The Construction Contracts Act 2002 contains, as its purposes, the facilitation of regular and timely payments, the speedy resolution of disputes and remedies for the recovery of payments. To this end, the Act proscribes the use of pay-when-paid/pay-if-paid clauses, establishes a legal entitlement to progress payments, sets out procedures for the adjudication of disputes, provides for the rights of suspension of construction works and the interim recovery of payments. Each significantly modifies the common law position on such issues, and provides effective and long overdue protections for the industry.
Construction Contract defined
However, the Act applies only to "contracts for carrying out", in terms of section 5, "construction work", as defined in section 6(1), which includes "the construction erection, installation, carrying out, alteration, repair, restoration, renewal, maintenance, extension, demolition, removal, or dismantling of any building, erection, edifice, or structure forming, or to form, part of land" and then goes on to expand and refine that definition at some length. Subsection 6(1A), added in the 2015 amendment to the Act, further expands the definition of construction work specifically to include "design or engineering work" and "quantity surveying work" in relation to work defined in subsection 6(1).
As a preliminary point, it should be noted that the ability to vary the regime of the Act is limited to the timings and procedures for progress payments. For example, the Act allows for different payment cycles and timings for the provision of payment schedules in reply. It is not possible, however, to contract into or out of the provisions of the Act. A contract is either a construction contract or it is not; and if it is, the mandatory provisions in relation to conditional payments, whether or not a claim or schedule complies with sections 20 or 21 (and the consequences of a failure to comply), adjudication and enforcement cannot be contracted away. Similarly, the Act cannot apply by agreement if the contract is not a construction contract, as defined.
The detailed and prescriptive wording of the section 6 definition aside, two issues arise - (1) to what extent does the contract need to include an obligation to carry out construction work for the Act to apply? and (2) how far does the definition of construction work extend?
Contract to carry out construction work
Once a contract falls within the definitions in sections 5 & 6, the Act applies. The assumption is that a construction contract will typically only provide for the carrying out of construction work, and nothing else; but that is not what the Act provides. Some guidance is given in paragraph (c) of the definition of construction contract in section 5 where the definition does not extend to (emphasis added):
"a lease or licence under which a party undertakes to fit out, alter, repair, or reinstate the leased or licensed premises unless the principal purpose of the lease or licence is the carrying out of construction work"
Similarly, drilling for or extracting oil or natural gas and tunnelling, boring or extracting minerals are specifically excluded.
On that basis, the Act clearly recognises that a contract may include obligations in addition to carrying out construction work (for example, funding the construction work, the sale and purchase of the underlying land on completion of the work, or an agreement to construct a new building and for it to be leased on completion) and still be a construction contract. The saving in the definition is very specific, and relates only to a lease or licence to "fit out, alter, repair, or reinstate leased or licensed premises". A contract to actually carry out such work, as opposed to a licence or lease for that purpose, would obviously be caught by the definition.
In relation to the application of the Act, once the definition has been satisfied, then the Act applies. Nowhere in the Act does it state, or is it suggested, that the provisions only relate to the construction elements of the work (for an alternative view, see the questionable obiter of Christiansen AJ in Van Der Wal Builders & Contractors v Walker & Dunphy [2011] NZHC 1052, in which his honour held that a signed and accepted quote arguably did not form a contract and that the Act applies only to the construction elements of the contract).
The more critical question of when and whether a collateral contract may comprise a construction contract under the Housing Grants, Construction and Regeneration Act 1996 was recently consider by the Supreme Court in the UK in Abbey Healthcare v Simply Construct [2024] UKSC 23. That case concerned defective fire rating work in the construction of a rest home. The claimant, the rest home operator, claimed against the construction contractor under a collateral contract which provided that the contractor warranted that "in carrying out and completing the Works the contractor has exercised and will continue to exercise all the reasonable skill care and diligence to be expected of a properly qualified competent and experience contractor". One of the issues before the Supreme Court was whether or not the collateral warranty, given by the contractor to the rest home operator as a condition of the construction contract with the original owner of the site, fell within the definition of carrying out a construction operation under the UK legislation.
While the UK Act differs from the Construction Contracts Act, the critical issue of whether or not the collateral warranty falls within the definition of carrying out construction work is relevant. After canvassing the decisions of the lower courts, the Law Lords held that the purpose of the collateral agreement was not to carry out the work, and was therefore not a construction contract for the purposes of the Act:
As a generality, it is difficult to see how the object or purpose of a collateral warranty is the carrying out of construction operations. The main object or purpose of such a warranty is to afford a right of action in respect of defectively carried out construction work, not the carrying out of such work.
Much will turn on the overall context of such collateral agreements, and their actual wording.
Schedule 13 of NZS3910:2023 provides a form of subcontract warranty, under which the subcontractor undertakes that the subcontract works "shall be in accordance with good trade practice" and that, if such works are not as required under the head contract the subcontractor "will promptly take steps to remedy the defect", such works to be carried out promptly to the standard required under the contract, at the subcontractor's cost and without unnecessary inconvenience to the occupants of the property.
While the form of warranty would appear to be covered by the broad comments of Lord Hamblen in the Abbey case referred to above, the warranty does include an express obligation to the owner to carry out the remedial work, which would suggest that it is caught by the carrying out part of the definition. Whether or not remedial work is caught by the definition of construction work in section 6 is another question.
Definition of construction work
The definition of construction work in section 6 is detailed and extensive, adopting every conceivable variation of construction, including "erection, installation, carrying out, alteration, repair, restoration, renewal, maintenance, extension, demolition, removal, or dismantling" of "any building, erection, edifice, or structure forming, or to form, part of land" including "any road, motorway, aircraft runway, wharf, docks, harbour works, railway, cableway, or tramway", "canal, inland waterway, pipeline, reservoir, aqueduct, water main, well, or sewer", "electricity, water, gas, or telephone reticulation", "telecommunication apparatus or industrial plant" and "installation for the purposes of land drainage or coast protection"; and that's just subparagraphs (a) & (b) of the definitions. Interestingly, landscaping work on its own is not covered, unless as part of a wider development.
Subsection 6(1) covers the actual carrying out of the construction work and subsection 6(1A) deals with related consultancy work, specifically design, engineering and quantity surveying. There has been some discussion since the definitions were amended in 2015 that project management is included. In the context of the discussion of carrying out work described in section 6, and the specific references to design, engineering and quantity surveying, project management and other consultancy services not specifically referred to are clearly not covered.
The core point is the definitions need to be read with considerable care as they are specific and definitive.