Construction 2024 Comparisons

Legal Framework

The principal laws governing New Zealand’s construction industry are found in statutes and common-law authorities. Common-law authorities from similar overseas jurisdictions are not binding in New Zealand, yet are often influential.

Key Statutes

Building Act 2004

This is the primary legislation governing the building industry. Its stated purpose is to provide that people can use buildings safely and without endangering their health. The Building Act 2004 provides the legal framework for the building code, which sets out the standard required for buildings in New Zealand and guidance for how to meet those standards. The Building Act 2004 also contains minimum mandatory warranties for building work in relation to household units.

Construction Contracts Act 2002 (CCA)

The CCA is predominantly concerned with regular and timely payments between the parties to a construction contract, given the importance of cash flow for contractors. The CCA:

• governs the requirements for parties holding retentions;
• provides for a fast-track dispute resolution mechanism (adjudication) for construction disputes and claims;
• prohibits “pay when paid” or “pay if paid” terms in construction contracts; and
• provides a default payment process of payment claims and payment schedules for construction contracts.

Health and Safety at Work Act 2015

This law outlines the standard needed at work sites to ensure personnel are safe. The Health and Safety at Work Act (HSWA) also controls how this standard is measured and enforced.

Resource Management Act 1991 (RMA)

The RMA promotes the sustainable management of natural and physical resources. A construction project may need a resource consent to develop or use natural and physical resources or carry out activities that affect the environment. If a consent is granted, it will impose conditions on such use or activities. The RMA regulates this process.

There are no mandatory contracts for construction projects in New Zealand. However, there are common and standard form New Zealand contracts for construction and for key construction consultants.

The New Zealand Standard (NZS) Series of Construction Contracts

The two most common standard form contracts for construction are provided by Standards New Zealand.

NZS 3910 – Conditions of contract for building and civil engineering – Construction

This is a “construct-only” contract where the employer provides the design and the contractor is responsible for the construction component of the project.

NZS 3915 is a similar “construct-only” contract and it is sometimes used instead of NZS 3910 on projects where there is no “engineer” (see 2.1 The Employer).

In late 2023, Standards New Zealand published the latest edition of this “construct-only” contract (NZS 3910:2023). This introduces important changes, including replacing and splitting the role of the “engineer to contract” (see 2.1 The Employer).

NZS 3916:2013 – Conditions of contract for building and civil engineering – Design and construct

This is a “design-and-build” contract where the employer provides its requirements and the contractor is responsible for both the design and construction of the project.

Design, which is the key distinction between NZS 3910:2013 and NZS 3916:2013, is discussed further in 3.3 Design.

Other Standard New Zealand Construction Contracts

Other standard form contracts found in New Zealand include the following.

The New Zealand Institute of Architects (NZIA) forms of contract

• Standard Construction Contract (used when the architect administers the construction contract).
• National Building Contract (used when the architect is not contractually involved in the administration of the construction contract).

The Registered Master Builders Association forms of contract

• Residential Building Contract (RBC1) (usually for residential construction projects).
• Subcontract Agreement (for use between contractors and their subcontractors).

Overseas Forms of Construction Contracts Commonly Used in New Zealand

Several overseas forms of construction contract are commonly used in New Zealand, including:

• the British New Engineering Contracts (commonly NEC3 and NEC4);
• the suite of contracts from the International Federation of Consulting Engineers (Fédération Internationale des Ingénieurs-Conseils, or FIDIC), most commonly:
1. Conditions of Contract for Construction (the “Red Book”);
2. Conditions of Contract for Plant and Design-Build (the “Yellow Book”); and
3. Conditions of Contract for Engineering, Procurement and Construction (EPC)/Turnkey (the “Silver Book”).

Standard New Zealand Construction Consultancy Contracts

The most common forms of consultancy contract for construction professional services are:

• the Conditions of Contract for Consultancy Services (CCCS), and an associated long form contract developed by Engineering New Zealand and the Association of Consulting Engineers New Zealand (ACENZ), and an associated short form contract used for a wide range of construction consulting services;
• the Agreement for Architects Services (AAS), used for professional design services; and
• the Contract for Quantity Surveying Consultancy Services (CQSCS), used by members of the New Zealand Institute of Quantity Surveyors (NZIQS).

Nature of Employers

The employer ‒ known as “the principal” in NZS contracts – can be a wide range of persons, including:

• a local council or central government body;
• an incorporated or unincorporated entity – for example, in industries such as manufacturing, residential and commercial real estate, and irrigation; or
• individual persons (eg, for home builds and renovations).

Engineer as a Key Agent of Employers

The main NZS forms of contract include the concept of “the engineer to contract”, which is similar to the engineer in the FIDIC series of contracts. The latest NZS 3910:2023 has replaced the role of the engineer with two new roles: a contract administrator and an independent certifier.

In NZS contracts with an “engineer”, the engineer administers the contract and has a dual role as an agent of the employer and a quasi-independent decision-maker. In the latter role, the engineer is expected to act fairly and impartially.

In NZS contracts with a contract administrator and independent certifier:

• the contract administrator administers the contract and acts as an agent of the employer, handling day-to-day matters and issuing instructions; and
• the independent certifier acts as an independent decision-maker, who is required to act fairly, impartially and independently of either contracting party in making decisions under the contract, and who is the agent of the employer only for receiving payment claims, incorporating the employer’s deductions into payment schedules, and issuing payment schedules.

