Changes to the Construction Contracts Act

24 August, 2016 | Peter Smith

There are some important changes to the Construction Contracts Act 2002 (“CCA”) that come into force on 1 September 2016 and 31 March 2017 that may affect your business.

1 September 2016 changes

On 1 September 2016, the meaning of construction work shall include:
a) design or engineering work carried out in New Zealand in respect of work of the kind referred to already in the CCA in subsections 1(a) to (d) and (f);
b) quantity surveying work carried out in New Zealand in respect of work of the kind referred to already in the CCA in subsection 1(a) to (g).

This will mean that professionals such as architects, designers, quantity surveyors and any other contractors that deal in design or engineering work may have the additional protection of the CCA from 1 September 2016.

31 March 2017 changes

On 31 March 2017, a new section will be added into the CCA which will deal with the retention of monies by a party to a construction contract which is held as security for performance of the obligations of the other party to the contract (“retention money”).

This section will provide the parties with a greater clarification and direction in relation to what happens to retention money. The introduction of a new subpart in the CCA will clarify:

1. when the subpart applies;
2. that retention funds are held on trust, as trustee, for the benefit of the other party and when that trust ends;
3. what accounting records are required;
4.  how the retention money is to be used;
5.  how the retention money may be invested;
6. interest on late payment of retention money;
7. protection of retention money; and
8. prohibited provisions in a construction contract which relate to retention money.

When does the Construction Contracts Act Not Apply?

The CCA will not apply to any construction contract that was entered into before 1 September 2016 unless:

a) The Contract has been renewed for a further term on or after 1 September 2016 (in which case that section applies only in relation to those obligations that were incurred or undertaken on or after 1 September 2016); or
b) the parties agree that the meaning of construction work as amended by the Construction Contracts Amendment Act 2015 will apply.

Therefore, architects, engineers and quantity surveyors and any other contractor that deals in design, should revisit their standard terms and payment systems to make sure they are in line with the CCA.

There are stringent requirements under the CCA for the issue of compliance payment claims and, where applicable, payment schedules. A payment claim must be accompanied by an outline of the process for responding to that claim and an explanation of the consequences of not responding to a payment claim and not paying the claimed amount or scheduled amount in full.

If you would like to discuss any matters in relation to the upcoming changes to the Construction Contracts Act 2002 and to ensure that you are complying with the Act to give yourself the very best protection available under the current law, please contact business law specialist, Peter Smith on 09 837 6882 or at peter.smith@smithpartners.co.nz