05 April 2019 Litigation and Dispute Resolution
Form and Timing are Everything for Building & Construction Disputes
Most in the building industry know how long and costly disputes can be if they are dragged through the court system, and how this can disrupt a project and cause critical cashflow issues.
The Construction Contracts Act 2002 (CCA) is an extremely important law for all involved in the industry. It creates some fairly rigid rules which, if used well, can make all the difference to potential disputes.The CCA aims to reduce disruption and delay in construction projects in two main ways.Payment Claims ProcessThe CCA provides for a Payment Claim process which generally applies to all construction contracts, whether covered in the written contract or not. This allows builders and subcontractors to issue invoices as Payment Claims, provided they comply with the requirements of such claims. If the paying party disputes a Payment Claim, it must respond by way of a qualifying Payment Schedule within either 20 working days, or a longer or shorter period specified in the contract (often, much shorter). If this is not done, the amount claimed becomes a debt due and owing and can be recovered through summary debt processes – importantly, without the dispute being able to be raised in that forum. Though the dispute can still be raised in a “second round” process later, recovering (or having to pay) the money in the first instance can have a critical effect.It is surprising how many builders who could use this procedure to potentially avoid disputes still issue invoices which do not qualify as Payment Claims. Payment Claims require a very particular format, use of words and certain information, and standard invoices will not qualify. We regularly assist construction professionals to prepare their forms to take advantage of this procedure.It is equally critical for principals (including owners having residential work carried out) to understand the need to issue a Payment Schedule if any claim is disputed. Because of the rigid requirements, timing is everything. If you are a homeowner or other principal (paying) party, we recommend taking advice on this process BEFORE you sign a building contract.
Dispute adjudicationsSecondly, the CCA provides for a quick-fire dispute adjudication process. This also applies regardless of whether it is covered in the contract. In simple terms, if a dispute arises either of the parties may commence an adjudication. An adjudication is similar in some ways to a private arbitration process, though it is usually done without a hearing. The adjudicator is usually a construction professional, sometimes a lawyer.Again, form and timing are absolutely critical. The dispute notice must properly define the scope of the dispute. An error may prevent the adjudicator being able to determine all relevant matters. Once an adjudicator is appointed (which usually happens promptly), the process moves very rapidly, and if the rigid timing requirements are not followed, a party may find itself not being heard in the dispute (which can have obviously disastrous results).An adjudication decision, once issued, is legally binding and enforceable through the courts. Although the parties are free to go to court or arbitration over the same dispute again (and potentially obtain a different result), the adjudication can be enforced in the interim. Again, that can make all the difference from a cash-flow perspective.
Being preparedWe have acted in several adjudications recently where being prepared was critical. In one, we acted for a homeowner in a complex dispute with a builder involving surveying errors. Our client was able to gather critical expert evidence in advance of issuing a dispute notice. The builder then faced significant pressure to respond to that evidence within the period provided in the CCA. Our client was ultimately successful in the adjudication, meaning it did not have to pay the builder’s final payment claim and was also entitled to recover several hundred thousand dollars from the builder for losses and required remedial works.In short, the CCA can be a potent tool – especially if used well against a poorly advised or ill-prepared counterparty. It is critical that those involved in construction projects – even homeowners – understand how it works and have advice readily at hand.We regularly act for parties on both sides of these contracts, and would be happy to discuss how we can assist you in your project.