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Big Changes To Leading Construction Contract

After extensive review, New Zealand’s standard contract for the construction of building and civil engineering projects has been revised and released for consultation.

The NZS 3910 is the contract most commonly used in New Zealand’s construction industry. However, recent industry and government reports have pointed to significant issues with the contract’s use that may erode relationships between clients and contractors. Such relationships play a critical role in driving construction sector productivity as well as value-for-money in public sector infrastructure spending (around $10 billion each year).

"There’s been overwhelming consensus from the construction sector that the contract needed a comprehensive update", says Tracey Ryan, co-chair of the Construction Sector Accord. "The proliferation of special conditions of contract that are often added to address shortcomings in the standard contract was a big focus. The fairness of some special conditions and the continual fiddling with the standard contract has caused big problems for the construction industry."

In response, the New Zealand Infrastructure Commission, Te Waihanga and the Construction Sector Accord jointly commissioned a comprehensive revision of the contract with support from many within the sector. Standards New Zealand was appointed in late 2021 to lead and manage the revision process, which was done by a committee of representatives from across the construction sector.

This review of 3910 is the biggest revision the contract’s had since 1987, and the draft version of the revised NZS 3910 is now out for consultation.

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"This revised contract aims to bring NZS 3910 in line with the current legislative environment and market conditions," says Accord co-chair Andrew Crisp. "The goal is a balanced contract that is fair and reasonable for all parties. This is expected to reduce some need for parties to insert their own lengthy and complex special conditions and help ensure that the contract is fit for the industry in 2023 and beyond."

The revised contract is only a tool, however, and its use must be accompanied by a major culture shift, says Ross Copland, Chief Executive of the New Zealand Infrastructure Commission, Te Waihanga.

"While these updates to NZS 3910 are an important enabler of better construction relationships, I want to emphasise the importance of a cultural shift in our industry from a mindset of contractual ‘winners and losers’, to one where public and private client-side leaders champion fair risk allocation and strive to eliminate, manage or accept some risk, rather than just transferring it.

"In order to rebuild a strong domestic construction industry and attract the talent we desperately need the sector needs to be profitable, fair and sustainable. Over the past decade we have seen far too many leading New Zealand construction firms fail and clients are most certainly worse off as a result. Client behaviour will make the biggest difference, so I’m asking our construction industry leaders to take this opportunity to think about their contract and procurement processes and become champions for better contracting practice".

The consultation document with the proposed revised standard form contract is now available on Standards NZ website and consultation on it closes on 30 June 2023. All feedback needs to be submitted through the Standards NZ consultation tool.

Register here for a webinar to hear from some of the review committee members on the key changes.

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