Proposed Amendments to the Construction Contracts Act

1 Feb 13

Proposed changes to the Construction Contracts Act 2002 are aimed at ensuring faster and cost-effective dispute resolution and a more user-friendly process.

The Government introduced into the House on 29 January 2013 a bill to amend the Construction Contracts Act 2002. The changes are intended to apply from 1 November this year.

The main changes are:

  1. removing the existing distinction between residential and commercial construction contracts;
  2. broadening the definition of construction work so that the Act also applies to design, engineering and quantity surveying work;  and
  3. amending the provisions relating to enforcement of adjudication determinations so that enforcement is more widely and quickly available.

Uniform Treatment of Construction Contracts
The Construction Contracts Amendment Bill will mean that the Act will not distinguish between residential and commercial construction contracts.  If the changes are enacted:

  1. The default provisions that give a right to progress payments and a 20 working day period to respond to a payment claim (where no other process has been agreed between the parties) will apply to residential construction contracts.
  2. Contractors on residential jobs will be able to suspend work for non-payment.
  3. The successful party in an adjudication on a residential construction contract will be able to enforce the determination as a judgment.
  4. The information sheets explaining how a payer is to respond to a payment claim, and how a person is to respond to an adjudication notice, will now have to be served on all payers – not just residential occupiers.

This consistency should improve administration for contractors undertaking both residential and commercial work.  Contractors on commercial jobs will need to ensure that they update their payment claims to include the necessary explanatory material, as otherwise the claims will be invalid.

The distinction between residential and commercial contracts will, however,  remain in one last area – contractors will not be able to put a charging order over a residential property constructed for its owner or over a residential property constructed for a family trust in which a beneficiary is to live.  This variance was maintained because of concerns that charging orders could result in the homeowner defaulting on a mortgage and accordingly the consequences would be too severe.  Contractors still have other enforcement options to pursue.

Application of the Act to Design, Engineering and Quantity Surveying Work
The definition of ‘construction work’ is to be amended to include design, engineering or quantity surveying work.   No definition is provided for ‘design, engineering or quantity surveying work’ and accordingly the Act could have very wide application. These consultants will be able to use the payment provisions in the Act to enforce payment of their accounts.  They could also find themselves subject to adjudications.  This will streamline the disputes resolution process where a dispute involves both contractors and consultants. 

Professional bodies lobbied against the application of the Act to these consultants when the Act was originally passed and may well object to these changes.  The reason for including them now seems to be to create consistency across the industry, which it is hoped will streamline the disputes process. 

Enforcement of Determinations
Under the proposed new regime, all adjudicators’ determinations will be enforceable.  Previously only determinations about payments were enforceable – those about rights and obligations were not.  The existing situation provided a fertile ground for argument, and often left the successful party without an enforceable remedy.  The proposed change will make adjudication a more useful tool.

To enforce a determination, a party needs to register the determination as a judgment in the District Court.  The unsuccessful party can oppose this.  The Bill proposes to reduce the time for filing an opposition from 15 working days down to five.  The rationale is that the grounds for opposition are limited, and the successful party will already have spent enough money and time, and will have to spend more to enforce the determination.  It is intended that reducing the time for filing an opposition will make enforcement faster, allowing work to resume more quickly.  While this does reduce the time until a party can enforce its determination, it seems to leave very little time for a genuinely aggrieved party to act to protect its interests. 

Other Amendments
The Bill also proposes other amendments in relation to adjudication including clarifying procedural matters, requiring pre-adjudication conferences and clarifying how determinations can be appealed against, contested and reviewed. 

Overall, there is a focus on making the process clearer and more user-friendly.  For example, notices are to be redrafted in plain English and clearly explain the processes, rights and obligations.  Where an adjudication involves seeking approval for issuing a charging order, the adjudicator must be from an authorised nominating authority.  There is also provision for regulations to prescribe specific qualifications for these adjudicators.  There are very few South Island-based adjudicators so this may cause some difficulties for South Island disputes.

After its first reading, the Bill is likely to be referred to the select committee for consideration.  We would expect the select committee to invite public submissions.

Prepared by Mike Kerr.