August Construction News
News & Market Activity
Release of Infrastructure Transactions Unit Report – an examination of issues associated with the use of NZS Conditions of Contract
The Infrastructure Transactions Unit (currently within the New Zealand Treasury, but moving into the New Zealand Infrastructure Commission) has released a report (Report) following its commission of an independent review of the use of the NZS Conditions of Contract for Building and Civil Engineering Construction in local and central government initiated infrastructure projects.
The Report summarises the review findings, identifies issues from both a public and private sector perspective, and outlines opportunities for improvement in the construction and infrastructure sectors going forward.
Read the Report
The Report’s overarching finding is that there is a culture of mistrust between the public and private sectors. This influences approaches to procurement, contract drafting and the distribution of risk between principals and contractors. Mistrust has resulted in the extensive use of special conditions in NZS Contracts, leading to inappropriate allocations of risk, misunderstanding and increased delay, cost and administrative burden.
Some of the other key challenges outlined in the report are the:
- Lack of knowledge and skills in delivering infrastructure projects in the public sector,
- Disproportionate amount of risk transferred to contractors, who are not in a position to manage it,
- Use of unreasonable and complicated special contract conditions,
- Use of time bars resulting in contractors not being paid for variations,
- Absence of caps on contractors’ liability (there is currently no provision for liability caps in NZS Conditions of Contract), and
- Failure of Engineers to a contract to achieve independence.
The Report outlines some opportunities for improvement relating to the use of NZS Conditions of Contract by the public sector, including introducing the ability to track changes into the general conditions of contract to allow parties to read contracts as one concise document; investigating how contracts can have more reasonable time bars and wider use of contractor liability caps; and considering establishing a panel of experts who can be procured for the role of the Engineer to the Contract to ensure Engineer impartiality.
The Construction Sector Accord, signed by the Government and industry in April 2019, and the newly established New Zealand Infrastructure Commission, Te Waihanga, aim to address some of these challenges and have committed to transforming the construction and infrastructure sectors.
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