When the Construction Contacts Act 2002 (the Act) came into force on 1 April 2003, it reformed the law relating to construction contracts and dramatically changed the face of dispute resolution in the construction industry in New Zealand.
The purpose of the Act
The Act states that the objectives are to reform the law relating to construction contracts and, in particular:
- to facilitate regular and timely payments between the parties to construction contracts;
- to provide for the speedy resolution of disputes arising under a construction contract; and
- to provide remedies for the recovery of payments under a construction contract.
The reforms saw the introduction of statutory procedures for making and responding to payment claims and the prohibition of pay-if-paid and pay-when-paid clauses which ushered in a new payment morality for the construction industry, the introduction of a new statutory fast track adjudication regime for the resolution of construction disputes, and new remedies for the recovery of payments including the right to suspend work, enforcement of adjudication determinations by the courts, and charging orders over construction sites.
Does the Act apply to you?
The Act generally applies to every construction contract entered into after 1 April 2003, whether or not governed by New Zealand law, and whether or not the construction contract is written, oral, or partly written and partly oral (s9).
Can you contract out of the Act?
It’s important to note, it is not possible to contract out of the Act. The Act has effect despite any provision to the contrary in any agreement or contract (s12). For example, an agreement to mediate or arbitrate does not preclude a party from referring a dispute to adjudication.
Section 12 was upheld as unambiguous in Willis Trust Co Ltd v Green (25.05.06, Harrison J, HC Auckland CIV 2006-404-809. The Court held that (in a judicial review application of the adjudicator’s determination) that the Act applied to the second respondent’s final claim notwithstanding the parties’ agreement to refer disputes to arbitration.
The Construction Contracts Amendment Act 2015
BDT first lobbied for change in 2010, to remedy what we saw as some minor weaknesses and failings in the original legislation (see BuildLaw® Issue 5: March 2010), and it has taken just under six years to get there. Ultimately, the changes came about due in large part to the Mainzeal collapse in 2013 and the renewed focus then on the misuse of retentions and security for payment. An election and a change in Minister after the Bill’s introduction did not help with the delays.
We were concerned, in seeking reform, that we might see the ‘baby thrown out with the bath water’ by the legislators in circumstances where much of the Act was in fact working well and was certainly not broken. However, there were a number of provisions that were not as clear or effective as they might have been and, in the end, the Minister is to be applauded for building on and improving the legislation by widening its coverage, removing (to a large measure) the artificial distinction between commercial and residential construction work that previously left a large sector of the industry significantly disadvantaged, and strengthening the remedies it provides for securing payment.
The changes will affect everyone in the industry and will result in significant and, we believe, positive change across the entire sector.
See our briefing below for more information on the changes to the Act:
The Construction Contracts Amendment Act 2015 – what is changing and when? - by John Green.
See our more detailed briefings below for further information in relation to adjudication under the Act:
Construction Contracts – what are they and how is it changing? – by John Green.