules, adjudication of disputes, suspension of work and charging orders.

The purpose of the Construction Contracts Act 2002 was to reform the law relating to construction contracts and, in particular to:

• Facilitate the regular and timely payment of money between parties to a construction contract by establishing a mandatory scheme for payment claims and payment schedules and by prohibiting the reliance by parties on "pay when paid" and pay if paid" provisions;
• Provide for the speedy resolution of disputes under building and construction contracts by the introduction of a new and difference process called 'adjudication';
• Provide remedies for the recovery of payments under a construction contract including the right to suspend work and to apply for summary judgment.

History of the Construction Contracts Act 2002

The Construction Contracts Act in New Zealand was passed by Parliment in response to several high profile construction companies "going bust" within a short amount of time.  The companies said that the reason for their collapse was the failure of their clients, the developers to pay for the work done.  The flow on effect of these companies going into liquidation was that the subcontractors were also left out of pocket as the construction companies had not made any payment to them as they had not been paid. 

The Government recognised that the law needed to be reformed and they looked to the United Kingdom and Australia for ideas as to how to deal with this.   Based on that research and the numerous submissions they received from the construction industry, the Construction Contracts Act was passed as a law of New Zealand in 2002.

The Act immediately had an impact on cashflow within the industry as it made "pay when paid" and "pay if paid" clauses illegal and gave parties a more timely and cost effective way to resolve construction disputes: adjudication.