MAJOR CHANGES TO THE CONSTRUCTION CONTRACTS ACT
New Amendment Act
The Construction Contracts Act 2002 (CCA) will be significantly changed by the new Construction Contracts Amendment Act 2015. In the past your only association with the old CCA may have been the processing of contractor's Payment Claims and then the Payment Schedules on behalf of the owner, and maybe if something went wrong, supporting the client in an Adjudication process. The new Amendment Act will probably increase the impact of the CCA on you and in some cases your clients. This article attempts to highlight some of the main issues.
Introduction of the changes that the Construction Contracts Amendment Act 2015 brings in will take effect over 3 stages, these are:
- From 1 December 2015 residential and commercial construction are to be treated the same under the CCA, with the exception of charging orders. This gives parties to residential contracts full equal access to the CCA’s dispute resolution and payment regimes. Contractors will not be able to obtain charging orders against residential occupiers.
- From 1 September 2016 design, engineering and quantity surveying work are included under the scope of the CCA.
- Retentions withheld under commercial construction contracts that are entered into or renewed on or after 31 March 2017 must be held on trust.
From 1 December 2015
The term "Residential Construction Contract" has been deleted so there is little difference between residential and commercial work. However the concept and term "Residential Occupier" is retained, and for instance, precludes Charging Orders being taken out against a residential occupier (amended section 31).
All payment claims must now be accompanied by explanations of how to respond to a claim, consequences of not responding and consequences of not paying. This is stated in the amended section 20(3), and is complied with by providing Form 1 from the Construction Contracts Amendment Regulations 2015.
Adjudicators’ powers of determination have been extended from just payments of money, to include rights and obligations under a construction contract. These will be enforceable in the same way as determinations for payments of money.
A new definition "Payment" has been added and in some cases replaces the term "Progress Payment" in the text. This widens the scope of what can be included in a payment claim.
More extensive new clauses have been added on Suspension of Work (new section 24A).
There are minor changes to items related to Charging Orders.
There are changes to the District Court Review of Adjudications.
There are a number of minor changes to Adjudication procedures, requirements, enforcement and timing.
The limitation period for referring a dispute to adjudication is clearer. The same limitation period of up to ten years specified in the Building Act 2004 in relation to building work applies to adjudications under the CCA.
From 1 September 2016
The definition of "Construction Work" has been extended to include designers (Architects, Architectural Designers, Interior Designers, Landscape Designers, etc), engineers (virtually any discipline) and quantity surveyors. These services will be known as Related Services. (new section 6(1)(a))
The definition of ‘construction site’ has been changed to include land where construction work is intended to be carried out, but has not yet started. This is to ensure that designers, engineers and quantity surveyors, or clients, are not limited in their ability to use the CCA if physical construction work has not yet begun.
Generally the ramifications for those involved in Related Work are:
- Fee agreements will have to meet the requirements of the CCA
- Fee claims will need to be formal Payment Claims under the CCA (accompanied by Form 1 from the Construction Contracts Amendment Regulations 2015)
- The client will have to respond with a formal Payment Schedule under the CCA
- If you have a dispute with your client - you can have it Adjudicated, and if payments are not made you can resort to Suspending Work (new section 24A) and in some cases a Charging Order (exceptions new section 31)
- If your client has a dispute with you - they can have it Adjudicated
It is worth noting that there have been a number of concerns expressed by professionals about an adjudication determination process against the designer, not least, how this will be viewed by professional indemnity insurance providers. Hopefully this will be resolved before September 2016.
From 31 March 2017
For commercial construction contracts entered into on or after 31 March 2017, retention money over a certain amount that is withheld under the contract will be subject to a trust obligation (new Subpart 2A).
Retention money is defined in the Act as: “an amount withheld by a party to a construction contract (party A) from an amount payable to another party to the contract (party B) as security for the performance of Party B’s obligation under the contract.”
For retention money held in trust the payer (party A) becomes a trustee and the payee (party B) becomes the beneficiary.
Retention money does not need to be held in a separate trust account, can be cash or other forms, and may be invested, all subject to the conditions in the new Subpart 2A
Proper methods of accounting for retention money will be required.
There are a number of further items that cover what you can or can't do with retentions.
From March 2017 it may be necessary to point out to clients their obligations under the CCA to hold retentions in trust.
It is expected that new Regulations will provide more detail around some of the retention issues before March 2017.
For further details
MBIE article on the Construction Contracts Amendment Act 2015
MBIE article on retentions in the Construction Contracts Amendment Act 2015
The Construction Contracts Amendment Act 2015
The original Construction Contracts Act 2002 (CCA)
The Construction Contracts Amendment Regulations 2015