In the early stages of a commercial construction project, one of the first things to sort out is the contract. We asked Prendos Quantity Surveyor Linda Lodetti about the best approach to ensure you’re legally covered.
Traditionally, New Zealanders have tended to take a ‘she’ll be right’ attitude to construction projects. As a small country where everyone seems to know one another, projects were often based on nothing more than a friendly handshake. But, with historical construction industry practices in New Zealand recently contributing to the liquidation of some main contractors and sub-contractors, the industry has become aware of the importance of getting legal contracts right.
“Construction is a unique practice where, contrary to traditional legal aspects of sale and purchase conditions, the client is expected to pay for incomplete work as it progresses – before it has been fully certified and signed off,” explains Linda. “We wouldn’t buy a car that way! We would only pay for it once it’s been designed, manufactured, built and delivered in full working order.”
“Now add the complex environment of construction. All parties intend to deliver on the signed deal, but there are so many factors that can impact on final delivery – all of which occur over very lengthy periods of time. It’s a bit like a marriage. We all have good intentions but there are inevitably issues that will arise and if you’re not properly covered legally, it can get messy. That’s why it’s so important to put the right contract in place during the ‘honeymoon period’, with a clear mind and careful consideration of the typical aspects that can go wrong – such as severe weather, consent issues, poor design, late delivery of materials or defective work.”
So how do you go about selecting the right contract? There are number of standard contracts to choose from when undertaking a construction project. Linda says selecting the right one is sometimes about understanding where the risk is attributed.
In New Zealand we have the following suites of standard contracts:
- NZS3910: A build only contract with the design responsibility held by the third party consultants appointed by the client.
- NZS3915: Similar to 3910, however no one is appointed to act as engineer to the contract. The client administers the contract directly.
- NZS3916: Design and build contract where the contractor takes full responsibility for all design.
- NZS3917: Intended for use when contracts are signed for providing maintenance or services on a fixed term basis.
- NZIA SCC: New Zealand Institute of Architects contract – for use between the client and contractor, where the Architect is engaged to administer the contract.
Of these, NZS3910 is by far the most commonly used contract suite in New Zealand. Applied across a wide variety of building and civil engineering construction projects, it strikes a fairly neutral balance between the interests of client and builder. It introduces a third party ‘Engineer’ (architect, quantity surveyor or other client-appointed professional) who acts as project manager and oversees all aspects of the contract.
However, there is a widespread opinion that NZS3910 is outdated and doesn’t fit the requirements of modern construction projects. It was most recently reviewed in 2013, prompted by concerns from the construction industry about the frequent addition of extensive ‘special conditions’. However, while the update has reduced this practice – encouraging a tick box approach to cover key items of the contract – Linda says it certainly hasn’t eradicated it.
“Clients still take NZ3910 and add onerous bespoke clauses in order to amend the contract to fit. Not only can this result in huge legal fees for new terms and conditions, it has the potential to undermine the original intent of the contract – leading to different interpretations of the changes and becoming a minefield in legal disputes. I certainly agree with the opinion that NZ3910 needs an overhaul. But, while it may not be perfect, the safest option is to stick with the original intent of the standard contract.”
Linda does recognise that there are many circumstances where clauses do need to be added, in which case she recommends seeking advice from an expert.
“If your project is particularly complicated, you’ll need an added layer of legal advice. Any proposed changes to a standard contract should be discussed with experts such as legal representatives or solicitors who specialise in Construction Contracts. Architects, building surveyors and contractors aren’t legally trained, so while they’ll do their best, you may end up in a situation where the intent of all parties is not aligned.
“Ideally, the best approach for a happy ‘marriage’ is to select the most appropriate contract with due consideration of the options and with minimal changes or bespoke clauses – all overseen by a legal expert. This will hopefully see you avoiding any disputes or, failing that, ensure the relationship ends with a smooth divorce!”