The Construction Contracts Amendment Act 2015 is implementing a number of updates to the Construction Contracts Act 2002 ("the CCA"). The amendments are coming into force progressively between 1 December 2015 and 31 March 2017.
This article will set out the key changes and our analysis on them.
Summary of Key Changes
For all construction contracts arising after 1 December 2015:
- There will no longer be a distinction between residential v commercial construction contracts.
- Adjudication procedures now include a right of reply.
- The enforcement of adjudicator determinations are extended to cover liability for payment and rights and obligations equally.
- There are new procedural timeframes for resisting enforcement of adjudication orders as well as a new ground to resist enforcement on account of "change in circumstances".
Changes from 1 September 2016:
- "Construction work" shall extend its definition to include consultancy services (ie design, engineering and quantity surveying work).
Changes from 31 March 2017:
- All retention moneys held after 31 March 2017 shall be subject to a new statutory trust.
The amendments do not have retrospective effect.
As is always intended under the CCA, the resolution of construction disputes should be speedy and have binding effect. The disputes resolution forum of the CCA is now given scope to determine matters beyond just payment disputes into issues of rights and obligations.
Parties can now seek a swift adjudication determination on traditionally more complex issues such as contractual interpretation, obligations for contractors to rectify defective work, whether work is within scope of variation, and so on.
Not all construction disputes are made equal. This one-size-fits-all approach under the amended CCA will likely pose challenges for the more complex disputes where more is at stake and where experts and insurers are involved. However, the upshot is that these amendments are much more consumer friendly and play out more favourably for smaller scale construction projects.
There will be issues with bringing and defending claims for professional designers, engineers and quantity surveyors under the CCA.
- Claims may relate to the exercise of the professional's reasonable skill and care which will necessarily involve a degree of expert judgment in practice.
- These claims are typically complex.
- The nature of professional services may pose other logistical/timing issues. A likely example is where the disputed designs and specifications were completed years before construction and the individuals responsible are difficult to locate (perhaps overseas or employed elsewhere).
- Finally, disputes involving professionals will typically involve professional indemnity insurance which can add an additional layer of complexity - to consider the insurer's interest and ensure compliance with the insurance policy.
Statutory Trust Regime for Retention Moneys
This new regime will apply after 31 March 2017 for all commercial construction contracts regardless of the date the agreement was entered into.
- All retention money under the regime is to be held by the payee on trust in the form of cash or other liquid assets and may be comingled with other moneys.
- The payer may invest the retention money funds but will be liable to make good any loss to the retention money if the investment is not successful.
- The retention money may not be appropriated for any purpose other than to remedy defects.
- The payee must keep proper accounting records and have the accounts available to the contractor for inspection.
The purpose of these amendments is to better protect retentions by preventing principals and contractors from using that retention money as working capital. But this regime may create a number of new problems:
- Traceability of funds - an additional compliance requirement for strict bookkeeping while at the same time allowing retention money to comingle with other assets may cause unintended problems later down the track if and where the payee/principal inadvertently mingles retention money. This is particularly challenging for the construction industry, and managing trust obligations.
- The added compliance hassle with retention money may incentivise principals to require larger performance bonds from the payer instead of contracting for standard retentions.
- This new regime does not provide a solution to the underlying low cash flow problem in the construction industry and does not protect or effectively deal with circumstances of insolvency.
Please kindly direct any enquiries to James Turner, Partner, and any member of the Albany Litigation Team.
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© McVeagh Fleming 2017
This article is published for general information purposes only. Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice. If you require specific legal advice in respect of any legal issue, you should always engage a lawyer to provide that advice.