Some lessons on variation claims and payment schedules

The recent High Court decision Complete Construction Ltd v Lyon Electrical Ltd [2014] NZHC 3116 provides the construction industry with some lessons regarding payment schedules and variation claims.

Complete Construction Limited (‘Complete’) engaged Lyon Electrical Limited (‘Lyon’) on a number of building projects. The subcontracts between Complete and Lyon (which were unsigned) required variations to be confirmed in writing. Despite this requirement, at times Complete verbally instructed Lyon to carry out variation works which Lyon then performed without any written confirmation. Lyon then sought payment for the variation works in payment claims.

On some projects, Complete paid Lyon’s payment claims in full, including claims for verbally instructed variation works. On other projects, Complete refused to make payment for variation works where there were no written instructions.

The Court decided that by paying Lyon for verbally instructed variation works on some projects, Complete waived the right to refuse payment for verbally instructed variation works on other projects. These are some lessons that the construction industry can take from the case:

  • Variation claims need to be managed consistently and appropriately.
  • Any issues with payment claims and/or variation claims need to be expressed in a compliant payment schedule.

The payment claim/payment schedule process under the Construction Contracts Act 2002 (‘Act’) has existed for 13 years. However, we regularly see parties in the construction industry fail to understand and/or comply with these fundamental aspects of the process:

  • Payment claims and payment schedules must comply with the Act.
  • If a payer fails to issue a compliant payment schedule, the amount claimed in the corresponding payment claim is a debt due and must be paid in full.
  • A payment schedule will not comply with the Act if it simply states that ‘nil is owning’ without providing a calculation of how the figure ‘nil’ was derived.

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