A standard form contract is supposed to be just that – an easy to understand agreement that allows principals and construction contractors to quickly establish general conditions to assign and budget for risk across a wide range of building and engineering projects.
But while NZS3910 is a “standard” contract, it gets heavily amended with each use and in extreme cases the special conditions end up being longer than the contract itself.
We talk to Gavin Shaw, Beca’s Business Director of Construction Sector Advisory, who is representing ACE New Zealand and Engineering New Zealand on the NZS3910 review committee.
Gavin explains how updating the contract could help to create an environment for more reliable project delivery, increased productivity across the sector and better outcomes for communities.
It’s been nearly a decade since NZS3910 has been reviewed – what’s changed since then?
The last review in 2013 was only a partial review, so while some opportunities to improve the contract might have been identified back then, many weren’t within scope. This current review has a broad-ranging scope so there are very few things that can’t be considered or amended, which is quite exciting because it does need to be updated.
There’s been a lot of change. We’ve had changes in legislation – the Health and Safety at Work Act, the Construction Contracts Act – but also an ongoing evolution in the way the industry likes to operate and behave, and the outcomes it seeks to achieve.
So, there’s an opportunity to modernise our standard form of contract to reflect the current commercial practices including the ways we encourage things like engagement, cooperation, and fair compensation between the parties.
It’s pretty ambitious trying to incorporate those things – but that’s the opportunity and that’s the obligation, that we do our best to try and help affect some positive change in our industry.
What are the biggest challenges people have when using this standard contract?
Increasingly, 3910 contracts are amended it so heavily that it is rarely used in its standard form. These inconsistent amendments can invite an opportunity for confusion, misunderstanding and inappropriate pricing.
The industry is consistently talking about appropriate risk pricing and allocation between participants, and seeking opportunities for higher productivity and a higher success rate of projects in our sector.
Despite this, amendments are often drafted to respond to an experience a party would not wish to repeat, and many have the unintended effect a reinforcing the distrust or adversarial behaviours that the industry is unanimous about needing to address.
So the opportunity to update our standard format of agreement - to significantly reduce the need, temptation, habit, and acceptability of making heavy amendments – is one of the many steps our industry must take to achieve the productivity gains we seek.
What are some of the extreme examples you’ve seen of special conditions being added to contracts?
Every industry participant could sight situations where the nature of changes and the volume of changes are seemingly unnecessary and at times unhelpful toward achieving the objectives of the investment.
There are some significant projects in our landscape today where the volume of amendments is longer than the volume of the standard itself, where the chances of the people doing the work on the ground being able to interpret or be informed by the impact of those amendments and the way they’re supposed to behave and act is unrealistic.
But it isn’t solely about the contract allocating risk, it is how you ensure the appropriate party has the opportunity to manage and crucially budget for it. In a tender situation parties have to find and price the cost and delivery implications contained within contract documents. Too often documents transfer risk by stealth and constrain opportunities to budget for them, creating a gamble that frequently leads to risks not being adequately priced if they are priced at all. And risk transfer without fair pricing is a fundamental problem and an opportunity to improve.
There’s a heavyweight panel of industry representatives on the committee – that must spark some good discussion and diversity of thought?
It’s really cool watching the debate evolve and the different perspectives from contractors, clients, consultants and lawyers being brought forward.
The committee is quite large, with more than 20 of us, and it works well because all perspectives get heard and no single faction can have a voice that dominates and pushes a perspective.
We have some interesting and robust discussions, all of which are amicably presented, and often with some emotion and energy, and always with the intent of getting a much better outcome for the industry.
Public consultation is scheduled for early next year and the new standard contract could be published by July. What will this mean for consultants and engineers?
My hope is that this standard contract for construction delivery in New Zealand helps creates a strong platform for our industry to build trust and confidence in the way that parties can work together for the mutual benefit of the community and the businesses they serve.
Currently, too many construction projects perform poorly, meaning that the outcomes are delayed or over budget, the participants aren’t as satisfied as they should be or the business outcome is poor for everyone involved. So we need to shift that.
Ultimately, we want a construction contract where all involved can perform in a sustainable and prosperous manner, where they can deliver on the objectives that the project is trying to achieve while mutually addressing the delivery risks.
Whether it’s a building or a road or a hospital, if we can deliver more efficiently and reliably, then we’ll get better outcomes for communities and we’ll raise the productivity of our industry. Having a really strong standard contract that everyone has confidence in is an important step forward.
What are the other pieces of the puzzle that will create a higher functioning construction sector?
A standard contract sits in conjunction with the ongoing work of the Construction Sector Accord and many other industry bodies that are trying to affect positive change in our industry. A contract is a static document that sets a platform, and the gold lies in how the industry and its advisors utilise it, how they engage authentically with contract participants and create the environment for scope and delivery risks to be openly shared, priced and executed.
All of these initiatives together – a great standard form contract, rebuilding trust between industry participants, open and transparent management and pricing of risk, growing competency through training and education – can create the environment where it’s then up to us to do our best to work within it.