Which form of Building Contract should I use? 13 Apr 2017
We have a lot of clients coming to us with a building project where the contractor or consultant proposes using a standard form contract. It can be confusing as to which one of these documents is best to use in different situations.
This is because different industry bodies have developed their own forms of standard contract. Sometimes having too many options means that there is confusion over the best one to use. In this article we have described the most common form of construction contracts and building contracts and given a comment about when they are most appropriate to be used. In the second part we have also set out what some of the key issues are that need to be considered every time (no matter what contract is used as a base).
Which form of building or construction contract?
Below we have set out the most common standard forms of contract. The references are to the most recent forms of each which is an important point to note because sometimes you may be given an earlier version. Generally the latest issued copy has been done for a reason and it addresses some inadequacy in an earlier iteration. So closely check what year the version you are asked to sign was issued.
- NZS3910: 2013: This is one of the most commonly used construction contracts and is generally considered to be quite a "fair" standard form which is used for building and civil engineering construction.
- NZIA: SCC1: 2014 The New Zealand Institute of Architects have produced this standard form which has a leaning towards protection of the architect involved in the project.
- BuildRight BCC: 2016: This is a free document intended for use when constructing residential buildings in New Zealand. It can be requested on the Build Safe website. Note that it includes automatic provisions using their retention trust fund.
- BuildRight BCS: 2016: As above, but this is for sub contract situations.
- IPENZ and FIDIC: These two engineering bodies (the New Zealand Institution of Professional Engineers and the International Federation of Consulting Engineers) publish standard form documents which tend to include provisions that protect engineers.
- NEC3: A suite of contracts that can be used for building projects but mainly used for large scale construction projects.
- RBC1: 2016 (NEW BUILD): Prepared for use by Registered Master Builders it is available to them for use on building contracts.
In addition to those set out above their can be bespoke / one off forms which particular companies many propose be used. The important point here is that there are a variety of options when it comes to a building contract or construction contract. Knowing what the options are is a good first step to being able to decide which one would be best for your project.
Key issues to consider in your building or construction contract
There are a number of other practical points that should be covered in your agreement. Even if there is a standard position in one of the contracts above it should be read and ensure that you are comfortable with it. Key matters to consider include:
Indemnities: These are often “high risk” clauses, because they can trigger a liability to pay a sum of money without the party relying on the indemnity even needing to prove that the other party caused, or contributed to, a loss. It is important to be clear about what exactly will trigger an indemnity, who it will cover and whether it is reasonable in the circumstances to require one at all.
- Limitation of liability and exclusion clauses: These are commonly included and essentially involve one party trying to get out of, or limit, their liability. Consider to what extent they should apply.
- Insurance: The insurance position of each party should be clearly understood to ensure there is adequate insurance cover.
- Construction Contract Act: If this applies then certain provisions will be included in agreements eg default provisions relating to payment.
- Price and payments: How much is paid and when. This may involve setting out milestone and deliverables.
- Variations: How will these be requested and priced needs to be set out clearly and understood.
- Disputes: How will these be handled if they arise.
- Reporting: What reports are required and when - this will be important to be able to monitor progress of the project.
- Health and safety: Who is responsible for what and who is a PCBU at the work site. This is a hot topic these days and should be thought through in detail.
- Sub contracting: To what extent will this be done, and who is responsible for this. This is about ensuring clarity about who will actually do the work.
- Security: Many contracts contain an agreement to mortgage which could result (in the event of non-payment, or even in a dispute over payment) in a caveat being lodged against the title to your property.
- Termination: Ability to terminate in which circumstances and what happens if that occurs.
Building contractors must give consumers a Checklist and a Disclosure Statement published by the Ministry of Business, Innovation and Employment prior to signing a building contract for all residential building work valued over $30,000.00 (including GST), or where the consumer asks for the information irrespective of the value of the building work.