The New NZS 3910:2013
Introduction
On the 1st of October 2013, NZS 3910:2013 Conditions of Contract for Building and Civil Engineering Construction was released by New Zealand Standards. This is the first in a suite of documents to replace NZS 3910:2003. NZS 3916:2013 Conditions of Contract for Building and Civil Engineering Construction – Design and Construct was released in November 2013 and NZS 3917:2013 Conditions of Contract for Building and Civil Engineering Construction – Fixed Term is due for publication later this year.
It is widely accepted that NZS 3910 is the form of contract most commonly used for building and civil engineering construction contracts in New Zealand, and therefore it is important that it remains up to date from both a legal and an industry perspective. The standard was last updated in 2003 to align with the requirements of the Construction Contracts Act 2002. This latest review was prompted by feedback from the construction sector, concerned about the extensive and often onerous Special Conditions that have, in recent years, become more and more common.
It would be naive to think that the 2013 edition will completely eliminate the need for project specific tailoring, however it is hoped that the new edition will reduce the extent of Special Conditions required.
Key Changes
Cost Reimbursement Contract (clause 2.4)
The cost reimbursement provisions have been rewritten, with a stronger focus on those items that can be fixed and those that are truly cost-reimbursable. Non-reimbursable costs are also clearly defined.
The revised provisions more clearly set out the basis for the calculation of the Contract Price, and enable agreed rates to be used. Where agreed rates are used, an allowance for On-Site Overheads, Off-Site Overheads and Profit will only be made where the rates are exclusive of such amounts. Where agreed rates are not included, the Contract Price will be calculated on the basis of Net Cost plus an allowance for On-Site Overheads, Off-Site Overheads and Profit.
There is also the ability in the Special Conditions to require the Contractor to submit an indicative estimate of the Contract Price prior to commencement of the Contract Works. Where an estimate is provided, each payment claim must be reconciled against the estimate, together with an explanation for any differences between the estimate and the payment claim, and an updated estimate of the final Contract Price.
The Contractor is required to maintain records of its costs and make such records available for inspection by the Engineer.
Assignment (clause 2.9)
There is a new assignment clause that permits assignment only with the prior written consent of the other party, such consent not to be unreasonably withheld or delayed. Clause 2.9 also notes that any change in the effective control of the Contractor will be deemed an assignment. While the restriction on assignment applies to both parties, the deemed assignment provision in the event of change of ownership applies only to the Contractor.
No waiver
The new clause 2.10 provides for no waiver except by written agreement.
Contractor’s Bond (clause 3.1)
The requirements of the Contractor’s Bond remain in substance the same as in the 2003 edition.
Clause 3.1.3 prohibits the inclusion of an expiry date in the Contractor’s Bond unless agreed by the Principal. Where the Principal does agree to an expiry date, the Contractor is required to provide a replacement bond at least one month prior to the expiry date, unless Practical Completion has been achieved and the Principal has given written notice to the Contractor and the surety releasing them from the Contractor’s Bond.
Clause 3.1.6 sets out the circumstances in which the Contractor’s Bond cannot be called, namely where the Contractor has fulfilled all of its obligations under the Contract up to Practical Completion, where the Contractor has paid to the Principal any damages sustained by the Principal arising out of a default by the Contractor up to Practical Completion or termination of the Contract, or a Practical Completion Certificate has been issued for the whole of the Contract Works.
Care of the Contract Works, Materials and the Site (clause 5.6.5)
In the event any loss or damage occurs to the Contract Works, any Materials or the Site, clause 5.6.5 now requires the Contractor to attend urgently to any matters with safety or environmental impacts and to notify the Engineer of the loss or damage and its cause. The Contractor is also required to allow the Engineer reasonable time to inspect the loss or damage. The Contractor’s obligation to repair the loss or damage as required for completion of the Contract Works remains as per the previous edition.
Excepted Risks (clause 5.6.6)
There is greater clarity around the forces of nature which will qualify as excepted risks. In clause 8.1.6 of the Special Conditions, the Principal is now required to elect which forces of nature are to be insured by the Contractor. Any forces of nature that are to be insured by the Contractor (as indicated in the Special Conditions) will not be an excepted risk for the purposes of clause 5.6.6.
