Orchiston Architects Ltd
An architecture firm with specific expertise in building disputes
Useful Stuff
- Arbitration
- Adjudication and the Construction Contracts Act
- Mediation and other Dispute Resolution Processes: the options depend on the circumstances
- Appointing an arbitrator/mediator/adjudicator: how to go about it
- Building Contract Requirements: the minimum legal requirements, and issues to consider
- Building Disputes: the why, when and how:
- Sources of Dispute in Construction Projects: if you know them, you can plan to minimise them
- Steps towards resolving a dispute: the first things to think about when a dispute looks likely
- Preparing for Construction Disputes: information required & information management; using it in disputes
Mediation and other Dispute Resolution Processes
Most contracts provide for negotiation and/or mediation in the first instance, which escalates to arbitration if the issues are still unresolved. For those contracts, and for the contracts that do not have such provisions, the Construction Contracts Act provides for adjudication.
Negotiation: The simplest way to sort problems out is to discuss them. This may or may not settle or resolve the dispute, but it should certainly be the first step.
Mediation: Mediation is essentially an “assisted negotiation”. The process is voluntary - the parties can withdraw at any time - and the outcome is determined by the parties, not the mediator. The intended outcome is an agreement that will contractually bind the parties to a particular course of action.
There are many different techniques and processes which are variations on the theme of a third-party neutral (the mediator) intervening to assist the disputing parties to reach a mutually agreeable outcome by exploring non-adversarial problem solving techniques.
The mediator acts as a conduit for information between the parties, as a chairman of meetings, a counsellor, sage, peacekeeper, as may be required. If the process is to succeed, the mediator must gain the confidence of the parties that integrity, impartiality and confidentiality will be shown throughout.
Under some circumstances it may be appropriate for the parties to agree that the Mediator may determine the dispute as if an Expert or a Disputes Review Board (for both, see below).
The standard terms of contract NZS3902 and some others include this in their terms. But if this is to be the case, it should be in contemplation ahead of the Mediator embarking on the role (or as soon as practicable after), and be only with the agreement of the parties and the Mediator in respect of defined issues in the dispute. Because the mediation is not bound to adopt any particular process, it is often provided that the Determination remains open for rejection for some period (perhaps 5 working days) and only if not then rejected becomes final and binding.
Adjudication Under the Construction Contracts Act: (See also HERE) Every NZ construction contract (ie building or design) has adjudication as the default dispute resolution process, and it is not able to be contracted out of. Adjudication is a confidential, binding, and enforceable dispute resolution by an independent person.
Whilst similar to arbitration, the outcome is binding but it may not be final – the determination must be acted upon even if it is later reviewed by the District Court or by dispute resolution provisions (eg arbitration) provided for in the contract.
If a dispute arises and the contract also provides for mediation, or arbitration, or some other process, the party initiating the process will need to consider the particular circumstances before deciding whether to use the mandatory adjudication, or to use the process set out in the contract terms.
Arbitration: (See also HERE) An arbitrator is an impartial and independent person (usually with expertise in the subject area of the dispute) who is appointed by the parties to determine the dispute between them. The outcome is final and binding. Usually, as in litigation, the arbitrated outcome is “win - or - lose”, but it can provide for an apportionment to suit the circumstances. Since the Construction Contract Act has required adjudication as the mandatory dispute resolution process, the use of arbitration has reduced.
Litigation: This is the Court-based process where a judge makes a decision based on representations made by legal counsel on behalf of their clients. The process is “adversary” i.e. “us versus them”, and the decision is made solely upon the evidence presented, without consideration of the needs interests or circumstances of the parties. Often the outcome is a clear-cut “win or lose”, and this presents a risk which must be assessed before proceeding.
Expert Appraisal: This differs from arbitration because the “Expert” is specifically instructed to investigate and use his or her own expertise - with or without submissions by the parties - to determine the issue. The parties generally agree to either use the appraisal as the basis of settlement negotiations, or to be contractually bound by the Expert’s opinion.
Partnering: A process put in place at the project commencement to minimise disputes. Partnering focuses on creating communication links between project participants with the intention of directing them to a common goal - the project outcome - ahead of their own self-interest. At the beginning of the project, at periodic intervals, or when the nature of the project work or participants changes, all participants get together to discuss their concerns and get to know the viewpoints of the others involved, and to identify potential areas of conflict with a view to avoiding their actual occurrence.
An agreed strategy for the resolution of disputes is formulated, generally requiring notification of disputes as soon as they are apparent, and a mechanism for resolving them at the lowest possible level before they escalate.
Disputes Review Board: This may comprise one or several persons, who are not consultants directly involved in the project, but are engaged to maintain a "watching brief" to identify and attend upon disputes as they arise. Usually there is a procedure in place which provides for the DRB to make an "on the spot" decision or mediated agreement before a formal dispute is notified so that the project work can proceed, and that may be followed by various rights of review at increasingly higher levels until (if necessary) the dispute is finally settled by arbitration. The Disputes Review Board may be an adjunct to the partnering procedures.
