Surveyors who design and administer construction contracts should not ignore the amendments to the Construction Contracts Amendment Act which was passed by Parliament on 20 October 2015 and comes into force on December 1, 2015.
The Construction Contracts Act 2002 (the Act) regulates payment provisions in construction contracts (residential and commercial buildings and civil construction), provides an adjudication framework for people with disputes under construction contracts and provides options for recovering non-payment under construction contracts. Contracts administered under NZS 3910:2013 make their claims under the Act.
Together with minor tidy up changes, the major changes brought in by the Amendment Act are as follows:
- The definition of construction work will extend to design or engineering work (and quantity surveying services) provided under contracts entered into after 1 September 2016. This will give Surveyors, architects, engineers and quantity surveyors the protection of the payment claim/payment schedule regime and also access to adjudication. Consultants will be restricted from including ‘pay when paid’ (conditional payment provisions) clauses in any agreements with subconsultants. It is expected that ‘design work’ also includes work undertaken by the Engineer to the Contract under a NZS 3910 construction contract.
- The distinction between residential and commercial construction contracts has been removed, with the exception that it is still not possible to obtain a charging order over a residential property.
- Disputes over rights and obligations will have the same status as disputes over the payment of money, and adjudicators’ determinations on rights and obligations will be enforceable in Court.
- The adjudication proceedings will allow for replies within 5 working days of the response, and where new issues are raised, the adjudicator may allow rejoinder within a further 2 working days.
- The time period during which a party may oppose a determination being entered as a judgment has been reduced from 15 working days to 5 working days. Where a determination relates to rights and obligations, the grounds for opposing entry as judgment has been extended to include change in circumstances not caused by the defendant which makes compliance impossible.
- A new regime including statutory trusts for retentions comes into force on 31 March 2017. The bottom line is that retentions monies will be protected, with some details yet to be defined.
What does this mean for Surveyors and others who act as Engineers to a Contract?
The major change is in the area of retentions, prompted by the failure of Mainzeal and the effect it had on subcontractors (Mainzeal’s use of retention money was labelled as ‘theft’ by one contractor). The retentions money does not need to be held in a separate trust account (i.e. undrawn down funds in a line of credit will satisfy the trust obligation), but proper accounting methods (yet to be defined) are now required. Interest on late retentions payments must also be paid. The minimum amount of retentions that the new trust requirements will apply to is to be defined by regulation.
Most consultants need to consider the impact of the requirements given that the monetary protection the Act offers are usually contained within their standard conditions engagement. Design, engineering and QS consultants will get the benefit of the payment protections under the CCA, but will also be subject to the adjudication process either as claimants or respondents. Consultants should therefore revisit their standard documents and systems to make sure they are in line with the CCA before 1 December, including being able to issue compliant payment claims and schedules, or look to ‘contract out’ of the Act by agreeing amended terms with the client via standard conditions. Although the provisions of the Act regarding design and engineering work don’t come into force until 1 September 2016, consultants should be aware of how they may be affected where they are engaged as subcontractors and how contract conditions might voluntarily bring them under the Act before that date.
Consultants have not previously had the benefit of a fast and inexpensive dispute resolution process, especially in relation to fee claims and other discrete issues. The shorter timeframes for fee disputes will be attractive, but complex technical design issues may not be able to be dealt with as promptly as the Act desires. A defendant served with a complex claim going back some time and involving other parties may not be able to reasonably respond in the timeframes required. Insurers and brokers will have to work hard to ensure that claims can be notified and managed quickly enough to enable effective responses under the CCA which may be covered under professional indemnity policies.
All new construction contracts will need to comply with the CCA from 1 December including those administered under NZS 3910. This means that although the NZ Standard has not changed, the new provisions of the CCA will apply.