By Malcolm Abernethy
Executive officer, NZ Contractors' Federation
Discussion continues about adopting the NEC3 contract as the standard form of contract and I still have strong reservations about doing this, as I believe the standard conditions of contract (NZS 3910) has many features that serve the New Zealand construction industry well.
When I reviewed NZS 3910:2003 conditions of contract for building and civil engineering construction back in 2007, I did so in terms of parallels with NEC3. Time has moved on and many authorities have developed revisions or amendments to NZS 3910 that better fit the growth and maturity of the industry.
While NZS 3910 is presented in a very different way to NEC3, our standard conditions of contract already contains many of the features that proponents of NEC3 advocate are missing from any other form of contract.
Contract agreements built around relationships create a form of contract that requires the client, engineer and contractor to develop particular behaviours in managing the contract and, in particular, the relationships between the parties.
Relationship contracting develops philosophies and processes that are designed to promote openness between the parties that lead to ‘no surprises’ throughout the duration of the contract. NEC3 attempts to achieve this through placing considerable emphasis on the construction programme and the early identification of ‘compensation events’. (For ‘compensation events’ read variations and extensions of time where appropriate.)
Within NEC3, some compensation events can be penalties for a party not doing specific things within the contract – for example a contractor must identify and give early warning of a compensation event when it happens, if an early warning is not provided then the cost of the compensation event will be borne by the contractor.
Those of you that have read my column in the past, or have sought my advice, know that I am a strong advocate in favour of developing a relationship between the contractor, the engineer and the client that is open to discussion and negotiation to ensure problems that inevitably arise on a construction site do not escalate into formal dispute resolution processes. In other words, I place a strong emphasis on communication no matter what form of contract is used.
It is my view that NZS 3910:2003 can be used to build strong relationships within a contract.
NZS 3910 is written in plain English and the terms used have been well tested over many years of use through the courts. It is designed for the New Zealand construction industry and it is generally well understood by those working in the industry.
While NZS 3910 does not place the same emphasis on the programme as NEC3, it is the contractor’s responsibility to provide the best programme available that indicates a realistic date when the project will be complete. It is intended that early warning of time overruns are provided through the programme to the engineer who can then assess how best to deal with the situation or issues that may be raised.
Similarly, NZS 3910 identifies variations permitted in Section 9 and then deals with process for variation orders, how variations are valued and continues with works that may be performed as dayworks and unforeseen physical conditions. There are other variations throughout the standard that could be considered as penalty variations where information or certification has not occurred within prescribed times by any party.
NZS 3910 promotes an open book policy where the engineer and the contractor cannot agree on a value for a variation, with the intent of developing open negotiation that will arrive at a cost that fairly compensates the contractor (Clause 9.3.3 for example). The standard prescribes a payment process that is based on the Construction Contracts Act 2002 but with slightly shorter processing times, which should by now be well understood by the industry.
Through all of these things (and many more administrative areas) responsibilities are identified for each party involved with the contract and I believe this is where the problem lies in the use of NZS 3910. The contract is frequently poorly administered, resulting in delays and cost to the client and the contractor, leading to time and cost issues that escalate into dispute resolution processes, to say nothing of deteriorating relationships. The standard contract requires the engineer to do certain things within required times.
In addition, NZS 3910 is frequently amended to meet client needs with these changes impacting on the risk profile for the project. Modifications can lead to loss of clarity for all parties and in some instance have been found to be contradictory between clauses.
It is almost seven years since NZS 3910 was last reviewed and, given the amendments being made and the maturity within the industry, I believe it is time for a review.
There are many areas within NZS 3910 where clarity can be provided by rewording and adding clauses that clarify roles, responsibilities and processes. Greater importance can be place on the programme providing early warning mechanisms for client and contractor.
Payment requirements are currently slightly different to the Construction Contracts Act process and could be better aligned including the removal of provisional payment schedule and replacing it with a single payment schedule that is developed by both the client and the engineer.
Other areas identified for review include establishing a more formal basis on which relationships can be built to better reflect what happens within a contract. Early contractor involvement has been shown as providing value for money and this area can be included within any revision.
The selection of contract form is dependent upon contract type and so the final choice of contract type, form and documentation should not be rushed but should be developed to provide a best for project solution.
While NZS 3910 will currently serve the client, engineer and contractor well with risk fairly apportioned it is time for a review to meet the demands of the construction industry.
Contractor Vol.34 No.4 May 2010
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