Registered Master Builders Federation of New Zealand Incorporated

Transcription

1 Registered Master Builders Federation of New Zealand Incorporated Submission to the Commerce Committee July 2013 Construction Contracts Amendment Bill

2 INTRODUCTORY COMMENTS The Registered Master Builders Federation is New Zealand s largest construction industry association and represents New Zealand building companies that pride themselves on delivering quality houses and buildings to their clients. Our member companies employ more than 15,000 workers and carpentry subcontractors, and complete over two thirds of all construction work (by dollar value) in New Zealand. Our members include the majority of the large residential volume builders and major construction companies. Our heritage spans over 100 years and we are dedicated to delivering value to our members through strong industry representation and advocacy to create business conditions that increase opportunities for success. The Registered Master Builders brand is a recognised hallmark of quality, and we offer a range of products and services to our members and world class industry events including: the Registered Master Builders House Awards, the New Zealand Commercial Project Awards and the Registered Master Builders Apprentice of the Year in association with Carters. Registered Master Builders is proud to be able to continue to build great homes, schools, offices and other buildings for all New Zealanders to live, work and play in. We stand for building excellence and continue to strive to achieve this on behalf of the industry as a whole. We do wish to appear before the Committee. Our contact details: Warwick Quinn Chief Executive P O Box 1796 WELLINGTON 6140 Phone:

3 SUBMISSION The Registered Master Builders Federation ( RMBF ) is pleased to provide comment on the Government s review of the Construction Contracts Act 2002 ( the Act ), particularly the Constructions Contracts Amendment Bill ( the Bill ) that is due to amend the Act with effect from 1 November EXECUTIVE SUMMARY RMBF S POSITION: RMBF supports the Government s move to greatly reduce the differentiation in treatment between building contracts depending on whether they are classified as commercial or residential. RMBF supports the Government s move to widen the definition of construction work so that the Act will apply to design, engineering and quantity surveying contracts. RMBF supports the Government s move to clarify and expand the adjudication process (particularly the enforceability of adjudicators decisions) to ensure that the Act s dispute resolution regime covers disputes about contractual rights and remedies (as well as disputes over payments). RMBF supports the Government s overall move to introduce a range of amendments (minor of themselves, but cumulatively significant) to the Act s adjudication process, to make that process more effective. RMBF notes that the Government has decided not to introduce a mandatory statutory security of payment regime. RMBF acknowledges the argument for allowing a brief period to ascertain the effect of the other changes introduced and provides a window for the Government s investigation into the Mainzeal fallout in relation to retentions and security of payment to be fully considered (in respect of both main contractors and sub contractors) before revisiting the issue of whether a mandatory statutory security of payment regime is needed. However, RMBF believes it is imperative that the industry and the Government ensure that this issue actually is genuinely revisited once there has been a brief period (not more than 12 months) to ascertain the effect of the other changes introduced and that this opportunity is not lost again. 3

4 MAIN SCOPE OF PROPOSED AMENDMENTS The main scope of the various proposed amendments to the Act is to, one way or another, improve and expand the Act s dispute resolution (adjudication) regime. In 2011 the Department for Building and Housing (as it was then) published a report containing a review of aspects of the Act and proposed changes ( the Report ). That Report stated that the Act [in so far as the adjudication process was concerned] was not broken but that minor amendments would significantly improve its effectiveness. The Report went on to further state that: the adjudication process is not working as well as it could be...for some, there is little incentive to use what would otherwise be an appropriate resolution model Particular problems identified in the Report included: The different treatment of residential as opposed to commercial construction contracts (in particular, this distinction determined what rights and remedies were available to the parties in a way that was often unjustified). A narrow definition of construction work (that unjustifiably excluded related work such as design, engineering and quantity surveying). Distinguishing between disputes about payment and disputes about contractual rights and remedies (particularly in so far as what enforcement rights are available). General concerns about the efficiency of the Act s dispute resolution regime (when reviewing the Act, the concern was largely focused on enforcement issues, whereas the proposed changes are aimed at improving both enforcement procedures and the regime generally). Submissions made to the authors of the Report also identified a further problem as being the New Zealand construction and building industry s lack of a mandatory statutory security of payment regime. However, the Report did not recommend the introduction of such a regime. Removal of the distinction between residential and commercial construction contracts Clause 5 of the Bill amends s.5 of the Act, so as to repeal the definitions of commercial construction contract and residential construction contract and amend the definition of construction contract (i.e. to cover both commercial and residential construction contracts). Section 20 is to be amended, removing any distinction of payment claim 4