Many roles of the employer referred to in this guide will actually be performed by the engineer, contract administrator, or independent certifier (eg, issuing and assessing variations or extensions of time and confirming works are complete).

General Rights and Responsibilities of Employers

Common rights of the employer are:

• to have the contractor perform the works so they meet the requirements in the specifications and drawings;
• to vary the works (subject to awarding extensions of time and additional costs to the contractor where appropriate);
• to have the works performed within a specified timeframe (subject to extensions of time in particular circumstances); and
• to have the works be free of defects and to have the contractor remedy defects within a reasonable timeframe.

The employer is typically responsible for:

• setting out its requirements for the project (including providing the design and specifications, where applicable – see 3.3 Design);
• having/arranging funding for the project and paying the contractor within the agreed timeframes;
• securing building consents and resource consents for the project; and
• providing access to the site and avoiding interfering with the contractor’s performance of the works.

Relationship Between Employers and Contractors

The employer and contractor will be the parties to the construction contract. The contractor must carry out the works specified in that contract and the employer must pay for those works under the contract.

It is common for the employer to require security from the contractor to ensure the due, proper and punctual performance of the contractor’s obligations under the contract. This is usually achieved through a contractor’s performance bond and retentions from payments due to the contractor.

Once the contract is under way, the employer and contractor usually each have a single nominated representative to facilitate clear communication.

Relationship Between Employers and Subcontractors

See 2.3 The Subcontractors.

Relationship Between Employers and Financiers

See 2.4 The Financiers.

Nature of Contractors

There is significant variability in the size and nature of contractors commonly operating in New Zealand. Contractors range from large listed corporations (both local and overseas) to much smaller private companies. It is not unusual for larger projects in New Zealand to involve overseas organisations (often in a joint venture with local entities).

Common Rights and Responsibilities of Contractors

Common rights of the contractor are:

• to choose its preferred methodology for performing the works (often within specified parameters);
• to receive payment from the employer within the agreed timeframes;
• to receive additional payments and extensions of time for a specified range of events (typically circumstances beyond the contractor’s control); and
• to perform the works without being prevented from doing so by the employer or third parties.

Common responsibilities of the contractor are:

• performing the works so they meet the requirements in the contract (including requirements in the design and specifications, where applicable – see 3.3 Design);
• completing the works within a specified timeframe (subject to extensions of time in particular circumstances); and
• ensuring that the works are free from defects and remedying such defects for a specified timeframe after the completion of the works.

Contractors are not relieved from their responsibilities to the employer if they subcontract works to third parties.

Relationship Between Contractors and Employers

See 2.1 The Employer.

Relationship Between Contractors and Subcontractors

See 2.3 The Subcontractors.

Relationship Between Contractors and Financiers

See 2.4 The Financiers.

Nature of Subcontractors

Subcontractors can be local, national or overseas entities and typically specialise in specific trades.

Common Rights and Responsibilities of Subcontractors

The rights and responsibilities of subcontractors are generally akin to the rights and responsibilities between a contractor and the employer. See 2.2 The Contractor.

Relationship Between Subcontractors and Employers

By default, owing to privity of contract, the employer does not form a relationship with the contractor’s subcontractors. However, through its contract with the contractor, the employer typically places controls on subcontracting, such as:

• requiring consent to subcontract works of more than a specified value;
• requiring particular sets of work to be performed by specified subcontractors; and
• permitting the employer to make direct payments to a subcontractor in particular circumstances (eg, if an undisputed amount remains unpaid).

It is not unusual for employers to have limited rights regarding certain subcontract works by virtue of:

• direct warranties – where the subcontractor provides a warranty to the employer (usually by deed) for specified works or materials; and
• subcontractor continuity guarantees – where subcontractors agree to work directly for the employer where the contract between the subcontractor and the contractor ceases to be viable (eg, owing to termination or contractor insolvency).

Relationship Between Subcontractors and Contractors

Subcontractors are engaged on a construction project through a subcontract with the contractor. It is customary for a contractor to engage a variety of subcontractors, each with a specific trade, on a single project.

A subcontractor’s scope of responsibility is generally limited to the work and risks outlined in its subcontract with the contractor. However, often a contractor seeks to pass risks in its contract with the employer down to the relevant subcontractor.

Relationship Between Subcontractors and Financiers

See 2.4 The Financiers.

Nature of Financiers and the Financing of Projects in New Zealand

Financiers of construction projects in New Zealand are usually local and foreign commercial banks, investment banks and institutional investors (such as pension funds). Multi-financier syndicates are common in larger projects.

Rights and Obligations of Financiers

Financiers must provide financing to the employer, but will not be party to the construction contract itself or otherwise have direct obligations to the contractor. However, they may receive the benefit of undertakings from the contractor under a direct deed – as noted in the description of the relationship between financiers and contractors further on in this section.

In traditional construction financings, financiers take security over physical assets such as land and buildings, as well as over construction contracts and other material contracts such as sale agreements or leases. They may also receive the benefit of a guarantee from a parent company guaranteeing repayment of financing provided to its subsidiary or take security over the shares in the employer held by its shareholder(s).

