Contracts - lessons learnt

By Malcolm Abernethy
Executive officer, NZ Contractors' Federation

The need for ‘complete’ contract documentation cannot be stressed enough following two cases in which I have been involved to determine a resolution of disputes as to what was agreed to be done by the contractor, and what was delivered to the client.

The first case involved the construction of a cricket pitch for family games and practice. The contractor offered to excavate the area to grade, install sub grade drainage and construct a wicket block – all on an hourly basis using one man, an excavator and a truck. There was no discussion as to when the job would be complete, or how many hours would be involved.

Much of the work was completed except for the wicket block, but to a very low level of quality. Surplus materials were stockpiled randomly around the site and the drainage was installed to level or reverse grade.

There was no written agreement, simply a handshake and random discussions.  The contractor submitted hour sheets and invoices for materials to the client who paid 75 percent of the claims before warning bells rang as to the value and quality of the work done.

A review of the costs indicated that the contractor had claimed almost twice what the work would have been worth,  had a set of contract documents had been prepared that were based upon a complete design and schedule of quantities.

When the dispute first arose, the contractor had already abandoned the project leaving the site in an unusable state.  The client made no further payment, even though claims were made by the contractor in the small claims court for the amount allegedly owed. The small claims court upheld the clients view and allowed the client to engage another contractor to complete the project.

The second case involved the construction of a dressage arena requiring excavation, drainage and preparation of the arena surface comprising of basecourse and lime rock. The surface was specified by the client. Work progressed reasonably well, and with additional work requested by the client almost doubling the verbally agreed costs. The additional work involved the construction of horse access lanes, landscaping, a small box culvert and a loading ramp.

The contractor did not submit formal payment claims or invoices, yet the client paid almost 70 percent of the agreed sum to the contractor. The work was of a substandard quality and was never completed with the contractor removing equipment from the site, effectively abandoning the contract.

Despite attempts by the client to have the work completed, the contractor did not return and left the site partially unusable and a safety risk to the horses. The contractor, however, almost a year after abandoning the site, presented an invoice to the client (nine months after the date on the invoice) claiming one and a half times the amount originally agreed.

In both cases the contractors involved were not members of New Zealand Contractors Federation and no resource consents were issued for the work.

These two cases highlight the need for adequate contract documentation describing the scope of the work to be done and the quality to which it is to be constructed. A contract did exist in these cases, but as it was verbal with the certainty of terms not defined.

A private individual client is infrequently involved in this type of contract agreement, and it is the responsibility of the contractor to guide the client through the process and establish certainty of terms for the scope of work to be completed, the quality outputs and costs – including how claims are to be made and when payments fall due as under the Construction Contracts Act.

The contractor may provide design inputs if the work is relatively straight forward as part of the agreement.  Contract documentation should also include provisions for time, default by either party, and dispute resolution processes.

We can help

In contracting, it has become much more important to have processes and systems available that ensure documentation is robust based upon best industry practice.  The federation can provide short form contract agreements and assist in developing contract documents that can mitigate contractual disputes and, when combined with QEST, offer a contracting company the assurance that it is taking all practicable steps to operate business to the highest standard.

QEST has over 50 companies using the integrated management system; four of these companies have achieved tertiary accreditation through ACC’s Workplace Safety Management Practices. Other QEST users that have been audited have achieved secondary ACC accreditation. One small Canterbury company has achieved QEST accreditation in one month from the date of installation.