Multi-party disputes: If the disputes involve interests (rather than obligations) as in a community dispute, then mediation, or even facilitation, would be appropriate. There is provision in the both the Arbitration Act and the Construction Contracts Act to aggregate several disputes, as would typically be the case in a construction project. This would require either the agreement of all concerned or that the contractual agreements between the parties all provided for arbitration.
Negotiation: The simplest way to sort problems out is to discuss them. This may or may not settle or resolve the dispute, but it should certainly be the first step.
Mediation: Mediation is essentially an “assisted negotiation”. The process is voluntary - the parties can withdraw at any time - and the outcome is determined by the parties, not the mediator. The intended outcome is an agreement that will contractually bind the parties to a particular course of action.
There are many different techniques and processes which are variations on the theme of a third-party neutral (the mediator) intervening to assist the disputing parties to reach a mutually agreeable outcome by exploring non-adversarial problem solving techniques.
The mediator acts as a conduit for information between the parties, as a chairman of meetings, a counsellor, sage, peacekeeper, as may be required. If the process is to succeed, the mediator must gain the confidence of the parties that integrity, impartiality and confidentiality will be shown throughout.
Under some circumstances it may be appropriate for the parties to agree that the Mediator may determine the dispute as if an Expert or a Disputes Review Board (for both, see below).
The standard terms of contract NZS3902 and some others include this in their terms. But if this is to be the case, it should be in contemplation ahead of the Mediator embarking on the role (or as soon as practicable after), and be only with the agreement of the parties and the Mediator in respect of defined issues in the dispute. Because the mediation is not bound to adopt any particular process, it is often provided that the Determination remains open for rejection for some period (perhaps 5 working days) and only if not then rejected becomes final and binding.
Adjudication Under the Construction Contracts Act: (See also HERE) Every NZ construction contract (ie building or design) has adjudication as the default dispute resolution process, and it is not able to be contracted out of. Adjudication is a confidential, binding, and enforceable dispute resolution by an independent person.
Whilst similar to arbitration, the outcome is binding but it may not be final – the determination must be acted upon even if it is later reviewed by the District Court or by dispute resolution provisions (eg arbitration) provided for in the contract.
If a dispute arises and the contract also provides for mediation, or arbitration, or some other process, the party initiating the process will need to consider the particular circumstances before deciding whether to use the mandatory adjudication, or to use the process set out in the contract terms.
Arbitration: (See also HERE) An arbitrator is an impartial and independent person (usually with expertise in the subject area of the dispute) who is appointed by the parties to determine the dispute between them. The outcome is final and binding. Usually, as in litigation, the arbitrated outcome is “win - or - lose”, but it can provide for an apportionment to suit the circumstances. Since the Construction Contract Act has required adjudication as the mandatory dispute resolution process, the use of arbitration has reduced.
Litigation: This is the Court-based process where a judge makes a decision based on representations made by legal counsel on behalf of their clients. The process is “adversary” i.e. “us versus them”, and the decision is made solely upon the evidence presented, without consideration of the needs interests or circumstances of the parties. Often the outcome is a clear-cut “win or lose”, and this presents a risk which must be assessed before proceeding.
Expert Appraisal: This differs from arbitration because the “Expert” is specifically instructed to investigate and use his or her own expertise - with or without submissions by the parties - to determine the issue. The parties generally agree to either use the appraisal as the basis of settlement negotiations, or to be contractually bound by the Expert’s opinion.
Partnering: A process put in place at the project commencement to minimise disputes. Partnering focuses on creating communication links between project participants with the intention of directing them to a common goal - the project outcome - ahead of their own self-interest. At the beginning of the project, at periodic intervals, or when the nature of the project work or participants changes, all participants get together to discuss their concerns and get to know the viewpoints of the others involved, and to identify potential areas of conflict with a view to avoiding their actual occurrence.
An agreed strategy for the resolution of disputes is formulated, generally requiring notification of disputes as soon as they are apparent, and a mechanism for resolving them at the lowest possible level before they escalate.
Disputes Review Board: This may comprise one or several persons, who are not consultants directly involved in the project, but are engaged to maintain a "watching brief" to identify and attend upon disputes as they arise. Usually there is a procedure in place which provides for the DRB to make an "on the spot" decision or mediated agreement before a formal dispute is notified so that the project work can proceed, and that may be followed by various rights of review at increasingly higher levels until (if necessary) the dispute is finally settled by arbitration. The Disputes Review Board may be an adjunct to the partnering procedures.
Multi-party disputes: If the disputes involve interests (rather than obligations) as in a community dispute, then mediation, or even facilitation, would be appropriate. There is provision in the both the Arbitration Act and the Construction Contracts Act to aggregate several disputes, as would typically be the case in a construction project. This would require either the agreement of all concerned or that the contractual agreements between the parties all provided for arbitration.