5 requirements depending on whether or not they are being served on a residential occupier. RMBF agrees with the decision to basically remove the distinction between commercial and residential construction contracts for the purposes of the Act. Under the present Act, charging orders can potentially be obtained where there is a commercial construction contract but not where there is a residential construction contract. Section 31 is to be amended, to prevent charging orders being sought under the Act against residential occupiers (notwithstanding that the concepts of commercial and a residential construction contract are otherwise being removed). RMBF believes that there is not sufficient justification for retaining this one distinction between residential and commercial contracts. Expanding the scope of the Act s dispute resolution regime to cover related work Clause 6 of the Bill amends the definition of construction work under s.6 of the Act, inserting a new s.6 (1A), so that design, engineering and quantity surveying are now covered. The intention is that the Act s adjudication regime will be rendered more attractive and effective by removing unwarranted distinctions about what adjudications can and cannot cover. RMBF considers that these amendments would be improved by a greater attempt to define what is meant by design or engineering [or] quantity surveying work, and a greater attempt to define just how directly and specifically that work needs to be connected to the construction work in order to be covered by the Act s adjudication regime (this could, for example, avoid future debate about the Act s application to the role of the project manager or the engineer to the contract, and/or what can be included in the concept of design work). Notwithstanding the reservations set out above, RMBF agrees that design, engineering and quantity surveying work are sufficiently closely related to (and often intertwined with) building and construction work so that the Act s adjudication regime will be made more effective by this change. Expanding the dispute resolution regime to provide for rights and remedies disputes The Act presently distinguishes between disputes about payment and disputes about contractual rights and remedies. That distinction can be unhelpful in practice, and the current regime lacks enforcement procedures for adjudicators decisions in disputes about rights and remedies. This results in an absence of incentive to use the Act s dispute resolution regime for rights and remedies disputes. 5

6 Clause 5 of the Bill amends s.5 of the Act, so as to amend the definitions of defendant and plaintiff. The present definitions were restricted, in that those definitions covered parties to Construction Contracts Act adjudications if the dispute concerned liability to pay an amount of money. Expanding these definitions is part of making the Act s dispute resolution process fully applicable to rights and remedies issues. RMBF supports these changes (although noting that, expanding the range of disputes adjudicators will have to regularly deal with, will place additional demands on those adjudicators expertise). Miscellaneous provisions to improve the Act s dispute resolution regime There are a number of amendments to the Act, relative minor of themselves but cumulatively significant, designed to make the adjudication process more procedurally fair and efficient (new ss.31a, 36A, 38B and 83 and an amendment to s37). An example is the proposed s.36a providing for pre adjudication conferences (helping the regime to establish greater procedural control of disputes before it, in a manner similar to how the courts operate). The new s.59a and amendments to s.73 expand and clarify the right to have adjudication decisions enforced through the District Court. An amendment to s.74 provides that a defendant wishing to oppose an application to enforce an adjudicator s determination will have only 5 days (rather than present 15 days) to apply to the District Court for an order preventing the adjudicator s decision being entered as a District Court judgment. RMBF agrees with the decision to reduce the time frame for opposing an application to enforce an adjudicator s determination. The new ss.781a, 71B, 71C and 71D set out the right to have an adjudicator s decision reviewed in the District Court (basically, an appeal procedure). Notwithstanding some reservations noted, RMBF supports the changes to the Act s adjudication procedures. RMBF considers however that a disputes resolution process is ultimately only as good as the people (be they judges, arbitrators or adjudicators) that decide how the dispute should be resolved. If the Government s predictions are correct, and the Act s disputes resolution (adjudication) regime is to be much more widely utilised by the construction industry, then this will presumably require more adjudicators becoming available. The criterion for adjudicators qualifications, expertise and experience is a matter for determination by regulations passed pursuant to s.34 of the Act. There is a perception 6

7 that we are currently reasonably well resourced by a strong pool of adjudicators. It is important that this pool is retained. Consideration of a mandatory statutory security of payment regime One issue that was the subject of consideration and debate, during the course of the review, was whether a mandatory statutory security of payment regime should be introduced. It is noted that every Australia state has legislation that at least attempts to set up some form of security of payment regime (although there are differences between the regimes operating in different states, with the Western Australian regime in particular being significantly different to that of different states). RMBF does not claim that all (or any) of the Australian State scheme provide all the answers. However, the point is that the issue is important enough for each and every Australian state to attempt to address it. The Report recommended against the introduction of such a regime in New Zealand. The Bill does not contain such a regime. The decision not to include a mandatory statutory security of payment regime will no doubt cause particular frustration to those who had advocated for it. This is particularly so given that there had been grounds for expectation that the Act would contain such a regime when it was first introduced in 2002, plus promises at that time to have the issue reconsidered as soon as the 2002 Act had been operating long enough to be assessed (an example of such promise being a letter of April 2002 from the then Associate Minister of Commerce (copy provided herewith)). It is accepted that there are differences of views within the industry as to whether such a scheme should be introduced (and, if so, what form it should take). It is RMBF s view that there is a strong correlation between any issue of the introduction of a statutory retentions regime and the introduction of a mandatory statutory security of payment regime. One is unlikely to be effective without the other. If considering one, it is important to consider the other at the same time. The view has been strongly expressed that the hurt occasioned within the industry by the recent Mainzeal collapse would have been significantly less if we had a statutory retentions regime and/or a mandatory statutory security of payment regime. The justifications claimed in the Report for recommending against the introduction of such a mandatory statutory regime are basically (first) that the parties are free to arrange a private security of payment regime; and (second) that the other changes 7

