Contracts

Having a clear written contract is important to the management of the project, as it protects both the owner and the builder.

Building contracts are governed by contract law. Any changes after the contract is signed need to be agreed by both parties and put in writing. (See Site records for further details on contract variations.)

Standard contracts are available for their members from Master Builders, Certified Builders, NZ Institute of Architects and Architectural Designers NZ and are also available from Standards New Zealand. 

Under the Building Act, you must have a written contract for residential building work of $30,000 (including GST) or more. There are certain things the contract must include – default clauses apply if the contract doesn’t contain the required information. The law change doesn’t just apply to builders, but to work done by any tradesperson.

Forms of contract

Irrespective of which contract applies to a construction job, each professional or tradesperson involved is still liable for any defects in their own work. 

Under the Building Act, from the date that building work is complete there is an automatic 12-month period for the client to identify defective work. The contractor must remedy any defects notified by the client within the period.

In a full contract, the builder has full responsibility for delivering the construction, hires the subcontractors and purchases all the materials and services. This contract lets the builder manage the whole project but also means the builder carries all the risk.

A managed labour-only contract means the builder manages the site but isn’t responsible for buying all the materials or hiring the other contractors involved – this is generally done by the owner. This contract needs to be carefully worded and works best with a competent, experienced client.

A labour-only contract means the builder provides the skilled work but no materials and no oversight of the project. Again, this contract requires a competent, experienced client for the job to run smoothly.

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Special conditions of contract

Items that need to be covered in the special conditions of contract can include the following:

  • Any special conditions, for example, deadlines, site access or unforeseen conditions. This is common in renovation work where the true extent of the work required may not always be evident before the renovation work starts, even when an extensive and comprehensive survey has been undertaken.
  • Contingency sum – a minimum of 10% of the contract sum should be available and held in reserve to cover those unforeseeable items. 
  • Contract period and practical completion dates.
  • Any nominated subcontractors or suppliers, materials or trades the owner will organise.
  • Payment schedules and retentions.
  • Required site meetings and attendees.
  • Whether the house is going to be occupied during renovation work.
  • What work (if any) the owner will be responsible for. 
  • The amounts and liability periods that apply to any retentions.
  • Liquidated damages for late completion provided such costs can be shown to be incurred, for example, additional accommodation costs where the owner is in rental accommodation because the house could not be occupied as originally specified. 

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Preliminaries and general

The preliminaries and general section of the contract should cover:

  • documentation, compliance issues, nominated suppliers and so on
  • site roles and responsibilities
  • owner occupation of the building
  • insurance covers, periods and details
  • variations
  • Construction Contracts Act for payments
  • QA programme (if BCA requirement)
  • defect retentions (amounts, periods applying)
  • special protection requirements (health and safety, security for occupants and so on)
  • weather and other protection of the works and existing building
  • working space, storage, scaffolding, access restrictions
  • working hours, security, access to existing facilities
  • special conditions (phones, toilet facilities).

 

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Unfair Contract Terms

New provisions around unfair contract terms, added to the Fair Trading Act, came into force on 17 March 2015. They relate to clauses in standard form consumer contracts (contracts that consumers have to accept on a take-it-or-leave-it basis).

The law change gives the Commerce Commission the ability to go to court to challenge clauses that they think create a significant imbalance between the rights of companies and consumers. Unfair contract terms could be unenforceable, even if the consumer has signed a contract knowing that they matter.

The Commerce Commission has created a user-friendly website about consumer law for the construction industry.

  

 

Updated: 26 March 2017