By Paul Buetow (partner) and Caitlin Hogan (law graduate) in Dentons Kensington Swan’s Major Projects and Construction team. Paul is also a CCNZ representative on the NZS 3910 Review Committee.
Construction contractors will be aware that a review is being undertaken of NZS 3910:2013, the most widely used construction contract. This is significant as it is the first full review of NZS 3910 in approximately 20 years.
The aim is to bring NZS 3910 in line with the current legislative environment and market conditions. It is hoped that ‘modernisation’ will reduce the need for parties to insert their own lengthy and complex special conditions and ensure that the contract is fit for the industry in 2022 and beyond. The intent is that there is a balanced contract that is fair and reasonable for all parties.
The review is being undertaken in two tranches.
The first is an interim review dealing with specific non-contentious matters. It will be followed by a full review of the entire standard, which is being worked on in parallel, and will be opened for industry consultation in, or about, February 2023, with publication to follow in the third quarter of 2023.
This article focuses on the interim review, which was released to the market in early October 2022 and explains the rationale for changes recommended by the interim review.
Overview of the interim review
The interim review focused on the introduction of a liability cap, changes to the provisions dealing with advance notices between the parties, and legislative changes.
Liability under NZS 3910 is uncapped or unlimited. The Review Committee has recommended that uncapped liability be removed as a standard condition. This is to address concerns that uncapped liability is out of step with international contracts and market expectations, and to remove the need for special conditions which deal with liability caps.
The new clause gives the parties a variety of options on how to deal with limitations on liability. Parties will be able to choose from limiting liability to a specific figure or percentage, or to 100 percent of the contract price. There will be some exclusions from the liability caps. The exclusions are:
- The contractor’s indemnity to the Principal for intellectual property infringements under clause 5.12.2;
- Liability to third parties under clause 7.1.1(b);
- Intentional acts, such as fraudulent conduct and wilful acts;
- Abandonment of the contract;
- Penalties applicable under any Act or other legislation.
Insurance obligations will not be affected by the new liability cap provisions. However, if a contractor is required to provide insurance which exceeds the liability cap, and insurance responds, liability in respect of the loss will be the level of cover in the insurance policy.
The interim review does not look at how consequential or indirect losses are dealt with when it comes to liability caps. This issue will be reviewed by the Review Committee as part of the full review.
The advance notification requirements set out at 5.21 of NZS 3910 have also been amended. The advance notification clause has been extended to include an obligation on the Principal (via the Engineer) to notify the other parties as soon as they become aware of an issue which is likely to materially alter the contract price or delay the completion of contract works, or result in a breach of statutory duty.
This notification duty previously only applied to the Contractor and the Engineer to the contract. Clause 5.21.2 has also been amended to allow for the Principal (via the Engineer), the Engineer or the Contractor to require the others to meet to try and explore proposals for avoiding, reducing or mitigating the impact of notified matters. Again, it previously only applied to the Contractor or the Engineer.
The rationale for the changes is to ensure the obligations under 5.21 to provide early warning applied to all parties, including the Principal. It reflects the desire to focus on early engagement between the parties to try and resolve issues.
The interim review looked at what changes were required to NZS 3910 to ensure the standard reflects current legislation. The key changes that have been made are:
- minor updates to reflect obligations under the Health and Safety at Work Act which came into force in 2015 (two years after NZS 3910:2013);
- regulations are now referred to as ‘secondary legislation’ to bring NZS 3910 in line with the changes made under the Legislation Act 2019. This will also reduce uncertainty as to whether the different legislative instruments used to make Covid-19 orders are captured by the standard; and
- references to the repealed Forest and Rural Fires Act 1977 have been deleted from the public liability insurance provisions of NZS 3910.
Overall, there should not be anything overly contentious in the interim review. It is aimed at updating the 2013 standard, clarifying particular provisions, and addressing shortcomings (such as the lack of a liability cap commonly found in overseas contracts and required by the market).
If you have any questions on the interim review please feed them through to CCNZ. We will provide further articles on the full review as it progresses towards release.
Dentons Kensington Swan offers 15 minutes of free advice on construction issues to CCNZ members. This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Dentons Kensington Swan does not accept any liability other than to its clients, and then only in relation to specific requests for advice.