With an increase in design/build contracts and the novation of designers and engineers to the head contractors on construction contracts, there are benefits and risks associated with consultants being covered by the CCA
Consultants, welcome to the CCA – but what does this mean for contractors? – By Elia Kim and Stuart Robertson
Contracts for design, engineering and quantity surveying have recently come under the auspices of the amended Construction Contracts Act 2002 (CCA), which may require contractors to review their methods of payment and their insurance positions.
The CCA was amended in 2015, and the amendments came – and will come – into effect in three tranches: from 1 December 2015 (miscellaneous changes), from 1 September 2016 (adding design, engineering and quantity surveying work to the definition of ‘construction work’) and from 31 March 2017 (in relation to retentions).
The inclusion of design, engineering or quantity surveying work only applies to those contracts that were entered into, or renewed, on or after 1 September 2016. This means that consultants providing design, engineering or quantity surveying work will now have available to them, amongst other things: the strict payment process of payment claims and payment schedules; and the adjudication process for any disputes under their contracts of engagement, including about payment.
The CCA did not previously capture the ‘related services’ that consultants provide. It was recognised that these services were a vital component in achieving good outcomes on construction projects. Therefore, it was beneficial to allow consultants to be paid in a timely manner (using the payment process under the CCA), and held accountable for their services. Why is this important for contractors?
Benefits and risks
These changes are important for anyone engaging a consultant to provide design, engineering or quantity surveying services. With an increase in design/build contracts and the novation of designers and engineers to the head contractors on construction contracts, there are benefits and risks associated with consultants being covered by the CCA.
The biggest risk for contractors is that consultants can now utilise the payment claim process. A simple change to the consultant’s invoice will make it a complying CCA payment claim. As a precautionary measure, all consultants’ invoices should be approached as if they were CCA payment claims.
What this means is that you should, in every instance, respond to that invoice with a payment schedule. Critical to this is identifying when the payment schedule is due, remembering that if you wish to pay the consultant less than it has claimed, you must issue a payment schedule within time.
Under NZS 3910:2013 this is 12 working days from receipt of the claim (invoice). A standard form consultant’s agreement will be different. If the contract is silent, then the default period of 20 working days from service of the payment claim applies.
The benefit, for both you and your consultant, is access to adjudication for any disputes you have under your contract. Even if that agreement has a mediation and/or arbitration clause, adjudication under the CCA is available at any time after a dispute has arisen.
Terms and conditions
It is therefore timely for you to check your consultant’s terms and conditions of engagement. Often they try to limit their liability to a figure (e.g. $100,000) or to five times their fee, whichever is the lesser. They also sometimes include clauses requiring any dispute to be notified within a very short period of time or before the consultant services have been fully provided.
While a cap on liability, and hence the need to remove or increase that limit, should be effective, it is questionable whether any maximum period to give notice of a claim will be valid. This is because section 12 of the CCA invalidates a provision in a contract that has the effect of contracting out of the CCA.
While you are reviewing your consultant’s terms and conditions, also check that it includes the maintenance of professional indemnity insurance.
In summary, be prepared and keep the following in mind:
- • The CCA now applies to consultants for contracts entered into, or renewed, on or after 1 September 2016
- • As a precaution, treat all consultants’ invoices as a CCA payment claim and make sure to respond in time with payment schedules
- • Identify when the contract says a payment schedule is due; if this is not specified, the default period is 20 working days under the CCA
- • Both you and your consultant now have access to adjudication for any disputes under your contract
- • Check your consultant’s terms and conditions of engagement for any clauses that: (i) cap the consultant’s liability; (ii) require notice to the consultant of any dispute; and (iii) require the consultant to maintain professional indemnity insurance.
Elia Kim is a law graduate and Stuart Robertson a partner in Kensington Swan’s national construction law team; Kensington Swan regularly provides comment on the construction industry on its blog site – check out nzconstructionblog.com