NZS 3910 Conditions of contract for building and civil engineering construction is the most adopted construction contract in Aotearoa New Zealand. Since its last review and release in 2013, the population has increased significantly, and a new generation of contractors and other players have entered the industry.
On 9 May 2023, Standards New Zealand released its proposed revisions for market consultation with a draft DZ 3910:202X. The 8-week consultation process with public submissions ended on 30 June. These submissions will now be reviewed and a new NZS 3910 will be released – hopefully in December.
Why update NZS 3910 and why is a standard form important?
The general conditions of NZS 3910 have developed over years, dating back to NZSS 623:1964, by representatives across the industry. They have agreed a set of comprehensive contractual clauses that generally reflect a fairer allocation of risk.
However, with the continued rise of complex special conditions and changes in various laws, the general conditions are long overdue for an update and refresh. It is important for anyone who uses NZS 3910 to become familiar with the changes outlined below. For greater detail on specific changes, see the series of articles on NZS 3910 on the Dentons Kensington Swan website at www.dentons.co.nz/en/insights.
New definitions (clause 1.2)
Some new terms have been introduced, but the definitions remain unchanged:
- ‘On site overheads’ has been replaced with ‘preliminary and general’ (P&G) as this is the way it is commonly described in the industry.
- ‘Off-site overheads and profit’ has been replaced with ‘margin’ – again to align with the industry terminology.
New target price mechanism (clause 2.5)
Under the current NZS 3910, there are three contract price options – cost reimbursement, measure and value, and lump sum. DZ 3910 has a new target price contract price mechanism to allow for the sharing of cost savings and overruns.
Contractor’s general obligations (clause 5)
Several changes have been introduced to the contractor’s obligations, including:
- health and safety (5.8–5.9) in line with the Health and Safety at Work Act 2015
- protection of the environment (5.21) now requires the contractor to take practical steps to ensure compliance with resource management laws and applicable resource consents
- reporting (5.22) now requires the contractor to regularly provide status reports with specific timeframes and to report on matters and content to be agreed and set out in the specific conditions.
Replacing engineer to contract (clause 6.1 and throughout)
The amendments have split the engineer’s role into two separate roles – a contract administrator to act as the principal’s agent and to give instructions (for example, on variations) and an independent certifier who will be acting independently of both parties when making and issuing decisions (for example, practical completion).
This change is significant as it recognises the long-standing issue that the engineer often cannot fulfil its dual role effectively and impartially and there is often bias when making decisions or issuing determinations and certificates.
Fault-based indemnity (clause 7.1)
A notable change is that the indemnity is now fault-based, which means the contractor will only be liable for matters to the extent that it causes actual damage. This significantly narrows the scope of the contractor’s exposure.
Liability cap (clause 7.2)
The new amendment introduces an option to have a cap on the contractor’s liability, which promotes greater certainty as to the nature and extent of risk. There is an option to cap liability at 100% or a lesser percentage of the contract price. It is important to note that there are several exclusions to this cap, being fraud, illegal acts or omissions, abandonment by the contractor of the contract and wilful or reckless misconduct.
Variations (clause 9)
DZ 3910 brings together all price adjustment mechanisms under clause 9 – and with a new title. This includes cost fluctuations, contingency payments and provisional sums, provisional items and prime cost sums.
These are no longer dealt with under payments (clause 12). Arguably, this better reflects the split between the contract administrator’s role in valuing adjustments to the contract price and the independent certifier’s role in processing payment claims and payment schedules. The revised standard has also introduced a process whereby more focus is given to the contractor and contract administrator agreeing the value of the variation. If agreed, it is recorded in an instruction.
Extension of time (clause 10.3)
The changes here focus on the process for submitting an extension of time claim to reduce the likelihood of a dispute arising and, if one does arise, to resolve it quickly.
The independent certifier is given a leading role in this process. As with variations, the parties are encouraged to reach agreement as to entitlement and period of delay and record the same in an instruction.
Disputes (clause 6.4 and 13)
Clause 13 has been streamlined to retain just the external dispute resolution processes of mediation and arbitration. To this is added the requirement for senior representatives of the parties to try and resolve the dispute as a first step.
A notable revision is to dispense with formal decisions altogether and as a precursor to mediation or arbitration. All other processes have, sensibly, been moved into the new clause 6.4. Here, the focus is on the independent certifier reviewing instructions of the contract administrator and decisions of the independent certifier.
What does it all mean?
The proposed changes are a positive step towards reducing the need for special conditions and will hopefully promote efficiency and fairer risk allocation in the construction industry.
It is important for industry players to become familiar with these changes. It is also advisable to review your current NZS 3910 templates and be prepared to have these updated to reflect the changes.
Note: This article is not intended as legal advice. For specific advice, contact your legal advisor or the Major Projects and Construction team at Dentons Kensington Swan.