Important changes in construction law now in force
The Construction Contracts Act 2002 (CCA) sets out a number of duties and obligations on both those commissioning building work, and those undertaking it. It’s designed to ensure prompt payment of invoices from contractors, and that disputes are identified and resolved quickly and cost-effectively. If you provide or commission building work, it’s essential to be familiar with this legislation.
Important changes to the CCA came into force on 1 December 2015. These included:
- Requiring ‘payment claims’ on commercial construction contracts to include certain specified information, (this was only necessary on residential contracts before 1 December 2015), and
- Enabling adjudication decisions on ‘rights and obligations’ under construction contracts to be enforced in court. (Previously only decisions on payments could be enforced in this way.)
From 1 September onwards
On 1 September 2016 further important changes came into force: engineering, design and quantity surveying services (referred to as ‘related services’) will be covered by the CCA.
This means that providers of related services can take advantage of the payment, enforcement and dispute mechanism provisions in the legislation. However, it will also mean that they are subject to the obligations under the CCA. Similarly, those commissioning such work can use the dispute resolution options. They must, however, be aware of their obligations when faced with a payment claim.
The definition of ‘construction work’ under the CCA has been broadened to capture design and engineering work, and quantity surveying work, carried out in New Zealand. The definition of ‘construction site’ has also been broadened to include, in relation to related services, the site or premises that are the subject of the contract, as those services will not always be provided ‘on’ the construction site.
Concerns over adjudication provisions
The changes were driven by consumer-protection issues. However, they are not free from controversy. In particular, there’s concern over how the adjudication provisions of the Act will work when a claim is made in relation to related services.
The tight timeframes involved (the default position is five days for responding to a claim) are likely to cause problems as, generally speaking, claims in relation to related services are likely to be based on negligence and will therefore be more complex (both legally and factually) than a determination of rights under a building contract. A claim may also be made well after the work in question has been completed, and accessing documents and witnesses may prove problematic.
Claims will also almost inevitably involve insurers, and parties risk losing any insurance cover if they take any steps on the claim which prejudices their insurer’s position. It’s also possible that standard cover will not extend to such claims.
When you only have five days in which to respond to a claim, the pressure is on. It may not be possible to formulate a response, liaise with insurers and get acceptance of cover within that time frame. This makes it crucial to act promptly, communicate often and early with your insurer or broker, and to be familiar with the process.
Implications for businesses
If you provide related services you should become familiar with the Act’s obligations and how it works. This includes reviewing your agreements and terms of trade to ensure they are compliant, and ensuring any invoices are structured as payment claims (including prescribed information) to ensure you can rely on the Act’s prompt-payment mechanisms. You should speak to your professional-indemnity insurer to check that your policy covers any claims under the Act and to check on any special procedures they may have in place to deal with such claims.
If you are commissioning related services (as with any other construction work) you should ensure you are aware of how to respond to a payment claim (by paying it or disputing it) within the legislation’s strict timeframes. If there is a dispute, you will have the option of using the adjudication process that is a less expensive ‘rough and ready’ way of resolving disputes as opposed to resorting to court proceedings.
Further changes next year
Another significant change to the CCA will take effect from 31 March 2017 when retention monies on commercial contracts will automatically be held on trust. We will provide you with more detail on these changes closer to the time.
If you are building, thinking of building, or involved in the construction industry, these changes could affect you. We have experts available who can talk through the changes in more detail with you.
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Copyright, NZ LAW Limited, 2016. Editor - Adrienne Olsen, em. firstname.lastname@example.org ph. 029 286 3650 or 04 496 5513