Changes coming to NZ’s most widely-used major works contract

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For more than a decade, NZS 3910:2013 has been the go-to form of contract for major construction projects in New Zealand.  In 2021, Standards New Zealand assembled a committee to facilitate the biggest revision the contract has seen since 1987. With the new NZS 3910 scheduled to be published later this year, Greenwood Roche construction lawyers Jordan Ropati and Liam Brown take a look at what’s changing, and what’s not.

What’s changing?

Role of the engineer

The change that will have the most significant impact on day-to-day operations is the splitting of the engineer’s role into two new roles — the contract administrator and the independent certifier.

It is the responsibility of the engineer under the current form to simultaneously:

• administer the contract on behalf of the principal, and

• act as a fair and impartial certifier. These conflicting duties are often at odds, and can create serious issues for principals and contractors alike.

The revised NZS 3910 seeks to formally split these roles, with the contract administrator appointed by the principal to act on its behalf in administering the contract, and the independent certifier acting as an independent decision-maker in valuing work and variations, granting extensions of time, and reviewing instructions/decisions under the contract.

While the expectation is that these roles will be performed by separate persons, for smaller projects this will often be unrealistic, and the same person will be listed as performing both roles — effectively returning things to the current status quo.

Limitation of liability

A new clause has been inserted to limit the contractor’s aggregate liability to the principal to an amount to be specified in the contract.

Previously, contractors had to fight tooth and nail for the inclusion of a limitation of liability in contracts; now the presumption will be that the position is, at the very least, negotiable.

Final payment

A new clause has been added to deal with Interim Final Accounts and Final Accounts.

This allows the parties to first agree the final contract price (adjusted for variations, time-related costs and fluctuations, if applicable) before following through with the final payment process under section 12.

This change reflects the market practice around the final account negotiation process, and encourages early agreement.

Other changes

A number of other notable changes have been made:

• to reflect common practice (such as the introduction of the advisor role and the option of a target price),

• to update references to legislative obligations (such as those under the Health and Safety at Work Act 2015), and

• to simplify language (for example, “off-site overheads and profit” is now simply “margin”).

What’s not changing?

The upcoming 3910 revision is no silver bullet. There remains a number of key issues that we see come up time and time again which the revision does not address.

For the vast majority of projects, NZS 3910 will not adequately capture all of the project’s specific requirements without amendments to the general conditions.

And that’s understandable — NZS 3910 is intended to provide a solid starting point where standard risks are evenly allocated between the principal and the contractor.

It does not, and should not, capture all possible deviations from the norm.

Common issues that parties will still need to actively consider on projects include:

• the appropriateness of the default priority of documents,

• early contractor involvement and relationship with the ECI agreement,

• the appropriateness of the default cost and time risk allocation (noting a number of neutral risk events do not allow the contractor to recover any costs), 

• the form of bond (eg, whether an on-demand bond is required), and bond call provisions, 

• key personnel,

• free issue materials,

• preconditions to advance payments,

• confidentiality,

• the principal’s step in rights with subcontractors, 

• the requirements of any third-party agreements to which the principal is a party (eg, development agreements, agreements to lease, funding agreements), and

• the applicability of the approach in the general conditions to the project’s requirements.

The committee is currently considering comments received during the public consultation phase.

Once the revised NZS 3910 is released, Standards New Zealand intends to revise the NZS 3915, 3916 and 3917 suite of contracts to align them with the changes to NZS 3910.

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