Resolving Construction Disputes Is adjudication a good option? Natalia Vila* With few exceptions, the Construction Contracts Act 2002 (the Act) applies to every construction contract relating to construction work carried out in New Zealand. Statutory adjudication under the Act is the most commonly used dispute resolution process in New Zealand for resolving building and construction disputes, offering a fast and relatively straightforward process for resolving disputes under construction contracts. The Act prevents an unwilling party from delaying or avoiding the adjudication process. A claimant can secure the immediate appointment of an adjudicator without any consultation or agreement with any other party required, and every party will be bound by the outcome whether or not they choose to participate. This makes adjudication an effective and important dispute resolution tool.
Ten fast facts about construction contract disputes and adjudication 1. What is a construction contract? A construction contract is a contract for carrying out construction work which has a broad definition and includes construction, alteration, repair, restoration, maintenance, extension, demolition, dismantling or removal of any building or structure. Construction work was extended in 2015 to include design, engineering and quantity surveying, so these consultants can also access the payment protections of the Act including the right to suspend work for non-payment and also the adjudication procedures to resolve payment disputes. The flip side is that those who undertake construction work will be subject to claims for breach of contract, breach of the statutory warranties under the Building Act 2004, and breach of requirements of reasonable care and skill in relation to their work. 2. Does the contract need to be in writing? A construction contract does not need to be in writing to be covered by the Act. A demand for payment for work undertaken under a construction contract (known under the Act as a payment claim) does however need to be in writing and comply with the requirements of the Act to be valid1 so as to engage the default liability payment provisions and entitlement to suspend work under the Act.
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3. What types of disputes can be referred to adjudication? Default liability claim These are claims for technical non-compliance with the payment regime under the Act. Where a valid payment claim has been served by a payee on a payer and the payer fails to provide a payment schedule in response within the period mandated under s 22 of the Act or fails to pay the whole of the scheduled amount by the due date for payment, a determination that the payer is liable to pay the whole of the unpaid portion of the claimed or scheduled amount may be made by an adjudicator, without the claimant having to prove its entitlement to payment on the merits under the contract. Claim on merits There are disputes about the substantive rights and obligations of the parties. Typical claims for payment and rights and obligations determinations might include: • contract interpretation disputes; • whether particular work constitutes a variation; • whether work is defective, creating an obligation (and/or a right) on the part of the contractor to rectify it; • extension of time claims including time-related cost claims or downstream liquidated damages claims; • whether time is at large; • the right to suspend or terminate a contract; • assignment rights; • issues regarding bonds; • entitlement to a Practical Completion Certificate or Final Completion Certificate; • entitlement to release of retentions; • ownership of plant, equipment and materials; • damages claims for breach of contract; and • contractual claims for damages for breach of requirements of reasonable care and skill in relation to design, engineering and quantity surveying consultants. 4. What if the contract has a dispute resolution clause referring to mediation or arbitration? Any party to the contract can still refer disputes to adjudication under the Act, even if the contract provides for a different dispute resolution procedure such as mediation or arbitration. Parties cannot contract out of the Act. 5. Do the parties have to agree on who the adjudicator is? No. This point is often misunderstood and much time (and money) wasted by parties trying to agree on an adjudicator. Any agreement before the dispute arises is
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