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What building contract should you use?

By Geoff Hardy - 20 Apr 2018

Whether you are a builder or a property owner, when you embark on a building project it is critical that you use a sophisticated written building contract that covers all the bases. The days of doing building projects on a handshake are, unfortunately, long gone.

Society is gradually becoming more confrontational and high-pressured, and with the increased frequency of disputes in building projects, it is essential that you have a written set of rules to go by. Otherwise you are simply paying lawyers to argue over what the rules should be and that costs unnecessary time and money. In fact the Government considers it so important to have written building contracts on residential building projects, that it has been compulsory since 2015.

There are four organisations that produce standard-form building contracts in New Zealand. The New Zealand Institute of Architects (NZIA) produces a suite of contracts that tend to get used when an architect is calling the shots. Then there is Standards New Zealand (NZS) whose suite of contracts tend to be preferred by engineers. These are probably the most commonly used contracts on large commercial and infrastructure projects in New Zealand. Most of the NZIA and NZS contracts are more than a centimetre thick, so on smaller projects they may seem like overkill, but both of those organisations produce smaller contracts which are designed for use in the residential setting as well.

Then there are the contracts produced by the two major building trade associations in New Zealand - the Master Builders Association and the Certified Builders Association. Their members invariably use their own association's contracts, which once again are sophisticated but smaller than the NZIA and NZS versions. They are intended more for use in the residential or light commercial setting. They strike a reasonable balance between the interests of the builder and the property owner, but of course I would say that - I wrote the Certified Builders contracts. Remember that every building contract can be negotiated and changed if there are provisions in it that don't suit either party.

Builders who don't belong to either Master Builders or Certified Builders have to use some other form of contract such as those produced by the Building Disputes Tribunal, the Building Hub, or one of the high-volume building companies. If they don't belong to one of the big franchises or building companies then I recommend that they use NZS 3902, which is the NZS residential building contract, but with a number of modifications that we have already written.

There is one other thing to bear in mind. If the project is quite complex or involves a lot of money then the parties may benefit from having an "engineer to the project" appointed. This person checks the invoices and the builder's compliance with the contract on behalf of the owner, but also acts as a neutral referee in the event of disagreements. All big commercial and infrastructure projects have an engineer to the project, but they also serve a useful function in residential projects if you can afford the extra cost. In that event you would need to use one of the NZIA or NZS contracts because they are the only ones that cater for an engineer's appointment.

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Geoff Hardy

 

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