Protecting the contractor-client relationship: Building Contracts - How good is yours?

Property

The introduction of new consumer protection regulations under the Building Act has placed all building contracts under the spotlight. The days of agreeing to building work on a handshake are long gone. Clients are more switched on around contract terms and contractors often face push back where a client perceives imbalance.

Many building contracts are still fairly rudimentary or are standard boilerplates that don’t reflect how a contractor operates.

The building contract is a key structure in the business of any contractor and it is important for a contractor to understand how their contract operates and if changes are needed.

The fundamentals

When you are looking at a building contract there are some fundamental areas that should be covered including:

  • Contractor and client obligations;

  • Price (and adjustments);

  • Payment terms;

  • Timeframes;

  • Warranties;

  • Variations and a clear description of the works/plans; and

  • Specifications.

If the contract doesn’t cover these aspects then the contract needs to be revised.

How does the business operate?

Covering the key terms is not enough. The contract should match how a particular contractor operates their business. For example, if a contractor needs the client to provide a level building site with good ground then the contract should make this the client’s responsibility.

Correspondingly, if a contractor normally completes earth works and excavation then the contract should reflect this, or at least provide this as an alternative. If the contract doesn’t reflect the reality of a contractor’s operations then this can often lead to disputes and/or extra costs.

Some of the standard building templates do not provide flexibility, or require the involvement of architects, engineers or project managers. If a particular contractor does not fit these standard documents then they run into the problem of either having an inappropriate contract or being forced to heavily amend the standard agreement for each project.

Where does the client come in?

In the past building contracts have often been based solely around protecting a contractor's position. While this is an advantage from a contractor's stand point, it can often leave a client feeling uncomfortable or mislead when they signup.

For example, a contractor may deal with the client on the basis of a fixed price or quote for a project. The client is expecting that the contract will reflect this arrangement, however the contract has been drafted to allow the contractor the normal ability to charge above the fixed price for provisional sums, cost fluctuations etc. While it is important for a contractor to limit their exposure, there should also be continuity between what a contractor is telling its clients and the terms of contract.

The specialised Construction Law Team at Cavell Leitch can help a contractor sort out their contracts so they are comprehensive and tailored to their particular business operations.

The team can also assist landowners looking to engage a contractor to complete a project who may need advice on the contract's terms. You can contact the team via the construction law page on the Cavell Leitch website or contact Jeroen Vink directly at jeroen.vink@cavell.co.nz or +64 3 339 5604.

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Copyright © Cavell Leitch. All rights reserved. Redistribution is only permitted with express written permission. For enquiries please contact us. This article by its nature cannot be comprehensive and cannot be relied on by clients as advice. It is provided to assist clients to identify legal issues on which they should seek legal advice. Please consult the professional staff of Cavell Leitch for advice specific to your situation.