Programme (clause 5.10)
The provision of a programme for the Contract Works is now mandatory and must be submitted to the Engineer within 10 Working Days of the Date of Acceptance of Tender. The programme will serve as a “road map”, demonstrating how the Contractor proposes to achieve Practical Completion by the Due Date for Completion. The programme is intended to be a “living document”, used by the Contractor to track and report actual progress against planned dates and to forecast the likely date for Practical Completion of the Contract Works and any Separable Portions. The Contractor’s entitlement to payment under the Contract is conditional upon the provision of the programme.
There is also an option in the Special Conditions to require the provision of a Comprehensive Programme which, as the name suggests, requires a greater level of detail such as a critical path network analysis, a proposed sequence of works, key dates for access and the provision of work, services or Materials. The Contractor has additional time to complete a Comprehensive Programme, which must be submitted within 20 Working Days of the Date of Acceptance of Tender. Where the programme is a Comprehensive Programme, the Contractor is required to provide regular updates of the programme to the Engineer.
Although the Engineer may require the Contractor to amend its programme from time to time, there is no requirement for the Engineer to approve the programme / Comprehensive Programme submitted by the Contractor. Similarly, compliance with the programme will not relieve the Contractor from any liability under the Contract.
Compliance with laws (clause 5.11)
The default position in clause 5.11 remains unchanged, namely the Principal is responsible for obtaining all licences required for the construction and use of the Contract Works and the Contractor is responsible for obtaining all licences for Temporary Works. There is opportunity in the Special Conditions to alter this allocation.
New clause 5.11.8 allows the Engineer to request certain documents prior to Practical Completion and under clause 5.11.9 the Contractor must provide certain documents before making an application for any Practical Completion Certificate or Final Completion Certificate, including any compliance certificates for which the Contractor is responsible under the Contract.
Safety plan (clause 5.17), Quality plan (clause 5.18) and Traffic management plan (clause 5.19)
If required by the Special Conditions, the Contractor is required to provide a Site-specific safety plan, a quality plan and/or a traffic management plan. These plans aim to assist the Contractor to ensure the protection of persons and property, achieve compliance with other safety requirements set out in the Contract, satisfy the quality requirements of the Contract and address traffic management.
In the 2003 edition, the provision of a safety plan and a traffic management plan only applied to local authority contracts whereas these plans now have general application. In addition, the 2003 edition referred generally to “quality management systems” whereas the new clause 5.18 now refers to a quality plan and sets out those matters that must be addressed in the plan (refer clause 5.18.2).
Each plan must be submitted to the Engineer for approval and where approval is not given the Contractor is required to submit a revised plan.
The Contractor is not entitled to commence any part of the Contract Works on Site until the Site-specific safety plan, the quality plan, and the traffic management plan (or any revisions of such plans) have been accepted by the Engineer.
The Contract expressly provides that compliance with the above plans shall not relieve the Contractor from any liability under the Contract.
Advance notification (clause 5.21)
Clause 5.21 introduces a new mechanism referred to as “advance notification”, which requires the Contractor and the Engineer to give advance notification of any matters likely to impact Cost or time.
The advance notification provisions are akin to the “early warning system” which forms part of the NEC suite of contracts (although not as strict) and requires the Contractor and the Engineer to give written notice of any matter which is likely to materially alter the Contract Price, materially delay completion of the Contract Works, or result in a breach of a statutory duty.
The Engineer has the power to discount the Contractor’s entitlement to a Variation if the Contractor fails to notify any matter which it reasonably ought to have notified under the advance notification procedure. In such circumstances the Variation will be valued as if notification had been given and where that notification might reasonably have allowed the effect of the matter to be avoided or reduced.
It is hoped that this new mechanism will be an effective risk management tool which encourages collective responsibility for notifying and resolving issues arising under the Contract.
Review, inspection, acceptance or approval by the Engineer (clause 6.2.5)
This new clause provides that any review, inspection, acceptance or approval by the Engineer shall not release the Contractor of any obligation or liability under the Contract, unless by Variation.
Removal and making good (clause 6.5)
Under clause 6.5, the Engineer may instruct the removal and remediation of any work where Materials or workmanship do not comply with the requirements of the Contract.
