In a previous article, we discussed the salient terms in the widely used NZS 3910 contract. However, that contract is more suited for high-value, medium to large construction projects due to terms that include the involvement of an engineer to the project and detailed processes which may not be practical or economic in respect of smaller residential projects. Given that much construction activity in New Zealand is small-scale residential construction, it is important for contractors who engage in this space to have a contract that suits their needs.
There are two main contracts that are geared towards residential contractors.
The first is from the Registered Master Builders Association and the second is from New Zealand Certified Builders (NZCB). Both are large trade associations for residential construction companies that provide, among other things, a suite of contracts for their members to use.
In this article, we will look at the salient terms in NZCB’s cost and markup building contract which was recently updated in February 2018.
Like the NZS contracts, NZCB’s cost and markup building contract contains tick box type options making it easy for members to use. It also contains various express acknowledgements by the client, clarifying whether the contractor is bound to any estimate provided. In our view, this is a useful clause that assists in avoiding a common dispute between client and contractor.
The contractor is required to perform the building work to the standard required in the contract documents and the relevant building consent.
The NZCB contract applies and repeats the usual warranties that are contained in the Building Act 2004 and the Consumer Guarantees Act 1993. In particular, the contractor warrants that the building work will be carried out:
- In a proper and competent manner.
- In accordance with the plans and specifications under the contract.
- In accordance with the building consent.
- With reasonable care and skill.
- Be completed by the date specified in the contract or, if no date is specified, within a reasonable time.
As compared to NZS 3910, NZCB’s contract does not require the contractor to follow a strict process for variations. The contract provides a simple process whereby the contractor is allowed to carry out variations instructed or requested by the client (or the client’s agent). The terms do not require variations to be recorded in writing but recommends that variations should be recorded in writing where practicable. This clause appears to reflect a common practice in the context of residential construction where instructions are given verbally.
To a contractor, the benefit is that it does not take away a contractor’s entitlement to be paid in circumstances where a verbal instruction was given but not recorded in writing. However, this does not mean that the client is unable to dispute that a verbal instruction was given.
Cost and markup
Cost and markup building contracts do not specify a fixed price for the contracted work; the actual costs incurred by the contractor for the contracted work are passed on, plus a pre-agreed margin to account for the contractor’s profit and overheads.
This type of contract is beneficial to the contractor as it will not be required to absorb rising material and labour costs which is especially relevant in the current building market.
Parties that engage a contractor for building work may prefer a fixed-price contract to give them certainty. Certain financial institutes will also require a fixed-price contract when it comes to lending funds for the project.
Contact us if you are a party to a construction contract of any type, and a dispute has arisen. Our lawyers at Norling Law can review your circumstances and discuss strategies on how to progress your project as part of our no obligation legal consultation. To book a free 30-minute consultation please click this link https://norlinglaw.co.nz/consultation-brent/