Resources for better contracting


Trust and confidence sit at the heart of our Good Contracting Project, which we launched alongside Minister Chris Penk at parliament in August. 

The project provides new resources to help commercial members navigate common contracting problems. I have been heartened by the positive feedback from members about the resources.

The resources are designed to maximise trust and deliver better outcomes during the pre-construction phase, often referred to as early contractor involvement (ECI). They include a standard form template for ECI, offering clear guidance on:

  • design responsibilities
  • identifying early work and procurement opportunities, and
  • transitioning to the construction phase.

We have also developed specific risk guidance to help members:

  • navigate the updated NZS 3910:2023 standard form contract 
  • assess special conditions, such as extensions of time, float, and termination for convenience
  • process variations under clause 9.2 of NZS 3910:2023, where the contract administrator—not an independent certifier—decides if a contractor is entitled to a variation (which can take over 40 days to decide). 

Access the good contracting resources

Revised subcontract agreement coming in 2025


Having clarity throughout the supply chain is critical to successful project delivery. Key principles, such as parties bearing appropriate risk and ensuring contract certainty, remain central to our approach.

In line with this, we are working with the Specialist Trade Contractors Federation to update the 2017 Subcontract Agreement. This is by no means a complete rewrite, but an update so the template agreement aligns with NZS 3910:2023 and incorporates feedback to reflect current contracting practices. 

The updated document is scheduled for release early next year and will benefit both commercial members and subcontracting partners.

Rethinking consents and risk-based pathways

Consenting remains a significant issue for the sector. We have been engaging with the Government to address performance challenges within building consent authorities (BCAs). Recent announcements with Minister Chris Penk include plans to possibly amalgamate BCAs and trial a streamlined consenting pathway for low-risk building work, aimed at trusted residential volume builders.

A similar risk-based approach could benefit the commercial sector. This was a key theme in the Government’s review of the consenting system and was discussed at last month’s Vertical Construction Leaders Group (VCLG) meeting in Auckland. I welcome further input from members on how consenting processes could be improved to enhance efficiency and lift project productivity. 

Procurement challenges also featured prominently at VCLG, particularly the lack of standardisation in school building projects, which is driving up costs significantly. These concerns were echoed during the Commercial Working Group (CWG), and we will continue working with officials to explore solutions.

 

High Court ruling on retention money


The High Court’s decision in the case of Stevensons Structural Engineers v McMillian and Lockwood clarified that retention money held against a subcontractor can only be conditional on the obligations outlined in the contract between the head contractor and the subcontractor. It cannot depend on obligations outside that contract, such as practical completion with the client.

To help members understand the implications, we will host a webinar in early 2025 with Hazelton Law. This session will offer an opportunity to explore the ruling in depth.

Case law summary
In the case of Stevensons Structural Engineers 1978 Limited (In liquidation) v McMillan & Lockwood (PN) the High Court held that a provision for the release of subcontract retention money triggered on head contract practical completion was void and of no legal effect under the Construction Contracts Act 2002 (CCA).

The consequence of this was the head contractor had no right to hold retention money. The High Court found all withheld retention money had to be returned to the subcontractor with no set-off allowed. 

What is the background to the case?
The subcontractor was a structural steel fabricator that had several subcontracts with the head contractor. The subcontractor entered liquidation before the subcontract works were complete. The liquidators disclaimed the subcontracts, retaining the right to the retention money.
The head contractor cancelled the subcontracts due to the liquidation. The liquidators requested the retention money to be paid, which the head contractor refused. The liquidators commenced High Court proceedings for the retention money.

What did the High Court need to decide? 
The key issue to be determined was whether part of the retention money clause in the subcontracts was prohibited under the CCA. 

What did the problem retention money clause say? 
As is common, the subcontracts had a two-tranche release for the retention money. The second tranche of the release, which has very similar wording to the old SA-2009, said that:
the balance of the retentions is due within 30 days of the issue of a Certificate of Practical Completion, or earlier, as detailed in the Head Conditions Contract.  

What did the High Court decide? 
The High Court decided the retention money clause was void under s 18(1)(a) of the CCA. This is because the retention money clause made payment of retention money conditional on head contract practical completion. 
S 18(1)(a) says any term in a construction contract that purports to make the payment of retention money condition on anything other than the performance of party B’s obligations under the contract is void. In effect, where a clause is void, the clause is treated as if it was never in the subcontract in the first place.

Could the head contractor still hold retention money?
No. The High Court decided that because a clause dealing with payment money was void, all other clauses dealing with retention money in the subcontracts were also rendered void and of no legal effect. This meant the head contractor had never right to withhold the retention money or retain the retention money in the first place. 

Did the contractor have to repay the retention money?
Yes, the court decided the head contractor had to repay all retention money immediately. The head contractor could not make any deductions for the subcontractor failing to complete the subcontracts because it had gone into liquidation.

What happens to the rest of the contract if a retention money provision is held to be void?  
The rest of the contract was unaffected. Therefore, if there is a contract which is ongoing and to which this judgment applies, only the part of the contract pertaining to retention money is of no effect. All other obligations of the subcontractor to finish work, finish on time and to fix defects continues.