8 being introduced may render such a regime unnecessary; in other words, we won t need a mandatory statutory security of payment regime if we have a significantly improved disputes resolution regime (a regime that is speedy, simple, cost efficient, specialised, has a clear and reasonably comprehensive jurisdiction, and with teeth). Implicitly, this rationale amounts to give the present changes a chance, and then we ll see if we still think we need a mandatory statutory security of payment regime. Whether one accepts that there is force in that rationale or not, the difficulty remains that, once the Act has been reworked, a further review might not be a matter of Government priority for some years time to come. The RMBF is disappointed by the Government s decision not to more seriously investigate and consider a mandatory statutory security of payment regime at this stage. However, realistically, serious investigation and consideration of that cannot now be achieved before the November 2013 date when the Bill is intended to come into force (and RMBF opposes delaying the Bill coming into force). Subject to that, RMBF supports the passage of the Bill at this time due to the benefits the changes will bring. However, RMBF believes the industry and Government must remain vigilant and conscious of the security of payment issue and the retentions issue (and conscious that it is inadequate to address one without the other). RMBF believes that these issues must be re considered, as a matter or priority, as soon as the amendments in the Bill have had time to be tested and assessed by the industry. RMBF is aware of the work Government is doing in relation to the fallout from the Mainzeal collapse and considers whatever legislative amendments (if any) are developed that they are implemented without delay once that work is completed. This is a prime opportunity to have the security of payment issue and the retentions issue fully researched and investigated. RMBF S ASSESSMENT OF THE OVERALL EFFECT OF THE PROPOSED CHANGES The construction industry needs a dispute resolution system that is speedy, reasonably simple to use, cost efficient and has specialist industry knowledge. To an extent, the Act already provides that (although the new regime provides further improvements in ensuring the regime is speedy and simple to use). However, not withstanding that the Act already provides a regime that is reasonably speedy, simple, cost efficient and specialised, many parties to construction contracts disputes have been choosing not to use the regime. They have been choosing not to use the regime because of arbitrary statutory distinctions about what sort of construction disputes it can or can t deal with, and a lack of ability (or uncertainty as to ability) to enforce its decisions. The changes to the Act are designed to address this. It is anticipated this will result in a significantly 8

9 higher portion of construction contracts disputes being resolved through the Act s adjudication regime (rather than through the Courts or through private arbitrations). For a construction industry disputes resolution regime to be widely adopted, it needs to be more than just reasonably speedy, simple, cost efficient and specialised. It needs to also have jurisdiction to deal with most construction contract disputes and not just an arbitrary portion of construction contract disputes. In other words, there needs to be clarity as to its jurisdiction and the jurisdiction needs to be reasonably comprehensive. The proposed changes go a considerable distance in addressing this. Further, for a construction industry disputes resolution regime to be widely adopted, parties need to know that adjudicators decisions can be enforced, and that the enforcement process is in turn reasonably speedy, simple and cost efficient. The disputes resolution regime needs teeth. Again, the proposed changes go a considerable distance in addressing this. The preamble to the Bill notes that the building and construction sector is vital for New Zealand s economy. That preamble refers, in this context, to the importance of the Act s adjudication process. The preamble further states that the changes are to provide incentives for building and trades people to take responsibility for the quality of their work. While that might be reasonable of itself, RMBF notes that it is somewhat lacking in balance (the changes should equally be to provide incentives for those engaging building and trades people to take responsibility for their obligations to pay those building and trades people). Notwithstanding some reservations noted, RMBF believes that there is real ground for optimism that the overall effect of the proposed changes will be significant and positive; providing the industry with a disputes resolution regime that is significantly more speedy, simple, cost effective, comprehensive and enforceable that what has gone before. RMBF believes this is important to the well being of the New Zealand building and construction sector. 9

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