Appointing an arbitrator/mediator/adjudicator
The New Zealand Court system (or government) does not provide a specialist court or tribunal for construction/building cases, nor does it provide arbitrators/adjudicators/mediators for that purpose. They are all private persons or companies.If the terms of the contract provide an appointment procedure, follow it.If not, then it is usually helpful to agree an appointment with the other party if that is possible: a sensible course would be to provide the other party with a list of three names which you are happy with, and ask them to choose one within a specific timeframe.
AMINZ (Arbitrators and Mediators Institute of NZ) is the professional body for dispute resolution practitioners. Its website has lists of them, and helpful advice on managing disputes, the appointment of an arbitrator/mediator/adjudicator, and the standard protocols for appointment and for the conduct of disputes.
AMINZ (Arbitrators and Mediators Institute of NZ) is the professional body for dispute resolution practitioners. Its website has lists of them, and helpful advice on managing disputes, the appointment of an arbitrator/mediator/adjudicator, and the standard protocols for appointment and for the conduct of disputes.
If you cannot agree on a person to assist in resolving your dispute, you might at least agree to appoint someone else (e.g. the president of AMINZ or of NZIA or some other appropriate body) to make the appointment. For a dispute under the Construction Contracts Act, you can ask AMINZ to appoint an adjudicator, for which they will charge a fee. The Arbitration Act also sets out the default procedures for the appointment of an arbitrator.
If you ring a prospective arbitrator/adjudicator, be aware that they will not want to discuss the issues in dispute any more than is necessary for them to understand whether they can accept an appointment for the dispute or not. They will also be unlikely to be able to give an indication of their costs except on a daily or hourly rate. It is usual for them to seek some security for their fees before accepting an appointment, and for an arbitration/adjudication decision to be released only on settlement of their fees.
If you ring a prospective arbitrator/adjudicator, be aware that they will not want to discuss the issues in dispute any more than is necessary for them to understand whether they can accept an appointment for the dispute or not. They will also be unlikely to be able to give an indication of their costs except on a daily or hourly rate. It is usual for them to seek some security for their fees before accepting an appointment, and for an arbitration/adjudication decision to be released only on settlement of their fees.
Building Contract Requirements
In addition to the contract terms, a fair contract requires - as a practical necessity - sufficient documentation to clearly describe the scope: what is included, what is not included, (generally by way of drawings, specifications, schedules and quotes), and who is responsible for what. Generally the Building Code and guidance notes produced by MBIE will establish the performance standards.
The Building (Residential Consumer Rights and Remedies) Regulations 2014 set out the default contract terms for all building work (but not its design) over the value of $30,000 GST included. These will apply if the contract is inadequate or uncertain.
The builder is also required to provide the Checklist and Disclosure Statements (Building Act S362D) before signing the contract or commencing the work, and to provide an LBP Record of Work at completion.
For reasons I set out later below, those default terms are not usually enough to establish a fair contract based on reality or the needs of a particular project. There are several "standard contracts" published by companies and organisations but these may have been written to protect the interests of those companies or organisations. "Neutral" and compliant contract terms that have a reliable history of use in New Zealand are those published by the NZ Institute of Architects, and by Standards NZ.
If your contract is not administered by an architect engineer or project manager, then the simplest neutral proven and compliant contract is NZS3902 and it is available for FREE download. Make sure to fill in the specific Contract Details at Section 3.
Architects and engineers (but not lawyers) are routinely engaged to administer building contracts as an independent party (regardless of who pays their fees), and they have the technical knowledge, familiarity with usual contract requirements, and sufficient legal and administrative skills for that role.
If the design was done by a Registered Architect or Certified Professional Engineer it would be usual for them to also administer the contract. Such a role may or may not also include observation of the work. A Design 1 or Design 2 LBP is not usually considered to have those competencies.
In my experience, building contracts directly administered between owners and builders without that independent professional administration frequently lead to dispute. Unless an independent and expert view of "issues" is promptly provided, things tend to escalate and it becomes harder and harder to resolve them. Most contract terms set out provisions for the resolution of disputes which start with mediation, and some contract terms (including NZS3902) provide that the mediator may - with the agreement of the parties - determine the matters in dispute. It is often useful to agree on the name of a mediator (or perhaps two or three) at the outset and before work starts and disputes can arise: even if you later agree on someone else, this will be much more efficient than the delays and costs that can arise otherwise, and smooths the path to dealing with "issues" before they gain momentum.
The Building (Residential Consumer Rights and Remedies) Regulations 2014 set out the default contract terms for all building work (but not its design) over the value of $30,000 GST included. These will apply if the contract is inadequate or uncertain.
The builder is also required to provide the Checklist and Disclosure Statements (Building Act S362D) before signing the contract or commencing the work, and to provide an LBP Record of Work at completion.
