By Paul Buetow (Partner), Stephanie Panzic (Senior Associate) and Rusi Jagose (Law Graduate) in Dentons Kensington Swan’s Major Projects and Construction team.
On 9 May 2023, Standards New Zealand released the draft revised ‘Conditions of Contract for building and civil engineering construction’ DZ 3910 for public consultation.
The draft follows 14 months of extensive work by a review committee, made up of 23 industry representatives: Paul Buetow (Dentons Kensington Swan), and Jim Juno (Juno Civil) represented CCNZ.
To ensure the voices of the civil contracting industry are heard, it is critical for Standards New Zealand to hear from as many companies and/or individuals as possible. Consultation is open until 30 June (end of this month), which means you have less than four weeks to get your head around the changes and make submissions.
To give you a head start, we have summarised the key areas of proposed change to NZS 3910 and the process that you must follow to make submissions on the proposed recommendations.
NZS 3910 and why it needs updating
NZS 3910 is a standard form contract that sets out general conditions for incorporation into construction contract documents. The standard allows the parties to a construction contract to efficiently establish a set of comprehensive contractual arrangements, without having to start from scratch.
This standard is generally considered to reflect fair risk allocation between the Principal and Contractor, and is consistent with requirements under the Construction Contracts Act 2002.
A full review of NZS 3910 has not taken place since 2003 (the 2013 update was of limited scope). Over the past two decades the construction industry and the law have changed significantly, while NZS 3910 has not. Special conditions (conditions that amend the general conditions) for projects using NZS 3910 were becoming longer and more complex and frustrations around the outdated standard were being heard. There was increasing concern over the increasing transfer of risk to contractors and the number and extent of special conditions that were being added.
The new draft NZS 3910 follows a full review focussing on feedback from the construction sector which will enable the standard to remain effective in the modern construction era. The revisions are intended to provide a fair, more user-friendly document that is up to date with the changing needs of the construction industry.
Key changes
Definitions (clause 1.2)
Amendments have been made to existing definitions and new definitions have been introduced. Some key changes to note are:
“Preliminary and General” (P&G) replaces what was previously referred to as On-Site Overheads. This was done to match the way that this item is most commonly described in the market.
For the same reason, “Margin” replaces what was previously referred to as Off-Site Overheads and Margin.
New roles of a “Contract Administrator” who gives “Instructions” and an “Independent Certifier” who gives “Decisions” – more on this below.
A New Contract Mechanism (clause 2.5)
A new Target Price Contract Price mechanism has been introduced. This mechanism allows for the sharing of cost under-runs and over-runs, incentivising build efficiency and cost effectiveness.
Contractor’s General Obligations (clause 5)
The Contractor’s obligations in section 5 have been amended, most noticeably in relation to Health and Safety (5.8-5.9), protection of the environment (5.21) and reporting (5.22). The Health and Safety amendment brings the Contractor’s obligations in line with the Health and Safety at Work Act 2015.
Protection of the environment is now specifically provided for, with the Contractor required to take particular steps to ensure compliance with resource management law and applicable plans and consents. The reporting clause requires the Contractor to provide status reports, with the timeframe and content to be agreed and set out in the Specific Conditions and Special Conditions.
Dual Role of the Engineer (clause 6.1 and throughout)
The dual role of the Engineer is one of the most debated areas in NZS 3910 and there have been significant changes to the role to reflect this. The role has now been split into a Contract Administrator (gives Instructions e.g. suspensions and variations) and an Independent Certifier (gives Decisions e.g. payment and practical completion).
This amendment better recognises the dual and often conflicting role of the Engineer in NZS 3910.
Fault Based Indemnity (clause 7.1)
Rather than the act/omission test in the existing NZS 3910, the indemnity is now fault based, meaning that the Contractor is only liable to the extent that damage was caused by it.
Liability Cap (clause 7.2)
The option is now provided to cap the Contractor’s liability, giving the Contractor greater certainty as to the extent of its risk. Liability can be capped at 100% or a lesser percentage of the Contract Price or by a dollar figure.
There are a number of exceptions to that cap, including cases of fraud, illegal acts, wilful or reckless misconduct, abandonment of the Contract by the Contractor, and penalties under legislation (e.g. WorkSafe penalties). These changes are very similar to those already recommended by Standards New Zealand in October 2022 following its limited review of NZS 3910 last year.
Variations (clause 9)
The Variations section now includes price adjustments, such as contingency payments and provisional sums, rather than these being dealt with in the Payments section. There is also a new section dealing with the final account. The changes are significant and will be the subject of a later article on the Dentons Kensington Swan website.
Time for Completion (clause 10)
While the process for time extensions is largely the same, the way in which they are notified and assessed has changed significantly. Note the involvement of both the Contract Administrator and Independent Certifier in this process. Also note that there is no condition precedent clause but that the lateness of the submission can be taken into account in assessing the time extension to be granted.
Disputes (clause 6.4 and 13)
The dispute resolution provision has been redesigned to be easier to understand. It is split between Decisions undertaken by the Independent Certifier at clause 6.4 and the disputes section at clause 13.
Plain language principles
We often hear from Contractors that the language used in NZS 3910 is “too legal”, but plain language principles have not been incorporated into the draft. Time did not allow for this.
Process to give feedback
The review committee has now released the draft standard for public consultation under the heading DZ 3910, which can be found at ‘Standards New Zealand – Citizen Space’. Members of the public are able to download both a blank copy of DZ 3910 and a comparison document with tracked changes. The comparison document provides clarity on the changes made to the current NZS 3910. Standards New Zealand has set up an online form for companies and individuals to provide feedback on the draft. To find this, scroll to the bottom of the DZ 3910 consultation page and click “Online submission”.
Seminars
Dentons Kensington Swan has conducted a series of seminars for CCNZ members, clarifying the proposed amendments and providing guidance for those wishing to make submissions. If you missed out, there is likely to be another one in mid-June.
Please also refer to the Dentons Kensington Swan website, as we have been posting updates on the key revisions.
• 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. For specific advice, contact your legal advisor or the Major Projects and Construction Team at Dentons Kensington Swan on (09) 379 4196.