If the Contractor fails to undertake the work within the required timeframe, and if the work still remains incomplete after a further five Working Day grace period, the Engineer is entitled to direct others to carry out the work at the Contractor’s Cost. Where such work is carried by others, the Contractor is not relieved of any of its obligations under the Contract.
The additional provisions in clause 6.5 mean that unnecessary delays can be avoided where the Contractor fails to take the required action.
Engineer may instruct urgent work (clause 6.8)
The scope of clause 6.8 has been extended to cover not only emergency work but also work that the Engineer believes to be urgent due to environmental matters, public safety issues, or the risk of significant inconvenience to third parties.
Insurance (Section 8)
Section 8 has been reorganised to provide a more logical ordering of clauses and improve readability. Clause 8.1 sets out the general requirements for insurance and applies equally to insurances taken out by the Principal and the Contractor. Clause 8.2 then deals with Contractor arranged insurances and is followed by separate clauses dealing with the specific Contractor arranged policies. Clause 8.7 covers Principal arranged insurances and precedes separate clauses dealing with the specific Principal arranged policies.
The new insurance provisions provide greater clarity around which party is responsible for maintaining cover, the amounts to be insured, responsibility for deductibles, the periods of insurance and policy replacement requirements.
Clause 8.1 addresses payment of deductibles under the various policies. The Contractor is responsible for paying the deductible on all insurance policies it is required to maintain. Where the Principal is responsible for maintaining the insurance cover, the Principal will be responsible for payment of the deductible, except where an act or omission of the Contractor gives rise to the loss, damage or liability in which event the Contractor will be liable either for the full deductible or the Nominal Deductible (being an amount stated in the Special Conditions being equal to or less than the actual excess on the Principal’s policy).
Clause 8.1.6 enables easy allocation of responsibility to insure against the forces of nature specified in the Special Conditions, and provides that all insured forces of nature will not be treated as “excepted risks” under clause 5.6.6(f).
Under the 2003 edition the Contractor was required to insure Plant above a certain minimum value. Under the new edition the value threshold remains but there is an additional requirement for the Contractor to insure any items of Plant on Site which are critical to the performance of the Contract Works and specifically identified as such in the Special Conditions.
There is also provision for sub-limits to apply under the professional indemnity insurance relating to design undertaken by Subcontractors.
Variations (Section 9)
The changes to Section 9 introduce greater clarity around notifying and valuing Variations.
Under clause 9.3.2 the Contractor is now required to notify the Engineer of the proposed value of any Variation within one month (or as soon as practicable) following receipt of any Variation ordered by the Engineer. This new clause essentially codifies the process that already seems to happen in practice.
Where the Contractor notifies the Engineer that it believes an instruction given by the Engineer involves a Variation, or that it considers any matter not described in clause 9.1 should be treated as a Variation (refer clauses 9.2.2 and 9.2.3 respectively), the Engineer is required to respond within one month (or as soon as practicable thereafter) either confirming that the relevant instruction or matter involves a Variation or disallowing a Variation, giving reasons if the latter. Any failure by the Engineer to respond within the given timeframe will trigger the Variation process.
There have been some amendments to the clauses relating to On-Site Overheads, Off-Site Overheads and Profit to clarify the appropriate calculation of margins on Variations, as well as some clarification on time-related costs.
In addition, the threshold for the Engineer to apply a different Working Day rate to that nominated has been lowered so that it no longer needs to be an extreme case, but instead clearly inequitable to use the nominated rate having regard to the nature or circumstances of the Variation.
Defects Liability (Section 11)
Clause 11 introduces new terminology for old concepts. The “Period of Defects Liability” has been replaced by the “Defects Notification Period” and the “Defects Liability Certificate” is now referred to as the “Final Completion Certificate”.
Under clause 11.2.1 the Contractor is now required to complete any defects or damage notified to it by the Engineer within five Working Days or such other reasonable time as agreed by the Engineer. If the Contractor fails to remedy such defects within the agreed period, the Engineer must give a further five Working Days written notice and if the work still remains unperformed the Engineer may direct others to carry out such work at the Contractor’s cost.
Warranties (clause 11.5) and Guarantees (clause 11.6)
There is now provision for warranties to be provided by the Contractor in addition to guarantees. A form of warranty is attached as Schedule 13.