In limited recourse project financings, the security package may be similar. However, the financiers will have a significantly enhanced focus on the cash flows arising from the operation of the completed project. They will exercise a much higher degree of diligence in assessing and monitoring matters arising under the construction contract and related contracts (such as completion guarantees), as the achievement of completion under the construction contract will unlock the cash flow.

Relationship Between Financiers and Employers

The relationships between financiers and employers under construction projects are governed by the relevant finance and security documents. These will typically comprise a facility agreement and a general security agreement (providing for “all assets” security over the employer) and one or more specific security agreements – for example, providing for an assignment by way of security of specific project contracts or for security over the shareholder’s shares in the employer – or guarantees.

Relationship Between Financiers and Contractors

On financed projects it is common for a direct deed to be agreed between the financier, the employer and the contractor. A direct deed generally requires the contractor to:

• consent to the security given to the financier over the construction contract;
• agree that certain insolvency actions (such as appointing a receiver) will not in themselves trigger a contractor’s right to terminate the construction contract;
• agree to give the financier additional cure periods to remedy a default of the employer under the construction contract that could otherwise lead to termination by the contractor; and
• pre-agree the basis on which the financier may sell the benefit of the construction contract or of the shares in the employer to a third party on enforcement of its security.

Relationship Between Subcontractors and Financiers

It is rare for financiers and subcontractors to have a direct contractual relationship.

The designer of construction projects in New Zealand prepares the plans and specifications for building work and is responsible for the building work’s compliance with the building code.

There is significant variability in the size and nature of consultancies offering design services operating in New Zealand. Design consultants range from large listed corporations (both local and overseas) to much smaller private companies. Such consultancies will offer some or all of the range of architectural and engineering services required for the design of construction projects.

If a designer is responsible for the design of restricted building work, then the designer must be appropriately licensed and this is regulated under the Building Act 2004.

Common Responsibilities and Obligations of Designers

The designer’s principal statutory responsibility (under Section 14D Building Act 2004) is to ensure that their advice or plans and specifications, if followed, will result in building work compliant with the Building Code. This design responsibility applies to all building work. Under their design contracts, designers also commonly have an obligation to prepare a design that meets their client’s brief and to prepare the designs using reasonable care and skill.

In the design stage, the designer must meet its obligations under the Health and Safety at Work Act 2015 to foresee and manage potential health and safety risks for end users. This includes, so far as is reasonably practicable, the responsibility for:

• ensuring that structures, plant and substances are without health and safety risk;
• carrying out tests to ensure the structure, plant or substance they have designed is without risk;
• providing all relevant information about their designs;
• consulting, co-operating and co-ordinating with other persons conducting a business or undertaking (PCBU); and
• ensuring their designs comply with all relevant legislation.

Relationship Between Designers, Employers and Contractors

The relationship between the designer, employer, and the contractor will depend on the construction contract used.

For a construct-only contract (eg, a 3910), the designer would have a design consultancy contract with the employer and there will be no contractual relationship between the designer and contractor. However, designers owe a duty of care to the occupiers, owners, and subsequent purchasers of the building, and may be sued in tort for a breach of this duty of care.

In a design-and-build contract (eg, a 3916), the designer will have a relationship with the contractor. The contractor will often subcontract to a designer to provide services based on the employer’s brief or use an in-house designer. The employer will not have a contractual relationship with the designer unless the employer and designer enter into a direct deed.

These frameworks for allocating design responsibilities and risk between the employer and contractor are discussed in 3.3 Design.

Sources and Descriptions of the Scope

The scope typically constitutes:

• “requirements” in a design-and-build contract, where the employer sets out the parameters and minimum obligations of the works to be performed by the contractor; or
• “specifications” in a construct-only contract, where the employer sets out in much more granular detail what the contractor must provide.

Both requirements and specifications can also contain drawings setting out the locations, dimensions, forms and finishes required. Drawings are typically much more detailed in a construct-only contract.

Scope in Tenders

The employer will set out its requirement for the works (conventionally known as the “scope or specifications”) in a closed or open tender process. Often the contractor and employer negotiate that scope (eg, to reduce the price) before the contract is finalised and executed.

Scope in Contracts

Once the contract is executed, the scope is generally fixed and can only be modified thereafter if – and to the extent – permitted by the contract itself (see 3.2 Variations).

Instructing Variations

The scope of an instructed variation is usually at the sole discretion of the employer and, in NZS contracts, a variation is usually instructed by the engineer (or contract administrator in NZS 3910:2023). In New Zealand, contracts typically permit the employer/engineer/contract administrator to:

• increase or decrease the quantity of work;
• omit any work (although major omissions may be deemed repudiation or termination);
• change the character or quality of any material or work; or
• change the level, position, dimensions, specifications, or any other part of the contract works.

Some events or circumstances are often variations, even though they do not arise from an instruction from the employer/engineer/contract administrator – for example, unforeseen ground conditions and archaeological discoveries.

Valuing Variations

The process for valuing variations differs across contracts. In New Zealand, particularly in NZS contracts, valuation is established by one of the following methods (in descending order of precedence):

• by agreement;
• by application of rates and prices in the contract;
• by application of rates and prices derived from similar rates in the contract; or
• by assessment of net cost.

Where rates do not include overheads and margins, or if the variation is valued on a net cost basis, allowances for overheads and margins are usually added.

