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Payment Problems In The Construction Industry

Legislation Announced To Relieve Payment Problems In The Construction Industry

Associate Minister of Commerce Laila Harré has announced the details of proposed new legislation aimed at outlawing widespread payment problems in the construction industry.

Since the Statutory Liens and Wages Act was repealed in 1986 sub-contractors have been exposed to a high degree of risk when it comes to getting paid by operators at the top of the contractual chain.

"Pay-when-paid and pay-if-paid clauses have been the financial downfall of many small sub-contractors, and more recently we have seen larger companies forced into bankruptcy or liquidation because of this legal loophole," Laila Harré said.

The main features of the new legislation will be:

 Outlawing pay when paid and pay if paid clauses in construction contracts

 Establishing a fast-track binding, but not final adjudication process to resolved disputes concerning construction contracts

 Establishing a default regime under which contractors and sub-contractors would be entitled to regular progress payments for work done, unless both parties agree otherwise

 The limited reintroduction of a Security Interest or Lien as a remedy for non-payment. This would mean a property could not be sold until the person who placed the Lien had been paid. To ensure this provision is not used spuriously it could only be used once an adjudicator has made an award in a contractor's favour.

 Adjudicators' awards will be binding. This means that any award will have to be paid according to the adjudicator's ruling and can be enforced through the courts. Appeals will be allowed but this will not delay payment.

The legislation is modelled on laws that exist in New South Wales and the United Kingdom, with adaptations to suit New Zealand conditions.

"Giving sub-contractors the right to stop work if they are not paid on time will also help identify problems sooner rather than later, and should in turn reduce the magnitude of losses if a company does fall over," Laila Harré said.

"Hundreds of small businesses and their employees have paid a heavy price for the hands-off approach to payment problems in the construction industry.

"This is as much an issue of social justice as it is of improving the commercial environment for players in the construction industry. The unfair allocation of risk is not good for the construction industry or the people who rely on it for their livelihood," Laila Harré said.


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