For reasons I set out later below, those default terms are not usually enough to establish a fair contract based on reality or the needs of a particular project. There are several "standard contracts" published by companies and organisations but these may have been written to protect the interests of those companies or organisations. "Neutral" and compliant contract terms that have a reliable history of use in New Zealand are those published by the NZ Institute of Architects, and by Standards NZ.
If your contract is not administered by an architect engineer or project manager, then the simplest neutral proven and compliant contract is NZS3902 and it is available for FREE download. Make sure to fill in the specific Contract Details at Section 3.
Architects and engineers (but not lawyers) are routinely engaged to administer building contracts as an independent party (regardless of who pays their fees), and they have the technical knowledge, familiarity with usual contract requirements, and sufficient legal and administrative skills for that role.
If the design was done by a Registered Architect or Certified Professional Engineer it would be usual for them to also administer the contract. Such a role may or may not also include observation of the work. A Design 1 or Design 2 LBP is not usually considered to have those competencies.
In my experience, building contracts directly administered between owners and builders without that independent professional administration frequently lead to dispute. Unless an independent and expert view of "issues" is promptly provided, things tend to escalate and it becomes harder and harder to resolve them. Most contract terms set out provisions for the resolution of disputes which start with mediation, and some contract terms (including NZS3902) provide that the mediator may - with the agreement of the parties - determine the matters in dispute. It is often useful to agree on the name of a mediator (or perhaps two or three) at the outset and before work starts and disputes can arise: even if you later agree on someone else, this will be much more efficient than the delays and costs that can arise otherwise, and smooths the path to dealing with "issues" before they gain momentum.
Comments on the minimum requirements in law
1. Checklist
Before signing a contract, the contractor must provide the client with a checklist to inform the client about the building process.
Before signing a contract, the contractor must provide the client with a checklist to inform the client about the building process.
- It would be useful if the contractor provided this with the quote or estimate, or at an early stage in pre-contract negotiations, on the basis that it may be subject to later confirmation.
- The prudent client will download a copy of the checklist before starting a building project or contacting a building contractor.
- The checklist informs the client that they will need more information than just a quote before the contract is signed.
- This requirement is likely to be met by the use of NZS3902 contract terms or the other forms of contract published by Standards NZ and the NZ Institute of Architects.
2. Disclosure statement.
Before signing a contract, the contractor must provide the client with a disclosure statement to inform the client about the contractor.
A contractor may not want to (or be able to) supply some of the information required by the disclosure statement until it is clear there is a real prospect of being contracted for the project. It is likely that a quote will need to be "tagged" to indicate that further information will be required (to be supplied by the client and/or the contractor) before a contract can be entered into, because:
- there could a breach of the Regulations if the client unconditionally accepted the untagged quote,
- some of the required information may only become available at a later date
- there may not be sufficient information about project funding and payment.
- the scope and terms of the project may require further clarification.
- For many projects, the information about warranties and insurances required for the disclosure statement will be reliant on information provided by the client (or their designer) instead of the building contractor.
- Whilst in theory it would be nice to know the details of warranties before work starts, in most cases that is just not practical because changes in suppliers, subcontractors, and material selections are often made during the progress of the work. The only practicable solution is to note in the disclosure statement those items which will be subject to warranties and guarantees as known at the time, and to complete and update the details at the end of the job.
Whilst not required by the Regulations, in most cases, before entering into contract, the contractor needs to know the all the information about the client (and designers/architects/project managers) as is required to be provided by the contractor in the Disclosure Statement, except that the information about guarantees and warranties would instead be:
- Names and contact details for person(s) authorising payments in relation to the building work.
- A declaration (and if necessary proof) that the funds are available to meet the costs of the building work and that there is adequate security for them.
- A description of any payment procedures which may affect cashflow to the building contractor, such as approval processes involving lawyer/bank/project manager/architect/designer
3. Written Contract
Before building work commences, the client and the contractor must agree to a written contract which includes at least the items described at Section 6 of the Regulations. If there is no written contract, or it is oral, or unclear, or does not include all the items at Section 6, the “Implied Terms” described in Schedule 3 of the Regulations will apply.
Reasons for NOT entering into a contract based solely on the Regulations:
- they are focussed on consumer protection,
- they do not provide sufficient assurance to a building contractor for their risks in undertaking the project
- they do not adequately deal with the realities of the following building projects: alteration work; where the design is undertaken by the client or a designer appointed by them; where the project management is undertaken by the client or someone appointed by them; where the building consent and/or other necessary approvals are not directly controlled by the building contractor; where the building consent and/or other necessary approvals are varied during the course of the work; where some of the work is directly controlled or done by the client; where work is required to proceed despite a client’s indecision or other delay; work where code compliance is dependent on work done by other than the building contractor; almost any project which is not a new design/build/handover where the building contractor has exclusive control over those roles.
- they do not adequately deal with the changes which often arise during the building work
- they don't adequately deal with other legislative or practical requirements.
