December 7, 2022


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At a look: development contracts and insurance coverage in New Zealand

At a look: development contracts and insurance coverage in New Zealand

At a look: development contracts and insurance coverage in New Zealand

Contracts and insurance coverage

Building contracts

What normal contract varieties are used for development and design? Should the language of the contract be the native language? Are there restrictions on alternative of legislation and the venue for dispute decision?

NZS 3910, NZS 3915, NZS 3916 and NZS 3917 are the most typical development contracts. Different well-known contracts (such because the Worldwide Federation of Consulting Engineers contract and NEC3 / NEC4) are additionally used, albeit not as continuously.

NZS 3910 (with an engineer) and NZS 3915 (with out an engineer) are supposed for conventional procurement preparations involving solely development work. NZS 3916 is just like NZS 3910, though tailor-made for a design-and-build context. NZS 3917 is meant for use for the availability of providers over an outlined time period quite than a hard and fast scope of labor.

Every of NZS 3910, NZS 3915, NZS 3916 and NZS 3917 will be tailor-made to particular tasks and include particular situations to permit for this.

Along with the NZS contracts, sure different our bodies have produced contracts tailor-made for New Zealand development works.

The New Zealand Institute of Architects (NZIA) has produced a sequence of standard-form development contracts, a few of that are designed to be used the place the contract is run by an NZIA architect, others of which can be used when the architect is just not contractually concerned within the administration of the contract.

The Affiliation of Consulting Engineers New Zealand, Engineering New Zealand, the Auckland Regional Contracts Group, the Institute of Public Works Engineering Australasia New Zealand and the New Zealand Transport Company have developed normal situations of contract for consultancy providers. These can apply to a variety of consulting providers and for many forms of tasks.

The Registered Grasp Builders Affiliation and New Zealand Specialist Commerce Contractors Federation collectively present an ordinary type of subcontract (informally generally known as SA-2017).

There isn’t a requirement that English have to be the language of the contract, though it’s the predominant language used.

There aren’t any restrictions on alternative of legislation or venue for dispute decision within the NZS suite of contracts. If not contractually specified by the events, established non-public worldwide legislation guidelines will should be invoked to find out the venue and governing legislation.

Cost strategies

How are contractors, subcontractors, distributors and staff usually paid and is there an ordinary frequency for funds?

Contractors, subcontractors and distributors of prefabricated, customised elements for development tasks have a statutory proper to progress funds beneath the Building Contracts Act 2002. ‘Pay when paid’ preparations are barred and haven’t any authorized impact.

Contracting events might agree the quantity and frequency of progress funds. Within the absence of any specific settlement, cost claims will be made on the finish of every month. Normal development contracts usually present for month-to-month claims, though the due date might range. There are strict time necessities for responding to, and discharging, cost claims.

The strategy of cost will be agreed between the events, though money funds must be handled with warning and never used as a way to keep away from cost of products and providers tax or different tax. Cheques are being phased out by banks as digital transfers develop into the norm.

Contractual matrix of worldwide tasks

What’s the typical contractual matrix for a significant mission in your jurisdiction when it comes to the contractual relationships among the many varied development mission contributors?

House owners and builders usually contract straight with a development firm, quite than by development managers or commerce contractors. For instance, beneath NZS 3910, whereas a development supervisor (the engineer to the contract, however not essentially a chartered skilled engineer) is appointed because the principal’s agent to handle the contract, the contractual relationship is straight between the principal and contractor. The contractor then subcontracts straight with specialist subcontractors.

An space that’s persevering with to develop is the usage of alliance contracting, usually for giant PPP infrastructure tasks. On this regard, main development corporations with native experience will continuously kind joint ventures with overseas corporations possessing specialist experience, which, together with design consultants and key specialist subcontractors, kind an ‘alliance’ of events that contract with the pertinent public authority for the mission.


Is there a proper statutory and regulatory framework for PPP and PFI contracts?

There isn’t a particular legislative or regulatory framework for PPPs, that are usually solely used for large-scale infrastructure tasks. Examples embody the development of the Wiri Jail (accomplished in 2015), and the event and development of the Transmission Gully freeway close to Wellington (which opened on 30 March 2022).

The Treasury’s Nationwide Infrastructure Unit offers steering and recommendation on PPPs (together with mission settlement varieties) on its web site: PFI contracts should not usually used.

Joint ventures

Are all members of consortia collectively answerable for the whole mission or might they allocate legal responsibility and accountability amongst them?

In New Zealand, the time period ‘three way partnership’ (JV) has no exact authorized definition and isn’t a recognised authorized entity in its personal proper. A JV will usually be fashioned utilizing one of many following authorized constructions:

  • a restricted legal responsibility firm (an organization);
  • a restricted partnership (LP);
  • a partnership; or
  • a contractual settlement.


The legal responsibility of every member of a JV shall be decided by the authorized construction chosen and the industrial preparations between its members.

The place an organization is established to kind a JV, it’s this entity that undertakes the mission and assumes the authorized legal responsibility, not the members individually. This permits the members to restrict their publicity to liabilities and mission losses. Legal responsibility for firm administrators will solely come up in circumstances the place administrators have breached sure duties within the Corporations Act 1993.

The state of affairs is analogous for LPs registered beneath the Restricted Partnerships Act 2008. Within the case of an organization or LP, members might nonetheless develop into liable the place they’re required to supply ensures on behalf of the corporate or LP.

A JV can also take the type of a authorized partnership, both created expressly by the members or as deemed by the Partnership Legislation Act 2019. In distinction to an organization or restricted companions of an LP, the members of a authorized partnership are collectively and severally liable and every member might bind the others topic to the legal guidelines of partnership.