Where variations prolong the works, time-related costs may apply (see 5.2 Delays).

In New Zealand, the two most common frameworks for allocating design responsibilities and risk are the following.

Construct Only

The contractor is responsible for its method of construction based on the design, but not for errors or omissions in the design.

Between the contractor and the employer, the design risk sits with the employer except when this design relates to the contractor’s methodology or temporary works (for which the contractor has design responsibility).

The employer usually allocates the design risk separately by contract to a designer. The designer’s duty is only to the employer and the designer has no contractual responsibilities to the contractor.

NZS 3910 is frequently used for such contracts.

Design and Construct

The contractor is responsible for both the design and construction of the works (if the owner has a pre-existing design, it may be novated to the contractor).

Between the contractor and the employer, the design risk sits with the contractor.

Contractors without in-house design resources typically subcontract the design aspects of such projects.

NZS 3916 is often used for such contracts.

The employer’s role during the construction itself is mostly limited to providing site access to the site for the contractor and its subcontractors. However, the employer may have to provide supplementary information or design clarifications when requested by the contractor.

The contractor usually has the autonomy and primary obligation to:

• select the appropriate construction methodology;
• source the materials and resources; and
• manage and perform the construction works.

Subcontractors are managed by the contractor and have a similar role to the contractor regarding their subcontracted works.

The employer is responsible for making the site available to the contractor by a particular date to perform the works.

For geotechnical site conditions, responsibility and risk can vary significantly by contract. Ordinarily, the employer will bear the risks of adverse conditions unless:

• those conditions have been disclosed to the contractor;
• the contractor has had the opportunity to investigate those conditions before pricing;
• the conditions could have been foreseen by an experienced contractor; or
• the contractor accepts the risk.

Contamination

Pre-existing contamination is usually the employer’s responsibility, whereas the contractor is responsible for ensuring that it does not contaminate or pollute the site during construction.

Pollution and contamination are governed by the Resource Management Act 1991, the resource consent for the relevant project, and often local council guidelines.

Archaeological Finds

Archaeological discoveries, and any delays and additional costs caused by such discoveries, are mainly the employer’s responsibility.

Archaeological finds on a construction site are governed by the Heritage New Zealand Pouhere Taonga Act 2014, which requires that no person may modify or destroy a site if that person knows – or ought reasonably to have suspected – that the site is an archaeological site.

Common Permits

The following permits are generally required for construction projects in New Zealand:

• resource consent – authorisation to develop or use natural and physical resources or carry out activities that affect the environment;
• building consent – authorisation to carry out building works in a specific way that complies with the building code;
• code compliance certificate – confirmation, once the work is completed, that the work performed complies with its building consent and the building code; and
• certificate of public use – an interim permit for members of the public to use a premises until the code compliance certificate is issued.

Responsibility for Permits

Arrangements for permits vary by contract. Usually:

• the employer obtains the resource consent;
• the party responsible for the design obtains the building consent; and
• the contractor obtains any permits/licences for its temporary works and services and for the operation of its machinery.

Most construction contracts exclude general maintenance obligations after completion. These become the employer’s responsibility.

Typically, the employer will either self-perform maintenance works or enter into separate maintenance service agreements with third parties for the proper operation and maintenance of the works. The NZS 3917 fixed-term contract is available for such maintenance services.

For defects in construction works arising after practical completion, see 3.11 Defects and Defects Liability Period.

Finance and maintenance primarily sit outside the construction contract between the employer and the contractor. See 2.4 The Financiers and 3.7 Maintenance.

Some projects require key materials or equipment to be tested to ensure that they meet contractual or regulatory requirements.

The processes vary by contract. The contractor will typically give the employer notice of the date when it will be ready for such tests to be carried out. The contractor will then carry out the tests or arrange for the tests to be performed by specialists, with the employer having the right to attend (or to have an agent attend) such tests.

There are numerous potential testing types and stages, including:

• factory acceptance tests – tests in the factory itself to ensure that equipment works as expected or that materials have the specified qualities;
• tests on completion – tests after the works have been installed and commissioned, before completion is certified, to ensure that works conform with the standards required by the contract;
• tests after completion – ensure the work continues to meet the standards required by the contract (eg, to ensure ongoing reliability) and to demonstrate that the performance guarantees specified in the contract have been attained; and
• discretionary tests – some contracts in New Zealand allow a representative of the employer to perform tests if they have concerns regarding an aspect of the works and any costs/delays resulting from those tests are borne by either:
1. the employer (if the works meet contractual requirements); or
2. by the contractor (if the works are found not to meet contractual requirements).

Completion/Taking Over

Most standard forms set out a process for verifying/delineating when works are completed/taken over. In some contracts this can be a multi-stage process, including:

• practical completion – when works are largely complete apart from minor defects/snags that do not prevent occupancy/use of the works; and
• final completion – when works are complete and all defects have either been remedied or accepted.

For construction contracts, the employer (or, more likely, its engineer/independent certifier) will typically inspect the works and issue a practical completion certificate, followed later by a final completion certificate, certifying the works meet the requirements of the contract.

However, there are also some actions (eg, taking possession and using the works before practical completion) that can result in the employer being deemed to have taken over the works.

Delivery

The term delivery is typically used for materials or equipment and is often linked to obligations to make payment and the transfer/allocation of risk or title.