- they don't reference other documents or persons likely to be required to form a contract or build the project.
4. Completion Documentation
On completion of the building work, the contractor must provide to the client the information and documentation required for signoff on building code compliance as described at Section 9 of the Regulations.
On completion, the details of warranties and guarantees in the disclosure statement should be updated, and new guarantees and warranties added if they are relevant to ongoing compliance.
The maintenance documentation is limited to that required for ongoing compliance. Where drawings and specifications are prepared by designers or architects, or where work requires a building consent, it is to be expected that it would already be in the contract documents. For all other items, the building contractor should rely on the information provided by suppliers or manufacturers.
In addition, Records of Work are required to be provided by LBPs for Restricted Work done by them: this is a statutory obligation independent of contract requirements, and the documents cannot be with-held as “leverage” to obtain payment or to resolve a contractual dispute.
Failure to provide any or all of the information (checklist, disclosure, contract, completion documentation, Records of Work) could result an infringement offence and a fine of $500, and also possibly a complaint made to the Licensed Building Practitioners’ Board.
The maintenance documentation is limited to that required for ongoing compliance. Where drawings and specifications are prepared by designers or architects, or where work requires a building consent, it is to be expected that it would already be in the contract documents. For all other items, the building contractor should rely on the information provided by suppliers or manufacturers.
In addition, Records of Work are required to be provided by LBPs for Restricted Work done by them: this is a statutory obligation independent of contract requirements, and the documents cannot be with-held as “leverage” to obtain payment or to resolve a contractual dispute.
Failure to provide any or all of the information (checklist, disclosure, contract, completion documentation, Records of Work) could result an infringement offence and a fine of $500, and also possibly a complaint made to the Licensed Building Practitioners’ Board.
Building Disputes: the why when and how
Sources of Dispute in Construction Projects:
The type of contract agreement will fundamentally affect the allocation of risks between the principal and the contractor. Disputes will arise where those risks are manifested, and a party is seeking to offset the consequences.
Project risk categories include physical, environmental, design, logistical, financial, legal, political, implementation and operational risks. A second way of classifying types of risks is by their source. What people, organisations or activities are the sources of risks that arise? These may include owners, regulatory agencies, funding bodies, project managers, designers, constructors, suppliers, the labour force, or the general public.The traditional form of tendering for a Lump Sum Contract tends to spread the risks fairly evenly between the principal and the contractor. In the Construction Management model, where the principal effectively enters into a separate contract with a multitude of trades and suppliers, the majority of the risk is borne by the principal. In the Guaranteed Maximum Price model the risk is predominantly borne by the contractor, and in a Design Build project the contractor takes almost all the risk. However, in each case, the contractor's risk is able to be spread across a range of subcontractors, and they will in turn spread it to suppliers where they can. Allowance for the principal's risk is usually provided for by including a Contingency Sum in the contract documents. The amount is assessed according to the potential incidence and consequences of risk, there is an agreed procedure for the expenditure of the sum, and the unexpended amount is returned to the principal on completion. It would only be realistic for the contractor's price to allow in addition for the possibility of unrecoverable expenditure.
Project risk categories include physical, environmental, design, logistical, financial, legal, political, implementation and operational risks. A second way of classifying types of risks is by their source. What people, organisations or activities are the sources of risks that arise? These may include owners, regulatory agencies, funding bodies, project managers, designers, constructors, suppliers, the labour force, or the general public.The traditional form of tendering for a Lump Sum Contract tends to spread the risks fairly evenly between the principal and the contractor. In the Construction Management model, where the principal effectively enters into a separate contract with a multitude of trades and suppliers, the majority of the risk is borne by the principal. In the Guaranteed Maximum Price model the risk is predominantly borne by the contractor, and in a Design Build project the contractor takes almost all the risk. However, in each case, the contractor's risk is able to be spread across a range of subcontractors, and they will in turn spread it to suppliers where they can. Allowance for the principal's risk is usually provided for by including a Contingency Sum in the contract documents. The amount is assessed according to the potential incidence and consequences of risk, there is an agreed procedure for the expenditure of the sum, and the unexpended amount is returned to the principal on completion. It would only be realistic for the contractor's price to allow in addition for the possibility of unrecoverable expenditure.
Frequently, risks are created at interfaces:
- Physical Interfaces: tolerances; pipes versus structure; junctions of building elements
- Contractual Interfaces: main contract terms versus supply contracts; specific conditions versus standards; notice requirements; delineation of scope of work or responsibilities and performance requirements.
- Participant Interfaces: financing requirements versus timing; lessee requirements versus overall project objectives; design consultants versus construction personnel; conflicts within contracting organisations; users versus suppliers.
- Craft Interfaces: "Builders work"; items of work requiring attendance by more than one trade.
