When the Construction Contracts Act 2002 (the Act) came into force on 1 April 2003, it significantly reformed the law relating to construction contracts and sought to dramatically change the way in which cashflow occurs in the industry by facilitating regular and timely payment between the parties to a construction contract and by prohibiting conditional payment provisions in construction contracts.
In particular, the Act rendered conditional payment provisions such as ‘pay-when-paid’ and ‘pay-if-paid’ clauses in a construction contract ineffective and established a new regime for making and responding to progress payments so that lump sum contracts devoid of the entitlement to progress payments became a thing of the past.
Previously, contractors could defer payment to subcontractors until the contractor was paid or exclude payment entirely in the event of the contractor not being paid. Unless the contract expressly provided for the right to progress payments, the contract was deemed ‘entire’ and the whole of the contract works were required to be completed prior to any entitlement to payment.
Under the Act, parties to construction contracts may agree to any terms and conditions regarding the number of payments, the interval between those payments, the amount of each of those payments, and the dates when each of those payments becomes due.
The Act established a statutory right to progress payments in respect of commercial construction contracts but not residential construction contracts. If the parties to a commercial construction contract failed to agree on a mechanism for determining the number of progress payments, the interval between those payments, the amount of each of those payments and/or the date when each of those payments becomes due, the Act provided a default mechanism for calculating the amount of a progress claim and the due date for payment.
However, under the Construction Contracts Amendment Act 2015, the statutory right to progress payments and the default payment provisions in sections 16-18 of the Act for calculating the amount of a progress claim and the due date for payment apply to all construction contracts entered into or renewed on or after 1 December 2015.
The default date for a progress payment or any other type of payment under a construction contract for construction work carried out under that contract is 20 working days after the payment claim is served on the payer.