In New Zealand, the point of delivery will usually be expressly stated in the contract. The International Chamber of Commerce’s Incoterms rules are not mandatory but are frequently referred to for international deliveries.

Most construction contracts have a limited period after the works are completed (typically ranging from a few months to one to two years), within which the contractor must remedy any snags/defects. This is known as a defects notification period (DNP). In addition, the employer will often require various standalone warranties for defects arising after the DNP.

Common standalone warranties relate to key materials/equipment remaining defect-free and the weather-tightness of the works. NZS forms of contract include some standard form warranties as a schedule to the main terms.

Defect Notification Periods

If a defect or fault emerges during a defect notification period because of defective workmanship or materials, the contractor must remedy the defect or fault. If the contractor does not remedy the works within a reasonable time, the employer may engage third parties to remedy the works and then recover the cost of doing so from the contractor.

Employers often retain some of the contract price as a retention until the end of the DNP to incentivise the contractor to return to fix such defects (and thereby ensure the payment of the retentions to the contractor).

Statutory Warranties

Under the Building Act 2004, residential building work is covered by a ten-year warranty that building work will be carried out with reasonable care and skill – complying with plans and the building consent – and that the building materials will be suitable for the purpose for which they are to be used. Parties cannot contract out of this warranty.

Cost Structures

The following structures are among those used most frequently to price construction projects, and some projects use a combination of these pricing structures.

• Lump-sum contracts – a fixed price for a defined scope of work. However, the price may change if the owner alters the design/works, or if unexpected circumstances are encountered.
• Measure and value – a schedule of prices is usually agreed at the outset (eg, a rate per unit of work) and the quantity of work is then measured/assessed and paid accordingly.
• Cost reimbursement – the employer pays the contractor the net costs plus a pre-agreed margin. This is rarer than the above-mentioned options, owing to the lack of cost certainty and control.
• Target cost – before signing the contract, parties will outline the target cost of the project. It is normal for parties to agree to a structured formula to estimate the cost of the project. At practical completion, if there are any savings or cost overruns, the balance will be shared between the employer and contractor under the percentages stated in the contract.
• Alliances and other forms of collaborative contracting are not uncommon on major projects.

Payment Structures

In New Zealand, project payments are usually based on either:

• progress – payments are based on the percentage of completed work; or
• milestones – payments are made when key stages of a project are achieved.

Indexation of prices for construction projects depends on the form of contract.

The NZS 3910 (construct-only) and NZS 3916 (design-and-build) contracts contain an opt-out cost fluctuation mechanism to compensate for the effects of inflation. The default structure is an adjustment based 40% against labour indexes and 60% against materials indexes, which reflects the typical distribution of costs in a construction project.

Stats NZ releases price indexes for the construction industry, including the “labour cost index” and the “producer price index – construction input index”. The indexation formulas used in the NZS 3910/3916 cost fluctuation formula are based on these indexes rather than the actual costs incurred by the contractor.

The percentages can be adjusted depending on the relative proportion of labour and materials.

Risk for Price Fluctuations

NZS contracts have an opt-out cost fluctuation provision and it is relatively common for parties to opt out. However, cost fluctuation provisions are more commonly accepted during periods of high cost volatility (or for materials with high cost volatility, if such pricing cannot be fixed or hedged).

If the parties do not allow for cost fluctuation under the contract, then the contractor cannot recover increases in costs (including labour and materials) unless a relevant variation has occurred. Sometimes contracts will allow fluctuations for only a certain type of material used, such as diesel fuel or asphalt.

Advance Payments

Advance payments are common in New Zealand for long lead items and recently have been used more frequently to lock in costs and reduce the risk of shipping delays.

If materials are to be paid for before they arrive on site, separate agreements for off-site materials are often entered into to allocate the relevant risks and obligations. NZS forms of contract include a standard form off-site material agreement as a schedule to the main terms ‒ although this is often amended.

Employers also often protect their interests in high-value advance payments by way of advance payment bonds.

Progress Payments

Typically, at regular intervals, the contractor submits a payment claim. The employer will then assess the claim and issue a payment schedule of amounts that it considers to be due.

Late Payments

Construction contracts in New Zealand generally include interest on late payments.

The Construction Contracts Act 2002 has default payment structures intended to ensure regular cash flow throughout the industry. If a qualifying payment claim/invoice (see 4.4 Invoicing) is not appropriately disputed in a payment schedule and is then late/unpaid, this law enables a contractor to:

• suspend work after giving notice; or
• issue a statutory demand for payment.

Requirements for Tax Invoices

In New Zealand, an invoice will commonly include:

• the words “tax invoice” or “taxable supply information”;
• the name and Goods and Services Tax (GST) number of the provider;
• the date of issue; and
• a description of the goods or services.

New tax laws took effect on 1 April 2023, which amended the rules relating to invoicing and record keeping. The requirement for tax invoices has been updated to a more flexible obligation to provide and keep certain records known as “taxable supply information”. However, Inland Revenue has stated that businesses will not need to change their existing “tax invoice” terminology, and that invoicing practices compliant with the old rules will also comply with the new rules. References to a “tax invoice” can be read as “taxable supply information” (s19Q(1) Goods and Services Tax Act 1985).

