The Construction Contracts Amendment Act 2015
From 1 December 2015, the first of a number of major changes to the Construction Contracts Act 2002 (the Act) will come into force. These amendments, in conjunction with the changes to the Building Act 2004 which took effect from 1 January of this year, significantly impact how construction work is managed and undertaken at a macro level, from the pre-contract stage through to the expiry of the defects liability period.
Currently, only disputes concerning payment under a construction contract can be referred to adjudication under the Act. The adjudicator’s determinations are then enforceable by the courts. However for any construction contract entered into from 1 December 2015, the distinction between enforcing determinations relating to payment, and settling disputes relating to the parties’ rights and obligations, is removed. This means that disputes which typically arise between parties to a construction contract, such as suspending or terminating work for breach, variation disputes, defective work and obligations to rectify, and other breaches, will all fall within an adjudicator’s jurisdiction.
The objective of the adjudication process under the Act, with its abbreviated timeframes for responding to a claim, supports the Act’s overarching intent, namely, to facilitate regular and timely payment between parties to construction contracts and resolve disputes that do arise in a “speedy” way. In the context of payment disputes, this mechanism has been fairly successful.
A real concern with the forthcoming amendment is that the Act does not provide a longer timeframe than the current 5 working days for a recipient of a claim to “respond” to the claiming party. Construction disputes, particularly those about “rights and obligations” can often be complex, sometimes needing the involvement of multiple parties and experts. Inherent technicalities of construction work, multi-contract relationships, the existence of contractors, suppliers, and principals, all have an impact on how one responds to a dispute.
While the amendments allow an adjudicator to grant extra time for reply and determination (as a means to avoid “ambush” claims), it is uncertain how often, or how long, an extension will be granted in such circumstances.
The second round of amendments which come into force on 1 September 2016 extend the scope of the Act to apply to design, engineering, and quantity survey work. So professional consultants within these sectors will fall within the jurisdiction of the Act’s adjudication process. Difficulties with professional indemnity insurance response, and obtaining independent expert opinion before filing a response are even more pronounced here.
The question has to be asked: is the Act’s adjudication process geared up for the new complexities involved, and how will the construction sector respond?