- Communication Interfaces: ambiguity, conflict or omission when the various consultants drawings, specifications, schedules and contract documents are taken collectively; failure of instructions at the main contractor level to be accurately passed down the line; client requirements not explicitly expressed to the design team; misunderstood obligations and responsibilities between parties.
Common causes of disputes:
Technical or Performance Failure:
- inadequate or ambiguous site information
- inadequate or ambiguous design documentation
- inadequate or ambiguous specifications and/or quantity schedules
- uncertain contract terms
- workmanship/material defects
- failure to meet performance requirements (time, quality, technical)
- inadequate checking, supervision, or follow-up procedures
- estimating errors and cost over-runs
Procedural Causes:
- changes made during progress of the works
- inadequate or ambiguous design requirements
- inaccurate, poor, or misunderstood communications
- non-compliance with Acts or regulations
- insolvency, slow payment or with-held payments
- exaggerated claims
Miscellaneous Causes:
- litigious or difficult contract parties
- change in client circumstances
- macro-economic or political changes
- unusual environmental changes or site conditions
- the doctrine of "joint and several liability"
- allegiances to organisation in conflict with project allegiance
Steps towards resolving a dispute
Does the dispute arise out of a contract or other agreement? If so, then that agreement should have provisions for dispute resolution that must be followed. If those provisions include for procedures to appoint someone to issue a formal decision, or to arbitrate, adjudicate or mediate, then follow those procedures.
Is the contract or agreement “informal”? If the drawings and/or specifications and/or contract terms are not clear, or have been varied without adequate documentation, then it becomes more difficult to sort things out. It is likely that you will need persons with both legal and technical experience to advise you, and/or to resolve the dispute. The Construction Contracts Act sets out minimum mandatory conditions of contract which are deemed to apply in the absence of any (or inadequate) contract terms.
Is it a construction contract? The provisions of the Construction Contracts Act cover the resolution of disputes, apply to all NZ construction contracts (ie building and design), and cannot be contracted out of. Note however, that if a particular construction contract does have dispute resolution provisions, you can also follow the adjudication procedures in the Construction Contracts Act, instead of, or in parallel with them.
Seek expert advice – early: I often see disputes which have festered to the point that resolution becomes unnecessarily difficult. An early intervention by an expert or mediator may avoid an impending dispute altogether. It is far cheaper to get the right advice at the outset, and then to communicate your concerns to the other party in a factual way. Sometimes just finding out “where the other side is at”, and discussing how their actions impact on you in ways which they may not have appreciated, is enough to deal with the issue. Regrettably, dispute resolution is too-often seen as the end of the line after much expense in preparation.
Consider the dispute resolution process: If a dispute has arisen despite proactive attempts to avoid it, then the usual resolution options are negotiation, mediation, adjudication, arbitration, litigation. For descriptions, see below.
Serve notice of a dispute: That will normally be a requirement under the contract: if so, follow the provisions carefully. If not, then it is obviously sensible anyway! A dispute about whether there is a dispute, is, of course, a dispute!
Are you a builder? If you are in dispute over non-payment of an invoice, then the provisions of the Construction Contracts Act require you to have served your Payment Claim in a specific way – or at least to set out specific information. In the case of a residential project, that includes serving a copy of “Form 1” of the Act. If you haven’t met those requirements, then go back and start again: re-issue the invoice properly, and then use the provisions of the Act to pursue recovery after the (new) time for payment has passed.
Are you a house owner/occupier? If so, the arbitration provisions of the contract (if any) need not apply unless - after the dispute was notified - you signed a specific agreement agree to arbitration. My view is that the arbitration provisions in a contract are a sound fair and effective way of resolving disputes, but (particularly for simple or smaller disputes) adjudication under the Construction Contracts Act is likely to be quicker, simpler and cheaper. You cannot avoid being involved in adjudication if served with a notice of adjudication which complies with S28 of the Construction Contracts Act.
Is the contract or agreement “informal”? If the drawings and/or specifications and/or contract terms are not clear, or have been varied without adequate documentation, then it becomes more difficult to sort things out. It is likely that you will need persons with both legal and technical experience to advise you, and/or to resolve the dispute. The Construction Contracts Act sets out minimum mandatory conditions of contract which are deemed to apply in the absence of any (or inadequate) contract terms.
Is it a construction contract? The provisions of the Construction Contracts Act cover the resolution of disputes, apply to all NZ construction contracts (ie building and design), and cannot be contracted out of. Note however, that if a particular construction contract does have dispute resolution provisions, you can also follow the adjudication procedures in the Construction Contracts Act, instead of, or in parallel with them.
Seek expert advice – early: I often see disputes which have festered to the point that resolution becomes unnecessarily difficult. An early intervention by an expert or mediator may avoid an impending dispute altogether. It is far cheaper to get the right advice at the outset, and then to communicate your concerns to the other party in a factual way. Sometimes just finding out “where the other side is at”, and discussing how their actions impact on you in ways which they may not have appreciated, is enough to deal with the issue. Regrettably, dispute resolution is too-often seen as the end of the line after much expense in preparation.