Recommended Requirements for Construction Invoices

To benefit from the Construction Contracts Act (see 4.3 Payment), a payment claim/invoice should:

• be in writing;
• identify the construction contract to which the payment relates;
• identify the construction work and the relevant period to which the payment relates;
• state the amount to be paid and the due date for payment;
• indicate how the payee calculated the claimed amount; and
• state that it is made under the Construction Contracts Act.

A payment claim must also be accompanied by an outline (in a prescribed form) of the process for responding to the claim and the consequences of not responding or paying the relevant amount.

Invoices issued after payment claims are mainly a formality to reflect the outcome of the payment claim and payment schedule process.

Role of and Responsibility for Construction Programmes

In New Zealand, a programme is usually prepared by the contractor at the outset of a project and it is often integral to setting up a project for success. The programme is often reviewed by the employer, who may provide comments/input, but good programming is ultimately the contractor’s responsibility.

Many contracts require the contractor to report against and update the programme regularly throughout a project.

Standard Programme Requirements

Standard contractual requirements for a programme are that it should set out:

• the proposed sequence of works and start/end dates of the component activities, demonstrating how the contractor proposes to meet the due dates for completion;
• the critical path and dependencies between activities; and
• the dates by which the contractor requires access to specific areas of the site and any materials, services, or work to be provided by the employer.

If a delay occurs, standard contracts in New Zealand include a process along these lines:

• the contractor must notify the employer/engineer, often within a specified timeframe, and outline the cause and effect of the delay;
• the employer will assess the extent of the delay and determine the extension of time it considers appropriate (the employer/engineer is generally required to act reasonably when making this assessment); and
• the dispute resolution procedure will apply if the parties disagree on the appropriate length of the extension of time.

There is an expectation in New Zealand that contractors will take reasonable measures to avoid potential delay events and mitigate to delays. In standard form contracts, failure to give notice can affect the contractor’s eligibility for extensions of time and variations if it deprives the employer of the opportunity to avoid or mitigate the delay.

Delay can cause additional costs for a contractor and losses for an employer. The responsibilities and remedies for such costs and losses (typically residing with the party responsible for those delays) and the applicable approach to concurrent delays are described in 5.3 Remedies in the Event of Delays.

Contractor Delays

If the contractor is responsible for the delay, then contracts often provide that the contractor:

• will be liable for damages for the period between the due date for completion and actual completion, with contracts in New Zealand typically specifying a sum of liquidated damages per day/week; or
• must expedite the works at its cost to make up the lost time.

Employer Delays

If the employer is responsible for the delay, then contracts ordinarily provide that the employer will:

• allow more time for the contractor to complete the work; and
• pay the additional costs arising from the prolongation of the work (either based on reasonable assessment of that cost or a fixed working day rate).

Concurrent Delay

There is no single accepted definition of concurrent delay in New Zealand. However, the essence of concurrent delay is where the employer and the contractor each cause overlapping delay to the critical path of the works.

New Zealand courts are yet to address concurrent delay. Nonetheless, they will likely adopt the approach set out in the High Court of England and Wales decision in Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd (1999) 70 Con LR 32. The Malmaison approach to concurrent delay is that the contractor is entitled to receive an extension of time for the full period of delay – but not prolongation costs – for the period of concurrency. However, under the principle of freedom of contract, the parties may agree to an alternative approach.

Contractors usually issue notices for extensions of time to the employer/engineer (independent certifier in NZS 3910:2023) in writing.

In such notices, contractors often must set out the contractual basis for an extension of time claim under the contract.

Grounds for an Extension of Time

Common grounds for an extension of time claim include:

• the effects of variations;
• weather;
• events that an experienced contractor could not foresee at the time of its tender;
• defaults by the employer under the contract; and
• some force majeure-type events, such as flood, volcanic, or seismic events.

Measuring an Extension of Time

Extensions of time are usually measured by determining the extent to which the event or circumstance qualifying as a ground for an extension of time has caused (or will cause) a delay to the contractor’s activities or to the critical path (depending on the exact requirements of the contract).

There is a wide range of prospective and retrospective methodologies for measuring delay, and no particular methodology is mandated by statute. Standard form New Zealand contracts do not specify a particular delay analysis methodology. The choice of methodology is usually left to the discretion of delay experts. Often such experts, and the parties, refer to the Delay and Disruption Protocol published by the Society of Construction Law. However, the protocol provides only non-binding guidance.

Key evidence required for the assessment of delay commonly includes the programme(s) for the contract works and contemporary evidence of the delay such as instructions, site notes, photos, timesheets, minutes of meetings, and communications between the parties.

In New Zealand, force majeure only applies if and to the extent that it is expressly included in the contract.

Force majeure clauses are not included in most New Zealand construction contracts as standard. However, most standard form contracts include some relief for events that would usually be considered force majeure events and force majeure clauses are occasionally added to standard form contracts as special conditions.

Force majeure clauses may suspend or excuse the non-performance of contractual obligations during the effect of the force majeure event. They may also permit termination of the contract if the effect of the force majeure event extends beyond an agreed duration.

Relief for unforeseen circumstances is normally only available if it is included in the contract. However, New Zealand recognises the common-law concept of frustration, which can apply in some instances of unforeseen circumstances. Frustration is grounds for termination under NZS 3910 and NZS 3916 contracts.

In standard form contracts in New Zealand, a contractor is entitled to additional time for unforeseen circumstances but not necessarily additional costs.

