Contractor

Legal report card

This article first appeared in Contractor Perspectives 2017.

A report card review of the year that was, a general comment on the industry, and a list of e-things to watch over the next 12 months. Sam McCutcheon, solicitor, and Arie Moore, senior associate, Kensington Swan’s construction law team.

IN A NUMBER of respects 2016 was similar to 2015. The civil industry was still performing strongly and there appeared to be a good level of work around.

A number of major projects were completed or approaching completion, with many others underway in earnest. Although, when we take a step back it shows that there were also a  number of significant developments.

In this perspective we have approached our review in the same format as a report card; first a review of the year that was, a general comment on the industry, and finishing with some things to watch over the next 12 months. So let’s get into it.

2016 – Law, law and more law

The 2016 year has been particularly notable for the amount of law and legislation which has been changed and/or come into force. There has not been this level of change for many years.

Health & Safety

A major revamp to health and safety law meant that everyone stopped and considered their health and safety processes. The Health and Safety at Work Act 2015 came into force on 4 April 2016 and this implemented an important shift towards collaboration and discussion around health and safety issues.

While most contractors and principals that we have talked to had begun reviewing their health and safety position well before 2016, you would have noticed a shift in the way health and safety are discussed and documented both at tender time and on site. This law change also raised the penalties for breaches of health and safety, although it is too early to see the actual impact of these increases.

Construction Contracts Act

This year saw the amendments to the Construction Contracts Act really bed in, particularly around payment claims and adjudication. This trend is likely to continue into 2017.

Additionally, from 1 September 2016, consultants have been brought within the ambit of the Act. The Act now applies to all new contracts for design, engineering or quantity surveying work. The effect of this being that consultants will be able to invoke the payment claim/payment schedule process as well as being subject to the Act’s enforcement provisions (debt due and adjudication). If you are engaging design, engineering or quantity surveying work consultants it is important to understand this change.

Building products

Earlier this year the Supreme Court held that building products were not ‘building work’ as defined in the Building Act 2004, and are therefore not subject to the 10-year limitation long-stop under the Building Act. This finding has clarified that claims in relation to defective building products can still be brought after 10 years.

This is a significant development in relation to defective products as defects are often not discovered until well after they have been installed. This finding is likely to apply equally to products in the civil works space and has had a number of construction suppliers questions, such as whether the activity they are carrying out would be considered ‘building work’ for the purposes of that 10-year long-stop.

Class actions and direct agreements

Sticking with building products, the Supreme Court decision above cleared the path for a number of class actions to proceed against cladding suppliers. There are separate high profile class actions against a cladding manufacturer that are progressing through the courts. The class action is still relatively novel in New Zealand and allows claimants with similar causes of action to join together and have their case heard as a representative action.

In late 2015, the High Court found that where a developer enters liquidation, direct payments made by a financier to a contractor could be clawed back through the insolvency regime.  This was a significant shift in understanding and has the potential to have a major impact on the way projects are financed. The High Court decision was appealed when the appeal was heard earlier in 2016. We are still waiting for the decision to be released on this appeal and this will be something to look out for in 2017.

Industry comment

There continue to be some strong performances and a good level of work around the country. A number of major projects are complete or approaching completion, with many others getting underway in earnest.

The industry continues to be a star performer in the economy. However, this means that many areas of the construction industry are at capacity and there is a real resource constraint. This is reflected in the types of questions we see, with a notable trend towards questions about quality, responsiveness, and progress of works.

This increased focus on quality can lead to increased disputes where works have not been completed to an appropriate level. This can be a result of the current environment, where the level of demand can easily lead to contractors over-stretching themselves without fully appreciating the additional risk as a result.

These pressures are only going to increase as a result of the Kaikoura earthquake and remedial work that is required in the upper South Island and greater Wellington region.

2017 – the crystal ball

2017 will be notable for a number of reasons. First, it is clear that the level of work will continue, and current resourcing constraints will only get more difficult. For starters, the earthquakes near Kaikoura have caused major infrastructure disruption that will need to be remedied sooner rather than later. The government is also continuing with a significant infrastructure programme with a number of projects well underway around the country.

Second, the amendments to the Construction Contracts Act that will require retentions to be held in trust are due to come into force from 31 March 2017 and there is still significant uncertainty around the details of this legislation. Expect to be busy in the first quarter of next year implementing the details of this once they are released.

Going wider than simply the physical damage caused by the Kaikoura quake, there are discussions in government around how the Building Code is drafted and how it operates in practice. We are likely to see some kind of legislative activity in this area which will also have an impact on infrastructure.

One aspect that snuck under the radar was the long-running reforms to the Resource Management Act 1991. Around the same time as the US elected Mr Trump to lead their country, over here in New Zealand National announced that it had finally received the support from the Maori Party to push through RMA reforms that had been sitting on the cards for a number of years. The Bill is currently being reviewed by the Select Committee and although it will not be the silver bullet some have been hoping for, it will provide some change to an area where change is much needed.

Finally, and staying away from purely legal predictions we believe there is likely to be a larger increase in private developments. This will be driven by the current low interest rates and the government’s focus on housing affordability and social housing.

So that is our report card for 2016. Overall we would say 2016 gets a solid pass but we are expecting even more activity in 2017.

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