IN THE KNOW —
Why you should be using Payment Claims When you do building work for clients, you invoice them from time to time. Sometimes, your clients do not pay those invoices, either because they cannot, or they do not believe they should. There are various ways in which you can make them pay you, or at least resolve the underlying dispute that is causing them not to pay you. Those methods range from negotiation, mediation, Disputes Tribunal claims, adjudication, arbitration, and suing in the courts. Because none of them is perfect, you may as well take advantage of everything that is available to you. And there is one more option that you can use if you make the effort, and that is to turn your invoices into payment claims under the Construction Contracts Act (the “CCA”). You’re mad if you don’t.
Why? Because payment claims are like invoices on steroids. They have super powers that ordinary invoices don’t have. Parliament intended it that way, because Parliament was concerned that it was too easy for unscrupulous clients to withhold money from the contractors and subcontractors below them, based on fictitious reasons. So, in 2002 Parliament introduced this new method to force them to either pay up or explain why not.
Turn your invoices into payment claims under the Construction Contracts Act (the “CCA”) – you’re mad if you don’t. What you do is, you take your invoice and you modify the wording of it so that it becomes a CCA payment claim. Then you “serve it” on your client. They have to respond to it with a payment schedule by a certain deadline. That payment schedule has to say how much of the claim they will pay. If it is not 100% of the claim, they have to say why. Then they have to pay the amount that they promised, by the due date. And if they do not respond by the deadline, they have to pay 100% regardless.
What if they do not pay? You can sue them in court and recover your legal costs off them. It is a process known as summary judgment, so it is quicker and cheaper than most court cases. Having said that, no court case is quick, and no court case is cheap, so you may be wondering why you would bother. The answer is that once they are served with court papers, they take it seriously, and they consult a lawyer. Their lawyer will look at the situation, and if you have done everything right, the lawyer will advise your clients that they are likely to lose. Faced with that, they generally pay up promptly, to avoid losing in court and having to pay not only their own legal fees, but yours as well. It does not matter if they have a counterclaim against you. They cannot even raise it in these proceedings. It is a “pay now, argue later” system, and it is all about who gets to have the money in the short term. The underlying dispute can then be resolved afterwards, and if the clients are on solid ground, they may well claw some or all of that money back from you. But in the meantime, you can use it to pay your subcontractors and suppliers, and your legal fees for that matter. And you will have given your clients a taste of defeat, and undermined their confidence a little, making it all the more likely that you will be able to negotiate a satisfactory settlement of the dispute.
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