Consider the dispute resolution process: If a dispute has arisen despite proactive attempts to avoid it, then the usual resolution options are negotiation, mediation, adjudication, arbitration, litigation. For descriptions, see below.
Serve notice of a dispute: That will normally be a requirement under the contract: if so, follow the provisions carefully. If not, then it is obviously sensible anyway! A dispute about whether there is a dispute, is, of course, a dispute!
Are you a builder? If you are in dispute over non-payment of an invoice, then the provisions of the Construction Contracts Act require you to have served your Payment Claim in a specific way – or at least to set out specific information. In the case of a residential project, that includes serving a copy of “Form 1” of the Act. If you haven’t met those requirements, then go back and start again: re-issue the invoice properly, and then use the provisions of the Act to pursue recovery after the (new) time for payment has passed.
Are you a house owner/occupier? If so, the arbitration provisions of the contract (if any) need not apply unless - after the dispute was notified - you signed a specific agreement agree to arbitration. My view is that the arbitration provisions in a contract are a sound fair and effective way of resolving disputes, but (particularly for simple or smaller disputes) adjudication under the Construction Contracts Act is likely to be quicker, simpler and cheaper. You cannot avoid being involved in adjudication if served with a notice of adjudication which complies with S28 of the Construction Contracts Act.
Preparing for Construction Disputes
Pre-Dispute Actions Sources of Dispute Signals of Impending Dispute Responses to Dispute Moving to Resolution Situation Analysis Agents of Change Organising Information The Resolution Process Summary: Key Concepts
Preparation for disputes starts before a contract is entered, and continues until all disputes are settled.
Before a contract commences, the preparation is directed at reducing the risks of, and the potential for disputes. During the contract, the preparation is directed at anticipating emerging difficulties, and minimising their impact. If a dispute arises, the preparation is focussed on generating and organising the knowledge required to navigate through the resolution process. During the resolution process, the preparation is cumulatively developed with a view to reaching an acceptable outcome.
This article is a checklist of questions and issues to guide such preparation. Whilst the sections are arranged in chronological order, no priority is intended by the order of items within each section, and more or fewer issues may be relevant to a particular dispute.
The final section is a summary of key words: an aide-memoire reviewing the intentions of the more detailed information.
Before a contract commences, the preparation is directed at reducing the risks of, and the potential for disputes. During the contract, the preparation is directed at anticipating emerging difficulties, and minimising their impact. If a dispute arises, the preparation is focussed on generating and organising the knowledge required to navigate through the resolution process. During the resolution process, the preparation is cumulatively developed with a view to reaching an acceptable outcome.
This article is a checklist of questions and issues to guide such preparation. Whilst the sections are arranged in chronological order, no priority is intended by the order of items within each section, and more or fewer issues may be relevant to a particular dispute.
The final section is a summary of key words: an aide-memoire reviewing the intentions of the more detailed information.
Pre-Dispute Actions
- Agree dispute resolution process
NegotiationMediationAdjudicationArbitrationPartnering/Alliancing/DRB*
- Assess the risks
Project typeTechnically challengingRoutineLargeComplexBudget Adequate Tight Inflexible Ill-definedConsultantsClient type Informed Uninformed Personal Corporate Committee GovernmentTimeframes Realistic Deadlined Liquidated DamagesQuality expectationsContract type Lump sum Cost up GMP*Consequences of failureLegal environmentPhysical environmentCheck Contract DocsMaintain ongoing documentationKnow thine enemy!
Sources of Dispute
Cost over-runsTime over-runsPoor qualityPoor communicationPoor documentationMismatch of expectationsDifficult personalitiesUnforseeablesMisjudged risksBotchesOverlaps Materials Trades DocumentationUnclear responsibilities Client/Consultant Consultant/Contractor Contractor/Subcontractor Supplier/installer
Signals of Impending Dispute
AngerFrustrationCriticismThreatsDamaged PrideLonger lead timesReduced productivityLax managementSlow paymentInflated progress claimsIncreased formalityReduced communicationsIncreased communications Outside “experts”
Responses to Dispute
- Gather information
Can the problem be definedConfirm what happened Why did it happen Who was involved What did they do What did they not doWhat were the contract requirements? Confirm intentions of the contract Confirm instructions and context
- Assess the information
Is it a dispute, or a contract issueWhat are the direct consequences To you For the performance of the contract To othersWhat are the flow-on consequences?Is the information reliable? Measurement of quantities Quality benchmarks Realistic costings Biased reporting
- What further information is required?
