Introduction

In October 2023, the New Zealand Standard NZS 3910 conditions of contract for building and civil engineering construction underwent a significant update, following an extensive consultation process driven by statute law. Historically, this standard is reviewed roughly every decade, with the previous update occurring in 2013. However, the process is anything but nimble, constrained by complex legal frameworks. As a result, practice notes/amendments have not been issued to keep users abreast of the latest developments or legislative changes. Instead, the industry has relied on ad hoc special conditions, crafted by various participants for individual projects.

NZS 3910 is reportedly used on 80% of construction projects across New Zealand. Yet, two years after its release, uptake of the updated standard has been slow, with most Principals adopting a cautious “wait and see” approach. While the standard now reflects current legislative requirements and introduces some positive improvements, several issues continue to lurk beneath the surface.

The Persistent Problem of Special Conditions

When Standards NZ scoped the review of NZS 3910, there was overwhelming consensus from the construction sector: the standard needed a comprehensive overhaul to reduce the reliance on special conditions of contract. The goal was to improve consistency, familiarity, and efficiency in construction contracting.

However, as construction law specialist John Walton noted in his January 2024 review, “The published result has not achieved that lofty goal and is unlikely to obviate the need for extensive special conditions or to discourage the use of other conditions of contract.” These words have proven prophetic. Two years on, projects based on the 2023 version have attracted extensive special conditions. There has been no meaningful reduction in their number.

When the NZS 3910 review committee could not agree on an initiative, it was simply shelved, compounding the special conditions problem. For example, the “Good Contracting Principles and Guidance” document, published by the Master Builders Association (MBA) eight months after the 2023 update, contained many proposed sensible special conditions, despite the MBA being well represented on the review panel.

Substantial, ad hoc special conditions are still being prepared by different lawyers, each bringing their own perspectives. This results in additional costs for both Principals and Contractors and reduces efficiency in construction contracting. The proliferation of special conditions also undermines the “plain English” ideal, as multiple authors contribute to a patchwork of contractual language.

The Construction Sector Accord, a partnership between the New Zealand Government and the construction industry, once aimed to rationalise the type and number of special conditions on government agency projects, which often numbered over 300.

The Accord found that not only was the risk allocation significantly altered but technical matters such as status report requirements were included, as well as duplication of legislative requirements. To quote the Accord, “the practice of heavily amending standard contracts with extra clauses defeats the purpose of standardised contracts. It means every project must spend resource, time, and effort in understanding the intent of contracts and negotiating terms. This can lead to misunderstandings among the team, and difficult project relationships”.

Unfortunately, this initiative was never completed, and the Accord itself has since been disbanded.

This complexity does not just burden current projects – it creates a significant challenge for teaching contract administration to the next generation of construction professionals. Instead of learning a clear, consistent framework, emerging practitioners must navigate a patchwork of bespoke clauses and conflicting interpretations. This environment makes it harder to instil best practice, develop confidence in impartial decision-making, and uphold the principles of fairness and efficiency that standard contracts were designed to promote.

The Independent Certifier (IC) Muddle

Under the 2013 version of NZS 3910, the Engineer to the Contract (EtC) played a dual role: sometimes acting as the Principal’s agent, and at other times making fair and impartial decisions. Over the past decade, concerns about impartiality have led to separate people carrying out these roles i.e. the EtC and Engineers Representative (ER) respectively. Some Principals appoint separate individuals from different consultancies or an ER from their own organisation. This practice often muddles responsibilities and complicates project delivery.

In an attempt to address these concerns, the NZS 3910 review committee formalised the separation of roles, introducing the Independent Certifier (IC) and Contract Administrator (CA). The CA is responsible for making “agreements” with the Contractor, while the IC has a certifying function and makes “decisions” when the CA and Contractor cannot agree.

This approach is unique; it is unlike the model adopted by any other standard construction contract, and it has led to some unfortunate consequences. These include potential duplication of roles, increased costs, and the fact that the CA, who is empowered to make the most important decisions, is not required to be impartial. Furthermore, unlike the EtC, the CA cannot delegate any duties – a restriction that is likely to be problematic on large projects. This model risks blunting the influence of the IC, (who is often the most experienced practitioner) by reducing them to essentially an arbitration role. As is the case with the 2013 version potential liability issues exist if the IC/EtC and CA/ER roles are undertaken by parties from separate firms.

Curiously, the contract allows the IC and CA to be the same person. Despite the title, as is the case with the 2013 version, the IC is not truly independent, as their fees are paid by the Principal and when issuing final decisions, the IC will be determining disputes over their previous decisions. True independence could have been achieved by adopting the NZS 3915 model or something similar, where an agreed independent expert resolves disputes and fees are split 50/50 between Principal and Contractor.

It should be noted that the construction industry also tried to address EtC impartiality concerns with the formation of the Society of Construction Contract Practitioners (SCCP) to improve the standard of EtCs and commit them to a code of ethics. It was expected that EtC’S would largely be nominated from this group. Unfortunately, this group was formed too late to be collectively involved in the NZS 3910 review process.

Conclusion

The issues with the 2023 version of NZS 3910 are likely to be addressed, at least in part, by further ad hoc special conditions, with all the pitfalls previously described. While some special conditions will always be necessary to address unique project requirements, the current situation goes well beyond this.

This raises an important question: Is it time for the construction industry to take control of standard contract conditions and move away from the New Zealand Standards process?

The NZS 3910 review committee included 25 people from 21 organisations. By contrast, the UK’s Joint Contracts Tribunal (JCT) has just seven member organisations.

Ten years is a long time to wait for a standards update. The asserted inefficiency of the New Zealand construction industry is only exacerbated by the current contract situation. Could the industry appoint a focused, nimble committee, similar to the UK’s JCT, to compile and manage standard contract conditions that keep pace with industry trends and legislation, issuing practice notes/amendments as needed for the benefit of all project participants or is the sector too fragmented for such a shift?