Update on the Construction Contracts Amendment Bill

Introduction

We were expecting the proposed changes to the Construction Contracts Act 2002 (via the Construction Contracts Amendment Bill (Bill)) to come into force on 1 November 2013. However, the Commerce Committee (Committee) only released its report on the Bill on 11 December 2013.  The result is that the timeframe for the changes has now been pushed out, for the most part, to 1 November 2014. 

The purpose of this article is to summarise the key points made by the Committee in its report.

Recap on the proposed changes to the Act

The main proposed changes to the Act are:

• Removing most of the distinctions between the treatment of residential and commercial construction contracts;
• Extending the scope of the Act to include contracts for design, engineering and quantity surveying work (by amending the definition of construction work);
• Allowing for enforcement of adjudication determinations about rights and obligations of parties to a construction contract; and
• Making the process of enforcement of adjudication determinations more efficient.

Committee report

The Bill was referred to the Committee on 11 June 2013, with public submissions closing on 25 July 2013. The Committee received 31 submissions from interested groups and individuals and heard 22 of those submissions.

Although the Committee does not appear to disagree with any of the above proposed amendments, it has recommended some changes to the relevant clauses in the Bill as well as additional recommendations - some positive, others not so much.  This includes recommended changes to the adjudication process and a recommendation that will expand the scope of payment claims. 

Definition of construction work

Significantly, the Committee has recommended that the definition of construction work under the Act is further extended to include “operations that are critical for the completion of, or preparatory to, the scope of design, engineering, and quantity surveying work”.  This is because, in the Committee’s view, these “related services” directly affect the quality of building work, and it would benefit consumers if they were covered by the Act.

This may have been inspired by section 6(1)(f) of the Act, which includes in the current definition of construction work “any operation that forms an integral part of, or is preparatory to or is for rendering complete” particular categories of “construction work”. 

Adjudication process

In its report, the Committee has acknowledged that the tight timeframes set out in the Act in regard to the adjudication process could create opportunities for “ambush claims”.  This is because, at the moment, claimants can set adjudication in motion straight away, and the respondent is required to reply within five working days of receiving an adjudication claim (unless an extension is agreed to between the parties or granted by the adjudicator).  The Committee noted that this is particularly an issue for residential home owners and smaller contractors as they are not likely to be familiar with the adjudication provisions of the Act. 

It appears that the Committee has recommended changing the timeframe for selecting an adjudicator to two to five working days after the notice of adjudication has been referred to the adjudicator (where the parties have agreed on two different adjudicators but they are unable or unwilling to act).  The reason for this is stated in the report as being “to limit the ability of a claimant to rush an adjudication for tactical reasons”.  However, this is in fact a reduction in the timeframe that is currently prescribed under the Act of five working days, which would have the opposite effect. 

The Committee has also recommended adding a new provision so that an adjudicator is required to allow a respondent additional time if it is believed that the claim has been served with “undue haste” and the respondent has “insufficient time” to prepare a response.  This is a positive change for respondents of course, however, the fact that a claimant only has five working days from service of the notice of adjudication to file their adjudication claim, means many claimants pre-prepare their claims.  On that basis claims are quite often served with "haste", therefore it would seem that an adjudicator would be bound by this provision more often than not. 

Content of payment claims

The Committee has also recommended changing the definition of“claimed amount”under the Act to include liquidated damages, breaches of implied warranties under the Building Act 2004, and construction work already carried out.  This amendment would clarify that damages could be claimed in a payment claim if they were specifically agreed in a contract or implied by law, which is a matter that has previously been the subject of uncertainty.  This will therefore be a positive and welcome change to the Act.

Conclusion

The Committee has included some positive recommendations in its report, which will be welcomed by the industry.  On the other hand, there are some recommended changes that do not make a lot of sense.  It will therefore be interesting to see whether or not those recommendations are in fact adopted in the much anticipated Construction Contracts Amendment Act.  The second reading of the Bill in Parliament, which is the next step, may shed some light on that.  We will continue to ‘watch this space’ and report back on any interesting developments.   

If you would like further information please contact Daniel Shore on 07 958 7477.