Contractor Legal Comment

Introducing the new CCNZ Subcontract

By Arie Moore and Sam McCutcheon who are members of Kensington Swan’s Major Projects and Construction Team and who worked with CCNZ to develop the CCNZ Subcontract.

Civil Contractors has recently published the CCNZ Subcontract, a new standard form subcontract for use by its members. Kensington Swan was proud to assist CCNZ in preparing the CCNZ Subcontract. In this article we discuss the rationale behind the CCNZ Subcontract and highlight some key advantages of using the CCNZ Subcontract.

The CCNZ Subcontract was prepared following a number of requests from members to have an industry standard subcontract that can be used across a wide range of civil projects. The key considerations when preparing the CCNZ Subcontract was that the document needed to be flexible enough to reflect the realities of individual project, as well as present a consistent and fair allocation of risk between the parties.

In preparing the CCNZ Subcontract it was important that input was obtained from both contractors and subcontractors. A number of meetings were held, and drafts circulated for discussion to ensure a range of viewpoints were considered. While it is never possible to please both contractors and subcontractors on all aspects, the CCNZ Subcontract adopts a firm position on key project terms as well as providing parties with the flexibility to have an open discussion on key risk areas of a project.

The CCNZ Subcontract follows a similar format to NZS 3910, which most contractors are familiar with, and is intended to be used in conjunction with that form of contract. However, the CCNZ Subcontract is not exclusive to NZS 3910 and can also be adopted on any other form of head contract.

Risk allocation – Schedule 1

The CCNZ Subcontract contains a number of options for the parties to complete and these are set out in a table format under Schedule 1. The areas highlighted in Schedule 1 reflect the key risk areas of any project and we encourage parties to have a discussion on each of these risk areas in order determine the best risk allocation for the specific project.

Schedule 1 covers all of the usual areas (insurance, bonds, date of possession) as well bringing to light some areas that have are not regularly included in standard terms. One example of this is whether the defects notification period (and associated release of retention monies) is referenced against the completion of the subcontract works, or the completion of the head contract works. The agreed position on these key areas should be clear as between the parties and this is the purpose of providing Schedule 1for the parties to complete.

The CCNZ Subcontract is also one of the few contracts to actively promote a discussion as to whether there should be a cap on the subcontractor’s liability. We discuss this further below.

Head contract

Obligations under a head contract will be of primary importance to the subcontract work. The failure of a subcontractor to perform can often have significant consequences under the head contract in terms of time and cost.

The contractor is required to provide the subcontractor with an opportunity to inspect the head contract, so far as the head contract relates to the subcontract works. Time should be taken to ensure all relevant head contract obligations are clearly set out; this will help align expectations and hopefully ensure smoother completion of the project.

Time is a specific area that is directly tied to the head contract. The CCNZ Subcontract provides that where both the contractor and subcontractor are delayed by acts outside the contractor’s control then the subcontractor will not be entitled to a greater extension of time than is awarded under the head contract. The intention of this is to ensure that neither party is disadvantaged by matters outside of their control.

Limitation of liability

The CCNZ Subcontract is one of the few construction contracts in New Zealand that actively promotes a discussion around limitations of liability. This is achieved through a liability cap being included in Schedule 1. Given the different risk profiles of contractors and subcontractors, a discussion around the merits of including a limitation of liability is important for the industry to engage in.

The CCNZ Subcontract is neutral on whether a limitation is actually included in any specific subcontract. The default position is that the subcontractor’s liability will remain unlimited unless a limit is agreed and added into Schedule 1.

Conclusion

The CCNZ Subcontract has been drafted to cover a wide range of projects and to promote fairness across all areas of the industry. The terminology is clear and easy to understand, and legal jargon is kept to a minimum. We encourage all members to read the subcontract conditions and to adopt the CCNZ Subcontract on your next project.

With the addition of the CCNZ Subcontract there is no excuse for not entering a fully documented subcontract agreement on every project going forward.

An electronic copy of the CCNZ Subcontract with editable fields can be obtained by emailing tricia@civilcontractors.co.nz.

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Kensington Swan provides 15 minutes of free legal advice to all CCNZ members on construction issues; if you would like to get in touch you can find contact details at www.kensingtonswan.com.

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