Under Construction: Recent Updates to NZS 3910:2013

Keenly awaited by New Zealand's construction industry is the revision of NZS 3910:2013.  Progress appears to be well underway, with industry representatives having met regularly in recent months to identify areas for improvement to the current standard.  Before publishing the full review in 2023, the P3910 Review Committee was to publish an interim standard this year. After further consideration however, the Committee has instead published recommended "Special Conditions", dealing with matters that are often key focus points for principals and contractors.  Our projects and construction team offers a few thoughts on what this latest update means for the industry. 

 

Some background

NZS 3910 is the contract used for most construction projects in New Zealand, and was last updated almost a decade ago.  The legal and commercial environment has evolved significantly since that time.  Accordingly, there is general consensus that a review of the standard is timely.  To a greater or lesser degree, principals and contractors already make a range of amendments to the standard's general terms. 

The Committee intended to publish an interim standard dealing with four topics considered to be non-controversial: collaboration, pandemic clause, liability caps and legislative changes.  However, it soon became clear that only the "legislative changes" fell into the category of being truly non-controversial (i.e., not requiring public consultation).  Accordingly, rather than publish an interim standard addressing only this topic, the Committee has published Special Conditions which it recommends parties incorporate into their amendments to NZS 3910.  

These Special Conditions deal with a range of matters.  In this update, we look more closely at the topics of liability caps, and the changes to General Condition 5.11 (compliance with laws).  This latter change is relevant to the allocation of COVID-19 risk.

 

Liability caps 

The Committee has recommended inclusion of a regime where parties can decide that the contractor's liability is limited to a figure or percentage agreed by the parties.  One option expressly made available to the parties is a limit of 100% of the contract price (internationally, this is a common default option including under the FIDIC Conditions of Contract for Plant and Design-Build, First Edition 1999, colloquially referred to as the "Yellow Book").  The limit is subject to certain exceptions, including in respect of the contractor's obligations to indemnify the principal such as for third party claims for property damage, and where the contractor has abandoned the contract.  The limit is also effectively increased to the level of relevant insurance policies held by the contractor.  

Over time, we have seen a significant increase in contracts that contain some form of limitation or exclusion of liability.  This is certainly a hot topic in the current market.  The Committee has clearly sought to strike a balance on this topic, leaving the parties free to decide whether a limit should be included and agree on the appropriate level, and including market standard carve outs from that limit.  It will be interesting to observe the extent to which, by virtue of the Committee putting this regime forward as an option for parties, there is increased inclusion of liability limitations across the market.  It will also be interesting whether ultimately in the full review released next year the Committee goes further to exclude liability for contractors' indirect or consequential loss or damage (also an exclusion which is contained in the FIDIC Yellow Book).  In this regard, we note this topic has been allocated to one of the working groups undertaking the review.  

 

Compliance with law, and COVID-19

NZS 3910 entitles contractors to a variation where certain legal changes increase the cost of performing the contract.  The recommended Special Conditions amend this to expressly list secondary legislation and instruments as included in these changes.  The Committee explains that such legislation/instruments are generally the form of any government public health order relating to a pandemic, indicating the intent was to ensure that the existing variation entitlement clearly extends to the raft of measures the government has introduced to combat the effects of the COVID-19 pandemic.  In these circumstances, the contractor would be entitled to both time and cost relief.  

Over the last couple of years, we have seen parties develop bespoke regimes for specific COVID-19 variations to address the pandemic's considerable impact on the industry, including materials, labour or personnel shortages.  Some of these regimes are expressed to be a code, in that they contain the contractor's sole remedy in respect of COVID-19.  Also, some bespoke clauses limit the contractor's ability to profit from a COVID-19 impact and/or contain some form of risk-sharing.  The recommended Special Conditions cover only the effects of legislative intervention and do not touch on the other impacts (which would require public consultation).  Accordingly, pending further output from the Committee on this topic, bespoke clauses of the type currently seen in the market may well continue.  

 

Final thoughts and next steps

How the Committee has approached the above issues is a useful preview of what is to come next year.  As would be expected, the Committee is clearly alive to issues principals and contractors have been negotiating for some time, and the revised standard may offer resolutions to what are commonly points of contention.  Ultimately, the goal should be to provide a document that allows commercial flexibility and hopefully reduces the volume of changes to the standard which are required to achieve a mutually acceptable contract.

Our team will keep you posted as the Committee continues with its revision of NZS 3910.  The public consultation phase where the full revision will be released is set to commence February 2023, followed by an approval process and then publication expected in July.  

As always, we are happy to answer any questions about the update or assist with any construction queries.

*This article was co-authored by Abby Simpson (Law Clerk) in our Construction team.