Disruption is an interruption to or hindrance of a contractor’s intended methodology, resulting in loss of productivity and efficiency. Disruption is recognised as a concept in New Zealand, but disruption claims and associated remedies are only available if allowed for under the particular contract and if the requirements of that contract have been met.

There is no universal method for demonstrating disruption. However, a popular method is the “measured mile” approach, where a contractor demonstrates the productivity it was capable of in portions of the project/site that did not experience disruption and then causally links a disruptive event with the lesser productivity achieved in the affected portion of the works.

Productivity-based approaches, which often use comparative projects and industry standards to establish achievable baselines “but for” the disruption, are also recognised. Alternative cost-based methods – where contractors compare estimated costs with actual costs – are possible but comparatively difficult to causally link with disruptive events, owing to the potential for tender insufficiency as an alternative cause.

Warranties under the Building Act 2004 cannot be contracted out of for residential construction. On policy grounds, a person cannot exclude liability for their own fraud.

The concepts of wilful misconduct and gross negligence are not well-established in the New Zealand courts. However, where contracts include limitations on liability (see 6.3 Limitation of Liability), such clauses often seek to ensure that any limitation of liability does not apply if the contractor engages in wilful misconduct or gross negligence.

Consumer Contracts

In consumer contracts in New Zealand, limitations of liability are restricted by the Consumer Guarantees Act 1993. By way of example, a contractor cannot limit its liability for completing construction with reasonable skill and care, so it is fit for purpose and on time or within a reasonable timeframe.

Commercial Contracts

In CBL Insurance Ltd (Liq) v Harris (2021) NZHC 1393, the High Court confirmed that clear limits of liability are enforceable in commercial contracts in New Zealand. Limitations of liability are not included in New Zealand’s most common standard form contracts (other than NZS 3910:2023 which includes this as an option); however, it is not unusual for parties to add such clauses.

Parties are mostly free to negotiate indemnities subject to policy restrictions – for example, not indemnifying certain court issued fines and penalties. Standard form contracts in New Zealand typically include indemnities:

• from the contractor to the employer for losses:
1. arising out of acts or omissions by the contractor in executing the contract works, or any negligence or breach by the contractor;
2. for remedying defects in the construction; and
3. injuries to persons or damage to property; and
• from the employer to the contractor for losses:
1. arising from the employer’s lack of rights to carry out construction on the site;
2. arising from acts or omissions of the employer (albeit NZS 3910:2023 has removed this indemnity); and
3. injuries to persons or damage to property.

It is not uncommon for parties to agree to further indemnities (to the extent permitted by law) for:

• infringement of third-party IP rights;
• infringement of law, including the Building Act 2004 or Resource Management Act 1991; and
• breach of confidentiality (if applicable).

There are no mandatory guarantees in New Zealand. However, several forms of performance guarantees are used frequently in the New Zealand market, such as bonds and parent company guarantees.

Bonds

Standard form contracts in New Zealand anticipate performance bonds. These are usually provided by the contractor to the employer as security for performance of the contractor’s obligations, although NZS 3910/NZS 3916 also include an option for a bond to be provided by the employer to the contractor (rarely used).

Parent Company Guarantees

If the contractor is a subsidiary and has limited assets, the employer may require (and financiers may expect) performance to be assured by way of a guarantee from a parent company.

In NZS forms of contract, four types of insurances are usually taken out by the parties:

• construction insurance – for loss and damage to the works;
• plant insurance – for loss of equipment on site that is critical to the performance of the contract;
• public liability insurance – for legal liability to third parties; and
• professional indemnity insurance – for the design of the construction work.

However, often other insurances (eg, marine cargo insurance and motor vehicle insurance) are taken out where the specific project involves relevant risks.

Under most contracts in New Zealand, the insolvency of a party permits the other party to terminate the contract. The insolvency of the contractor also permits the employer to resume possession of the site.

Risk-sharing arrangements are not common in New Zealand and are most often found in alliance agreements or target cost arrangements (see 4.1 Contract Price).

The orthodox approach regarding risk in New Zealand is to allocate the risk to the party who is best placed to control that risk. Alternatively, a party may accept additional risk for a price premium (if accepted by the contractor) or reduction (if accepted by the employer).

Pricing Shared Risks

Most New Zealand contracts allocate risks rather than share the risks. However, where risks are shared these are generally priced through a target price mechanism. The parties share in the cost overruns or savings (if the actual price is above or below the target) based on pre-set percentages or values. Risk sharing regimes can incentivise the contractor to carefully manage the applicable risk. There are many ways to structure such mechanisms and it is still common for specified risks to be allocated solely to a particular party.

Cost fluctuation clauses can allow the parties to share the risk of inflation (see 4.2 Indexation).

Employers frequently require the contractor to:

• retain key personnel – often any change to key personnel will require the employer’s approval; and
• remove unsuitable personnel – in standard form contracts, the employer may require that contractors remove personnel for serious misconduct, incompetence, negligence, or causing danger to safety.

NZS construction contracts prohibit a contractor from subcontracting the whole or substantially the whole works. Subcontracting generally requires the employer’s consent. Subcontracting does not relieve the contractor from any liability or contractual obligations owed to the employer under the contract.

