Construction Works Contracts

About the October 2016 Changes

EIS Commercial Procurement

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Contents

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• Overview of key changes

• Change to contract names

• Practical guidance notes

• Major Works Contract based on NZS 3910:2013

• Health and Safety

• Clarifying insurance provisions

• Changes to key commercial terms

• Sub-contractor warranty periods

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Overview of key changes

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• Still 3 contracts but names are being changed and limit for low value contract raised from $10k to $50k.

• Practical guidance notes provided for completing contracts.

• Clarifying choice of contract based on value and complexity.

• High value construction work (>$500k) contract amended to reflect NZS 3910:2013.

• Revised provisions on Health and Safety added in all contracts to reflect changes to the Health and Safety at Work Act 2015.

• Clarification around insurance provisions for works and existing structures.

• Changes to key commercial terms:

• Defects Notification Periods

• Retentions

• Performance bond requirements

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Change to contract names

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Current Contracts New Contracts

Existing Contract Name

Existing Value Threshold ($)

Revised Contract Name

Revised Value Range ($)

Low Value Construction Works Contract

5,000 to 10,000 Minor Works Contract

Between 5,000 to 50,000

Construction Works Contract

10,000 to 500,000 Medium Works Contract

50,000 to 500,000

High Value Construction Works Contract (based on NZS 3910:2003)

Over 500,000 Major Works Contract (based on NZS 3910:2013)

Over 500,000

Raising the threshold for Minor Works to simplify the contract process for low value, simple works (projects that does not impact weather-tightness)

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Practical guidance notes

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Guidance notes for each contract are updated to reflect changes

Contracts also include practical guidance (blue text) on things to consider when completing the specific requirements for a project

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Major Works Contract based on NZS 3910:2013

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• The Ministry is currently using the NZS

3910:2003 standard form of construction

contract with Ministry’s own Special

Conditions for its major construction

projects.

• The 2003 standard form has been

amended by NZS 3910:2013, and the

existing Special Conditions have been

reviewed and amended.

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Health and Safety

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For all Contracts:

• Contracts updated to reference Health and Safety at Work Act 2015.

• Site Specific Safety Plan to be prepared and submitted by the Contractor

to the Principal or its appointed representative.

• Work cannot commence on site until the Site Specific Safety Plan has

been accepted to ensure any specific issues are discussed with the

Contractor and resolved in advance of construction.

• Reference to Ministry “Health and Safety Requirements” and “Asbestos

Handling Requirements” in all contracts. These references link to relevant

areas on the Ministry’s property website.

For Medium and Major Works Contracts:

• Requirement for health and safety reporting (frequency default one month

or other specified period).

• Specific reference to requirement for Contractor to engage, co-ordinate,

consult and cooperate with all other duty holders in relation to health and

safety, mirroring the requirements of the Health and Safety at Work Act

2015.

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Clarifying insurance provisions

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Contract Works Insurance

• Contract works insurance is provided by the Ministry for both Ministry led

and Board of Trustees led projects - insurance is provided in the joint

names of the Principal and the Contractor.

Existing Structures or Contents Insurance

• Any existing structures or contents potentially affected by the works that

are owned by the Principal to the contract (Ministry or Board of Trustees)

are insured by the Principal in the joint names of the Principal and the

Contractor.

• Existing buildings and contents insurance providers need to be informed

to extend cover to include the Contractor as a named interest for damage

arising from the works.

Concept of “Nominal Deductibles”

• The contractor is required to pay any excesses on claims against the

above polices where they are responsible for the damage – these are

referred to as “Nominal Deductibles.”

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Changes to key commercial terms

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Contract Retentions

Minor Works

Contract

None – contract anticipates single payment when work completed

to satisfaction of Principal and relevant warranties, building consent

and O&Ms provided.

Previous Low Value Construction Works Contract required 10%.

Medium Works

Contract

10% of payments with no cap.

No change to previous Construction Works Contract.

Major Works

Contract

Projects <$1m: 10% of progress payments.

Projects >$1m: 10% of each progress payment with a

total retention cap of 5% of the Contract Price with a maximum cap

of $500,000 (reached at $10m).

Previous High Value Construction Works Contract staggered scale

of retentions (10%/5%/1.75%) capped at $200,000. New

arrangement simpler to administrate.

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Contract Defects Notification Period

Minor Works

Contract

None required (works should be completed to satisfaction of

Principal and relevant warranties provided as condition of

payment).

Previous Low Value Construction Works Contract required 3

months DNP.

Medium Works

Contract

6 months is default.

12 months where work impacts weather-tightness, involves

substantial mechanical and electrical works or multiple sub-

trades.

0 months for demolition contracts.

Previous Construction Works Contract required 12 months DNP.

Major Works

Contract

12 months as standard.

Previous High Value Construction Contracts offered options for

3 and 6 months for lower value works.

Changes to key commercial terms

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Changes to key commercial terms

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Performance Bonds

• Major Works Contract – level of contract value raised for bond

requirement from $500k to $1m (10% retention provided instead).

• Requirement for bond where Contractor has multiple projects with

Ministry removed.

• Bond to be unconditional in an amount of 5% of Contract Price or

other sum to be specified.

• As an alternative to a bond provider being a NZ registered bank,

Contractors may provide a bond from the insurance market,

providing the surety has a minimum ‘Standard & Poor’ financial

strength rating of ‘A’.

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Sub-Contractor warranty periods

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Sub-Contractor Warranties

• Tables of warranty periods reviewed

and updated to provide a more

comprehensive list.

• There are no longer any references to

manufacturers products.

• Options to strike out those items not

applicable to the project (design

consultants to advise).

• Design consultants need to take these

into account when developing

specifications.