Alternatively, a JV could also be fashioned purely on a contractual foundation between members. Beneath this kind, the legal responsibility of every member shall be topic to the provisions contained within the JV settlement along with another agreements entered into with exterior third events and the overall legislation of contract.

Tort claims and indemnity

Do native legal guidelines allow a contracting celebration to be indemnified towards all acts, errors and omissions arising from the work of the opposite celebration, even when the primary celebration is negligent?

The legislation permits a contracting celebration to indemnify the opposite celebration towards acts, errors and omissions arising from the work of the indemnifying celebration. Usually, a head contractor indemnifies a principal for losses arising from acts, errors and omissions within the efficiency of the contractor’s scope of labor (together with the work of subcontractors). Generally, subcontracts include back-to-back indemnity provisions mirroring these supplied to the principal by the top contractor.

Nonetheless, to the extent {that a} celebration’s loss is attributable to its personal negligence, it might not have the ability to recuperate that loss from the indemnifying celebration. A contractual clause that indemnifies a celebration towards loss that it has prompted is enforceable (within the absence of fraud), however contracts don’t usually include such provisions. On the contrary, provisions for apportionment of loss are more and more being integrated into the extra widespread types of development contract.

Legal responsibility to 3rd events

The place a contractor constructs a constructing that shall be offered or leased to a 3rd celebration, does the contractor bear any potential accountability to the third celebration? Could the third celebration pursue a declare towards the contractor regardless of the shortage of contractual privity?

Though the legislation recognises the widespread legislation doctrine of privity of contract, there are important exceptions, each statutory and at widespread legislation.

For instance, the Contract and Business Legislation Act 2017 permits an individual who is just not a celebration to a contract, however upon whom the contract was supposed to confer a profit, to implement the contract as if that individual had been a contracting celebration.

Within the particular context of constructing contracts, the Constructing Act 2004 implies sure warranties referring to correct efficiency of contract works into each residential constructing contract (the warranties should not implied into non-residential constructing contracts, and subcontracts with the top builder in a residential mission are additionally excluded). An individual who’s the proprietor of a constructing or land to which the provisions apply might carry proceedings for breach of guarantee even when that individual is just not a celebration to the constructing contract. Events can’t contract out of those client safety provisions.

For the previous a number of a long time, New Zealand has skilled a major drawback with leaky buildings. In response, the legislation has recognised an extra-contractual obligation of care on the a part of contractors, subcontractors, suppliers and consultants (amongst others) to homeowners and subsequent purchasers of properties to make sure that constructing design, supplies and development work adjust to relevant weathertightness necessities. Whereas this precept was initially developed within the residential context, the obligation of care has been prolonged to cowl the design and development of non-residential properties. Accordingly, consultants, contractors, subcontractors and others will be sued in tort by homeowners and subsequent purchasers for breach of this obligation of care. Moreover, the Constructing (Constructing Merchandise and Strategies, Modular Parts and Different Issues) Modification Act 2021 has strengthened CodeMark rules, launched a producer certification scheme for modular development and enhanced penalties for non-compliance.

Insurance coverage

To what extent do accessible insurance coverage merchandise afford a contractor protection for: injury to the property of third events; damage to staff or third events; delay damages; and damages as a consequence of environmental hazards? Does the native legislation restrict contractors’ legal responsibility for damages?

There’s quite a lot of insurance coverage merchandise accessible to contractors, together with the next.

  • Contract works insurance coverage (both project-specific or annual).
  • Instruments, plant and tools insurance coverage (usually for market worth solely).
  • Public legal responsibility insurance coverage (safety towards authorized legal responsibility to 3rd events for injury, loss or damage attributable to an act or omission of the contractor arising out of the efficiency of the contract works). Compensation for bodily damage is roofed by the Accident Compensation Company (ACC).
  • Employers’ legal responsibility insurance coverage (cowl for private damage to workers of the insured, that isn’t lined by ACC).
  • Skilled indemnity (PI) insurance coverage (cowl for legal responsibility prices arising from defective skilled recommendation or design; utilized by contractors the place design elements are the accountability of the contractor). Most home PI (and errors and omissions) insurance coverage insurance policies now exclude protection for leaky constructing legal responsibility.
  • Errors and omissions insurance coverage (just like PI insurance coverage if a contractor is held answerable for third-party loss ensuing from an error or omission in performing the contract works, resembling failure to observe a design specification or use of the improper supplies). Traditionally, this kind of insurance coverage was tough for contractors to acquire, however there’s now some availability from some specialist insurers and in bespoke insurance policies.
  • Statutory legal responsibility insurance coverage (cowl for authorized prices and fines beneath sure laws). Fines for breaching well being and security legal guidelines can’t be insured however the coverage will usually cowl authorized prices and reparation funds if the contractor is taken to court docket for breaching well being and security legal guidelines.


Contractors’ air pollution legal responsibility insurance coverage is out there from some specialist insurers and offers safety towards third-party liabilities arising from air pollution releases. There are coverage exclusions, significantly in relation to pre-existing environmental contamination.

Though not normal, consequential loss insurance coverage could also be accessible from specialist legal responsibility insurers to cowl monetary losses ensuing from a contractor’s act or omission lined beneath a legal responsibility insurance coverage coverage (eg, downtime owing to delays ensuing from a contractor’s act or omission). Consequential loss insurance coverage, particularly for delays arising from unintentional injury to any a part of the contract works, is one other specialist product accessible.

Usually, insurance policies exclude legal responsibility for liquidated damages. New Zealand’s no-fault accident compensation legislation bars claims for compensatory damages for private damage or loss of life if cowl is out there from the ACC. New Zealand legislation doesn’t usually restrict legal responsibility for damages, though the events might comply with a contractual cap.

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29 April 2022