What’s in your contract?

In our article of November last year, we flagged the proposed changes to the Building Act 2004, one of which will be to make written contracts mandatory for certain types of construction work. There will also be new requirements that must be included in such contracts.

While NZS3910 may not be the contract of choice for your average residential project, it’s appropriate for longer or more complex projects and the newly updated NZS3910:2013 has added components that are worth knowing about.

This follows a review that focused primarily on feedback from the construction industry, which saw 1,000 submissions and spanned a two-year period. The review resulted in a new standard form of contract that is much more comprehensive and user-friendly, and can be downloaded from the Standards New Zealand website.

In this article, we outline some of the key changes introduced by NZS3910:2013, which current users need to be aware of. The changes present a timely opportunity for contractors to consider the best contract for their needs and, for those currently using some other form of construction contract, to consider the suitability of NZS3910:2013.

Key changes

Although described as “a limited technical review”, NZS3910 has changed significantly. Summarised ext are the key changes:

• Three standards from one

Perhaps the most significant change is that NZS3910 has been split into three standards, which together replace NZS3190:2003:

• NZS3910:2013;
• NZS3916:2013 (design and construct); and
• NZS3917:2013 (fixed term).

• Structure

The contract agreement has been relocated to the front of the contract, so it is no longer hidden at the back of the second schedule. Further additional schedules have been added to incorporate already widely-used documents, including:

• Schedule 13: Form of Contractor (or Subcontractor) Warranty
• Schedule 14: Agreement for off-site Materials
• Schedule 15: Practical Completion Certificate
• Schedule 16: Final Completion Certificate

Also, the guidelines have been rewritten and no longer have contractual status.

• Cost reimbursement contracts

NZS3910:2013 introduces a standard process for calculating the contract price under a cost reimbursement contract. In the previous version, this had been left to the parties to describe the process in the contract.

Specific provisions have been added for “cost reimbursement” contracts, including:

• The contract price is determined on the basis of net cost plus percentages for overheads and profit.
• Records of costs to be claimed by the contractor for reimbursement must be kept for verification purposes.
• Certain costs will not be claimable (eg, where there are no records; where the costs are not reasonably incurred; and where costs are due to remedying defects).
• An indicative estimate of likely contract price may be required

• Comprehensive programme

NZS3910:2013 now requires a contractor to submit a simple programme that shows how they propose to meet the due date for completion. Special conditions may also require the contractor to provide a “Comprehensive Programme”, including details such as work sequencing; a critical path analysis showing activity durations and dependencies; key dates relating to site access; the provision of principal (client) supplied materials and services; and the works of separate contracts.

• Safety, quality and traffic management plans

NZS3910:2013 introduces specific requirements for safety, quality and management plans. Previously, these had been left to the principal (client) or engineer to document elsewhere in the contract that the contractor must provide by way of these plans.

• Advance notification

NZS3910:2013 introduces an obligation on both the contractor and the engineer to notify the other when either of them becomes aware of any matter likely to vary the contract price, delay completion of the contract works, or result in a breach of a statutory duty in connection with the contract works.

If any of these events occurs, then there is a requirement for the contractor or engineer to meet with each other to explore proposals to deal with the impact of the notified event. The introduction of these new obligations is welcomed, because it will help promote clear communication between the parties.

• Insurance

NZS3910:2013 inserts new insurance provisions and the information for insurance forms contained in the Schedules are much more comprehensive. It requires the parties to elect the specific events which are to be covered by the insurances and sets out which party will be liable for insurance deductibles
or excesses. Importantly, in the wake of the Christchurch earthquake, forces of nature which are identified as covered in the specific conditions will
not be treated as an “excepted risk” (which previously the contractor was permitted to exclude “excepted risks” from its insurance cover).

• Progress payments

Payment claims may be made for materials delivered to the site but not yet incorporated in the contract works, and for temporary works, plant or materials not yet on site. NZS3910:2013 sets out a new process within a set timeframe, which coordinates the engineer and contractor agreeing on a provisional payment schedule before a payment claim is formalised.

Conclusion

We have outlined some of the key changes in NZS3910:2013, which current users need to understand. The additional schedules and provisions are significant amendments and all contractors should review their written contracts in light of these, perhaps with a view to incorporating those that are particularly relevant.

The updated NZS3910:2013 presents a timely opportunity for contractors to consider the contract best suited to their needs and to those currently using some other form of construction contract, to consider the suitability of that contract.

More information

Please note that there are a number of other changes to NZS3910:2013 that we have not been able to discuss. However, we will keep you updated in relation to the proposed changes to the Building Act 2004 and the requirement to have a written construction contract in future articles. If you have any questions about the latest changes, or would like to discuss them in more detail, please contact Michael Weatherall at Michael.Weatherall@simpsongrierson.com or Jo-Anne Knight at Jo-Anne.Knight@simpsongrierson.com.

The information in this article is intended as a general guide only and is not intended to be legal advice. Detailed legal advice should be obtained to cover a specific situation.