Changes to New Zealand’s construction contract
Introduction
NZS 3910 is the form of contract used for most building, engineering, construction and infrastructure projects in New Zealand. NZS 3910 is published by New Zealand Standards.
A new version of NZS 3910 was released in November 2023 (2023 Version). The prior version of NZS 3910 was released in 2013 (2013 Version). The purpose of the revision was to make available to the construction sector a contract that:
is widely accepted and fit for purpose;
limits the need for special conditions;
improves understanding of contracts;
allocates risk fairly;
results in more contracts that embody Construction Sector Accord principles (refer to www.constructionaccord.nz/the-accord); and
allows the industry to document contracts quickly and easily (improving productivity) and address common issues.
10 key changes
We have set out below 10 key changes made to NZS 3910. This is not a list of all changes - many changes are not mentioned (or not explained fully).
Engineer replaced with contract administrator and independent certifier
The role of the engineer has been replaced with two separate roles, being:
the contract administrator (acting for the principal); and
the independent certifier (acting independently).
While the roles are separate, the contract administrator and independent certifier can be the same person.
2. Target price (or a mix of pricing methods)
The 2023 Version contains an option for the contract price to be a ‘target price’. Where a target price applies, the price is determined using the cost reimbursement method and the parties then share the saving (if the price is less than the target price) or the overrun (if the price exceeds the target price).
The provisions relating to the target price are basic. We expect that, where a target price applies, special conditions will be added to provide further detail.
The contract price can also be a mix of pricing methods (i.e., lump sum, measure and value, cost reimbursement and/or target price).
3. Liability cap – there is now an (optional) cap on the contractor’s liability
The 2023 Version provides an option for the contractor’s liability to be capped. The liability cap is stated in the special conditions (expressed as a percentage of the contract price or an amount).
The liability cap is subject to several exclusions. There is no:
separate cap for late completion (i.e., liquidated damages); or
exclusion of consequential losses or the Consumer Guarantees Act 1993.
The liability cap increases where there is (or should be) insurance of a higher amount.
4. Contractor’s indemnity – no longer a ‘no-fault’ indemnity
In the 2013 Version, the contractor’s indemnity (in 7.1.1(a)) could respond even where the contractor had done nothing wrong. This indemnity is now limited to losses which are attributable to the contractor’s negligence or breach.
5. Dispute resolution – simplified, with good faith negotiation
The process for resolving disputes has been simplified.
The 2023 Version states that a good faith negotiation between senior members of the parties is the first step in the resolution of disputes. It is unclear whether this is a mandatory first step (or simply encouraged).
The parties can:
agree to refer the dispute to mediation;
agree to suspend any disputes resolution process;
refer the dispute to arbitration; and
refer the dispute to adjudication under the Construction Contracts Act 2002.
6. Obligation to protect the environment
A provision has been added requiring the contractor to take steps to protect the environment (such as not discharging contaminates into the environment).
Environmental management and sustainability management plans have been added as options in the specific conditions (as part of the management plans which the contractor is required to provide).
7. Order of contract documents – demotion of contractor’s tender
The contractor’s tender has been moved down in the list of documents. Since the order of documents determines priority, changes to the contract documents which are required by the contractor will need to be agreed (and incorporated in the contract documents) before the contractor can submit its tender.
8. Advisers
Provisions have been added relating to the advisers engaged by the principal (e.g., designers, quantity surveyors and other consultants). For example:
an act or omission of an adviser is an ‘excepted risk’;
the contractor must provide access to the advisers to check the setting out of the contract works; and
advisers can advise, assist and support the contract administrator and independent certifier, but the advisers have no authority to issue instructions or make decisions.
9. Final account
Under the 2013 Version, the final payment claim is to be submitted by the contractor no later than 1 month after the final completion certificate. Now, under the 2023 Version, an interim final account is to be submitted by the contractor no later than stated in the specific conditions (e.g., 3 months after the issue of the practical completion certificate). The interim final account is to set out the proposed contract price up to practical completion. A final account is then to be submitted no later than 20 working days after the final completion certificate – the final account is limited to:
the interim final account;
variations/instructions which occurred after practical completion; and
other matters which were not agreed at the time of the interim final account (with the permission of the independent certifier).
10. Terminology
Terminology has been updated to reflect modern practice. For example:
‘licences’ has been replaced with ‘consents’;
‘On-site Overheads’ has been replaced with ‘Preliminary and General’ or ‘P&G’; and
‘Off-site Overheads and Profit’ has been replaced with ‘Margin’.
Next steps
The practices of those involved in construction and infrastructure projects will need to evolve to align with the 2023 Version. This may require a review of systems and the retraining of staff. Templates (including special conditions) should be reviewed, as they may not be compatible with the 2023 Version.
If you have any questions about the changes to NZS 3910 or would like assistance getting up to speed, please get in contact with Mike Kemps.
Disclaimer: This article is produced solely for the purpose of providing general information and should not be construed or acted on as legal advice.