Tests Site examinations Opening up Solvency investigations Expert input Technical Legal Accounting Dispute Resolution Personal observations/accounts Willing sources Unwilling sources
- What is the likely attitude of the other parties
Objective Possessive Submissive Devious Confrontational Co-operative
- What is the competency of the other parties
Expert Technical Legal Widely experienced Narrowly focussed Ignorant Not familiar with the industry Not attuned to logical argumentWill personalities get in the way of the problem
Moving to Resolution
- Solve at the lowest level
Who can solve itWho needs to solve itWhen can it be solved
- Who else is involved
How/WhyDo they know Should they know WhenWill they co-operate Shared interests Shared positions Shared information Other relationshipsCan they contribute Time Money Expertise Materials LabourMight they contribute Are they solvent Willing to come back to the job As the lesser of other evils
- Act as soon as preparation permits
Can a simple fix be effectedCould changed circumstances reduce the impact
- Positions taken by the parties
Offset against other mattersAlteration to contract requirements Timing issues Budget issuesWhat are the consequences of Delaying resolution Failure of resolution
Situation Analysis
- What are your POSITIONS*
DollarsPrinciplesContract interpretationBATNA*WATNA*Are your POSITIONS Flexible What would change them Prioritised What would change the priority
- What are your INTERESTS*
HonourGoodwillMarketing advantageRelationships Client Consultants Subcontractors SuppliersExpediencyMoneyTimeQualityAre your INTERESTS Flexible What would change them Prioritised What would change the priority
Agents of Change
- Who else has INTERESTS
- Who else has POSITIONS
Do you know those interests and positionsHow can you find outWhat are they How do they differ from yours WhyHow can they be brought closer to yours If you were them How would they see your positions How would they see your interestsDo they need youDoes a resolution establish a precedence How would that affect your future Interests
- What are the power issues
How can you influence them The Golden Rule* Authority by position Authority by knowledge Authority by size/muscle Existing and future relationships
- Resolution process options
Ignore the problem Negotiation Set by the contract terms Formal opinion Mediation Arbitration Adjudication under the CCA* Parallel processesShould you initiate the process
Organising Information
- Create a recognisable structure
Lay the “ground bait”Bring out the factsExplain the involvement of othersProvide proof, validation, and referencesEstablish the relevance of the informationRepeat the key issuesSummary and conclusion
- Or (put another way) – the Journey
Where we are goingHow we get thereThese are the markers along the wayAlmost there – how far it is to goWe are there (you can tell because…..)
- Deal with the easy stuff first
- Use objective tests and benchmarks
- Compare with understood criteria
- Apply logical extensions
If this….. then…..Because of….. then…..What if….. then…..
- Don’t personalise
ProblemsAttitudesArgumentsCriticism
- This is not MY problem: It’s OUR problem
Lets face it togetherLets solve it together
The Resolution Process
- You have to give a little to gain a little
Not often is there gain without painWhat do You know that they know How does their view differ from yours You know that they don’t know You think they think you know You think they might know, that you don’t
- Prepare to move
Signal aheadCreate the room for movementRecognise common interestsEmphasise the positives
- When to move
If other side recognises the signalsIf they provide room for movementIf they acknowledge commonalitiesIf they acknowledge the positives
- Why move
If they moveIf they can’t move because you won’tIf there is a shift from POSITIONS to INTERESTSTo deflect a potentially damaging blowNew adverse factsUnwinnable argumentThe application of adverse powerNew directions you haven’t prepared forMovement to issues you want to avoid
- How far to move
Not too far too soonAre your interests still intactConsider your BATNAConsider your WATNAIf they were you, but knowing what they know What is the best they could do now What is the worst they could do now How far would they move now How will they react to The worst you can do now The best you can do nowConsider their BATNAConsider their WATNACompare to what they think you could do
- Confirm and celebrate movement as objective progress
What other openings are thus presentedHow has it affected the dynamics of the processMove from holding positions to meeting interests
Summary: Key Concepts
- Before the contract
Who What How ContextWhat if
- During the contract
PeopleTasks InterfacesInformationPerformanceUncertainties
- Potential contract disputes
AttitudesInformationInterestsPositionsConflicts
- Dispute resolution
DifferencesCommonalitiesConsequencesOptionsSatisfactionCommitment
Glossary:
DRB – Disputes review boardGMP – Guaranteed maximum pricePOSITIONS & INTERESTS – Your “position” might be that your kids must be in bed by 9pm, your “interest” is that they are up bright and breezy for school.BATNA – Best alternative to a negotiated agreementWATNA – Worst alternative to a negotiated agreementThe Golden Rule – “Them what got the gold make the rules!”CCA – Construction Contracts Act
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Orchiston Architects LtdPO Box 41033EastbourneLower Hutt 5047New Zealandph 04 5627 438
email: orchiston@buildingdisputes.co.nz
email: orchiston@buildingdisputes.co.nz
This website provides general advice as at January 2024 and it is not to be construed as legal or specific advice. It is provided (a) in the prospect that my skills and experience in architecture can be used for your project; and/or (b) in the hope that it will help you avoid a building dispute, but if not, that you will seek my help sooner rather than later. The copyright on its content remains with Orchiston Architects Ltd.