Typically, the employer and the contractor will each retain their IP rights but grant licences to the other to the extent necessary for the project. Rights over new IP that may result from the work under a contract are negotiated and vary significantly. One common approach is shared ownership of the new IP with cross-licences. Often parties agree to indemnities for infringement of third-party IP rights.

Contract law in New Zealand recognises general damages for breach of contract. Sufficiently serious breaches of contract may also entitle a party to terminate the contract.

Common Employer Remedies

Common employer remedies include:

• liquidated damages for delay (see 5.3 Remedies in the Event of Delays);
• rectification of defects or the right to recover the cost of rectifying defects by third parties (see 3.11 Defects and Defects Liability Period);
• damages for non-performance (see 7.2 Guarantees);
• the right to draw upon bonds, parent company guarantees, or retentions (see 7.2 Guarantees and 3.11 Defects and Defect Liability Period); and
• suspension or termination of the contract.

Common Contractor Remedies

Common contractor remedies include:

• payment, including interest when payment is late (see 4.3 Payment).
• variations (see 3.2 Variations);
• extensions of time (see 5.4 Extension of Time); and
• suspension or termination of the contract.

For further details of restricting remedies, see 6.1 Exclusion of Liability, 6.3 Limitation of Liability, 9.3 Sole Remedy Clauses and 9.4 Excluded Damages.

In New Zealand, statutory limitations under the Limitation Act 2010 restrict how long after a contract or an event a party can bring a claim. Parties also often contractually limit the duration of liabilities. Liability under consultancy contacts, for example, is typically limited to six years from the date that the services were completed.

Sole remedy clauses are not included in standard NZS construction contracts but are enforceable in commercial contracts. Where a contract provides for delay liquidated damages, this will typically be considered the sole remedy for delay.

Often commercial parties in New Zealand exclude liability for:

• indirect, consequential, special, incidental, exemplary or punitive loss or damage; and
• loss of profit, revenue and goodwill or loss of production.

Retentions

Retentions are permitted and commonplace in New Zealand construction contracts. Employers automatically hold retention monies on trust for the contractor under the Construction Contracts Act. Further requirements, including holding retentions in a separate and compliant bank account in New Zealand and regularly reporting, came into force on 5 October 2023.

Suspension Rights

Contractors have statutory suspension rights for non-payment but, under NZS forms of contract, they usually may not suspend works in dispute.

The power to terminate a construction contract, and associated remedies, depend on the contract terms. Construction contracts in New Zealand usually permit termination for frustration and default, and the types of default enabling termination are often aligned with the obligations of each party.

Contractor Default

For contractors, grounds for termination include:

• an insolvency event;
• subletting the whole or the majority of the works to another entity without consent;
• material breach of contract; or
• persistently, flagrantly or wilfully neglecting to carry out its obligations under the contract.

Termination for contractor default ordinarily entitles the employer to expel the contractor from the site and to have the works completed by third parties, with additional costs being recoverable from the contractor.

Some construction contracts also permit the employer to terminate the contract at its convenience. Such clauses may entitle the contractor to payment for completed works, under-recovered costs, and an allowance for lost profit.

Employer Default

For employers, grounds for termination include:

• an insolvency event;
• abandoning the contract;
• material breach of contract; or
• persistently, flagrantly or wilfully neglecting to carry out its obligations under the contract.

Termination for employer default traditionally entitles the contractor to payment for completed works, under-recovered costs, and an allowance for lost profits.

Termination Prerequisites and Wrongful Termination

Most construction contracts in New Zealand require the terminating party to notify the defaulting party of the default and to provide an opportunity for the defaulting party to remedy the default within a contractually mandated period. If the default capable of remedy is not remedied, then the terminating party may proceed with termination.

New Zealand also recognises the concept of wrongful termination if a party purports to terminate the contract without a valid basis, or without following the contractually required process, which can result in damages.

Courts

In New Zealand, four tiers of court may hear construction disputes. In descending order, they are:

• the Supreme Court;
• the Court of Appeal;
• the High Court; and
• the District Court.

Adjudication

In New Zealand, parties may not contract out of the adjudication process, which is outlined in the Construction Contracts Act. Adjudication is a swift but interim dispute resolution process that occurs entirely through written submissions. There are no hearings.

Adjudication decisions are binding and any awards must be paid within two working days of award. Notwithstanding the obligation to pay, parties may then proceed to litigation or arbitration for final determination of the dispute. Adjudications are determined by a single adjudicator from a recognised institution.

Recognised Institutions

In New Zealand, there are several institutions recognised as competent to appoint persons to hear construction disputes as adjudicators or arbitrators. These include:

• the Building Disputes Tribunal;
• the New Zealand Dispute Resolution Centre; and
• the Arbitrators and Mediators Institute of New Zealand.

The following private and alternative dispute resolution options are recognised in New Zealand.

• Arbitration – this binding form of dispute resolution is often used in New Zealand contracts and is included in NZS forms of contract. Arbitration has its statutory basis in the Arbitration Act 1996.
• Mediation – this non-binding form of dispute resolution is common in New Zealand contracts and is included in NZS forms of contract.
• Expert recommendation/determination – referrals to experts for either binding decisions or non-binding recommendations are frequent in New Zealand.
• Dispute review boards – these are often limited to major projects, due to the cost. The extent of their authority varies for each contract.