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This book is only available in PDF format 
Author(s): Chris Moore, Sherwyn Williams
Published: 7 April, 2003
Pages: 78
 

The Construction Contracts Act 2002 (“the Act”) has three main goals: to reform the construction industry’s method of paying contractors and sub-contractors, to provide a new, fast-track, dispute resolution procedure for arguments arising from construction contracts, and to create new remedies for non-payment of money due under construction contracts. The Act comes into force on 1 April 2003, and will affect almost all construction contracts, both commercial and residential, although contracts with residential occupiers will be exempt from some of the key provisions.

The main catalyst for the Act was the concern of many, both within and outside the construction industry, that sub-contractors needed protection against inequitable payment terms and practices employed by those higher in the contractual pyramid. After the repeal of the Wages Protection and Contractors’ Liens Act in 1987, sub-contractors were frequently left with little protection against non-payment for work completed. Of particular concern, “pay when paid” and “pay if paid” clauses entitled head contractors to withhold payment if they ran into cash flow difficulties. Such clauses entitled the head contractor to withhold payment, but did not entitle the sub-contractor to stop work. In many instances sub-contractors were required to continue working for long periods without payment – effectively carrying the risk of the project and acting as bankers for those higher up the contractual chain. This problem became particularly acute in the late 1990s when competitiveness in the industry reached new levels in the approach to the America’s Cup. During that period many head contractors were forced to tender at bare cost, leaving little or no room for error. A number of high-profile collapses over the period made the need for reform particularly apparent. When Hartner Construction went into receivership in early 2001, around 200 sub-contractors were reported to have lost $17 million amongst them and of that, $3 million was reputedly overdue by three months or more.

New Zealand was not alone in facing such problems through the 1990s. Similar difficulties in Australia and the United Kingdom led to reform in both countries in 1998 and 1999. In 1998, legislation protecting sub-contractors came into force in the United Kingdom, and in 1999 similar legislation was enacted in New South Wales. Although there are differences between the two pieces of legislation, both countries adopted essentially the same response to the problem – a response that has largely been implemented here, with some amendments.

The development of the New Zealand response began in 1999, when the Law Commission released a study paper recommending reform along the lines of the UK and New South Wales legislation. In 2000 the Government formed a working group to investigate, reform and consult within the industry. The working group comprised a broad base of industry representatives, including representatives of the Registered Master Builders Federation, the New Zealand Contractors Federation, the Northern Amalgamated Workers Union, Fletcher Construction, the New Zealand Institute of Architects, the New Zealand Institute of Quantity Surveyors, and independent arbitrators. The group reported in July 2000, and expressed broad support for the Law Commission’s recommendation to enact legislation similar to the UK and Australian Acts – while also recommending possible alterations and additions. The legislation as enacted largely adopts the working group’s suggestions – retaining the same basic approach as the English and Australian models.

The legislation was passed on 19 November 2002, and is reported to have widespread support within the building and construction industry, no doubt in part because of the industry involvement in its drafting, and because of the favourable overseas experience with similar legislation.

 

Content outline

  • Synopsis
  • Application of the Act
  • Payment provisions
  • Adjudication
  • Remedies
    • Right to suspend work
    • Enforcement as a judgment
    • Charging orders
    • Personal Property Securities Act
View contents page
 

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