The Contract expressly provides that the Contractor remains liable for the fulfilment of all of its obligations under the Contract notwithstanding the provision of any warranty or guarantee.
Payments (Section 12)
There is no longer the need for the Engineer to issue two payment schedules where the Principal does not require any amendments or deductions to the Progress Payment Schedule issued under clause 12.2.1.
This means that the Progress Payment Schedule remains provisional until 12 Working Days after the date the Contractor serves its payment claim, or the date the Engineer issues a replacement Progress Payment Schedule to take account of any amendments/deductions required by the Principal. A similar process applies to the submission of the final payment claim and issue of the Final Payment Schedule.
All time periods referred to in the payment process are now calculated from the date the payment claim is submitted by the Contractor, although the overall timeframe for payment under any Progress Payment Schedule (being 17 Working Days after the date the payment claim is submitted) remains unchanged.
There is now a defined time limit on when the Engineer must provide a Final Payment Schedule, being no later than 35 Working Days after the date of service of the Final Payment Claim (previously the Engineer was required to issue the provisional Final Payment Schedule “as soon as practicable after receipt of the Contractor’s Final Payment Claim and the issue of the Defects Liability Certificate”).
The time for submission of the final payment claim of the Contractor has also changed, reducing from two months to one month after issue of the Final Completion Certificate.
There is a new interest calculation based on 1.5x SME overdraft rate (previously 1.25 times the Contractor’s overdraft rate).
In addition to Provisional Sums, there is now provision for Provisional Items which cover individual elements of work which are typically measured and which have rates against nominal quantities included in the Schedule of Prices. Provisional Items are to be carried out only on the instruction of the Engineer and payment will be calculated by applying the agreed rates to the measured quantity of work.
Disputes (Section 13)
The significant amendment to Section 13 is that every decision, valuation or certificate of the Engineer shall be final and binding if it has not been referred to the Engineer for review under clause 13.2.1 or to Adjudication within three months after it has been given, unless notice has been given to the Engineer during such time. However, Progress Payment Schedules are expressly excluded from the application of clause 13.1.1.
Service of Notices (Section 15)
This Section has been updated to include service by email and requires the sender of any email notice to retain evidence of the origin, destination and time of sending any email communication. There is also a new clause which provides that any notice served on a day other than a Working Day, or after 5pm on a Working Day, shall take effect on the first Working Day after that day.
Other Changes
The Contract Agreement now appears on page 1 (this was previously the Second Schedule), and the Contract Documents contained in clause 4 of the Contract Agreement are listed in reverse chorological order (note the Contract Agreement is silent as to the order of precedence).
The guidelines are more comprehensive than in the 2003 edition, and no longer have contractual status.
There are a number of new Schedules. In addition to the new Form of Contractor Warranty previously mentioned, there is also an Off-Site Materials Agreement (Schedule 14), Practical Completion Certificate (Schedule 15) and Final Completion Certificate (Schedule 16).
Conclusion
The brief to the Committee was “a limited technical review”, however despite this somewhat narrow scope the Committee charged with the review has been able to achieve a number of meaningful changes. Examples of these are the introduction of the advance notification procedure to encourage transparency and a “no surprises” approach, greater clarity around risk allocation and insurance obligations (which are now reflective of the current New Zealand market), increased discipline in the Variation process, and streamlining of the payment procedure. In addition there is a greater emphasis on health, safety and quality, and a higher degree of accountability in terms of planning and monitoring progress of the Contract Works, which should ultimately result in more effective management of construction projects.
Having said that, there is still room for improvement. Areas of the document that could benefit from further revision include the rather outdated tender conditions and the limited grounds of termination available to the Principal. In addition, the indemnity provisions remain extremely wide and the liability of the Contractor continues to be uncapped and unlimited. Finally, there are no obligations on either the Principal or the Contractor relating to confidentiality of information.
On balance the review has been successful and the revised contract represents an improvement to the 2003 edition. As NZS3910:2013 is implemented on new projects it will be interesting to watch the industry’s response to this latest edition, both in terms of the extent of Special Conditions applied and the way that the projects are managed through to completion.
For further information regarding this New Zealand Standard and its implications please contact one of our specialist construction lawyers.
Prepared by Emma Burke.
PDF version : The New NZS 3910 2013