Disputing with contractors is a common issue in the construction and property industries. Such disputes may arise from various issues, including delays, poor-quality work or payment disagreements. This article will provide a guide on the key legal remedies and the best strategies for navigating disputes with contractors in New Zealand.
What Are the Common Causes of Contractor Disputes?
Project Delays
Delays are a common cause of disputes between contractors and their clients. Such delays come from a range of factors, including:
- unanticipated site conditions;
- changes to the project or its scope; or
- poor project management.
Regardless of the cause, delays will likely lead to financial loss and operational issues for clients. This makes resolving the dispute as quickly as possible even more important.
Poor Quality Work
Disputes will also arise when the quality of the contractor’s work is not at the agreed-upon standard. This can range from subpar construction quality to poor-quality materials. It is common for poor-quality work to be even more costly due to the additional costs required for repairs.
Payment Disputes
Payment disputes are another typical issue between contracts and their clients. Such disputes may arise about:
- amounts owed;
- timing of payments; or
- clients withholding payments due to disagreements with the work.
Contractors can usually claim for any additional costs due to changes to the scope of the work. On the other hand, clients may withhold payments to make sure any problems are fixed.
Changes to the Contract
Changes to the original contract can also lead to disputes. This is particularly the case where no clear agreement exists about how these changes should be dealt with. Variations can occur for several reasons. It may simply be a change to the design, but in other cases changes to the original plan are necessary due to the site condition.
What is the Legal Framework for Contractor Disputes?
The first place to start is the contract between the parties. Contracts will typically outline the:
- scope of the work;
- expected timelines;
- payment details;
- quality standards; and
- dispute resolution procedures.
Other places to look at for the legal background of navigating disputes include the:
- Construction Contracts Act 2002; and
- Fair Trading Act 1986.
These pieces of law are relevant when it comes to determining the most appropriate legal remedies.
Continue reading this article below the formWhat Are the Steps to Take for Contractor Disputes?
The process required for contractor disputes will differ on the type and scale of your dispute. However, the most appropriate types of dispute resolution are outlined below in order of what is most appropriate.
Negotiation
Negotiation is the typical first step in the dispute resolution process. It involves having discussions between both parties to reach a solution that works for both sides. Effective negotiation requires both parties to be willing to compromise.
Mediation
Where negotiation fails or is inappropriate, mediation comes in. This is a voluntary process in which a neutral third party (the mediator) assists the two parties in reaching an agreement. It is an affordable way to resolve disputes while maintaining confidentiality. The nature of mediation also means it helps to maintain a business relationship between the two parties.
Adjudication
Under the Construction Contracts Act 2002, disputing parties may use adjudication to resolve payment disputes. This is a quick and binding process in which an adjudicator reviews the evidence and makes a decision. This method is timely and ensures that cash flow is maintained in construction projects.
Arbitration
Arbitration is when a neutral party (the arbitrator) makes a binding decision. It is often preferred over litigation due to its confidentiality and flexibility. It is also more formal than mediation, which means it may be appropriate in certain circumstances. Arbitration is commonly included in construction contracts as a preferred dispute resolution process. This is because the arbitrator will likely have specific knowledge of the construction industry.
Litigation
Litigation refers to taking the matter to court. It provides a definitive resolution but is usually time-consuming and expensive. It is also a public affair. For these reasons, litigation is typically treated as a last resort. It is only used when other dispute resolution methods have failed or when the dispute involves complex legal issues. You may also risk your business relationship with the contractor by engaging in this more adversarial for of dispute resolution.
What Remedies Are Available?
The remedies available for disputes with a contractor vary. The remedy available will depend on the specific issue at hand and the nature of the conflict. Some common remedies include:
- Specific performance: This requires the contractor to complete their contractual obligations, and it is particularly common when the contract’s content is unique or financial compensation is inadequate.
- Rescission: This refers to the contract being rescinded, meaning both parties are restored to how they were before the contract commenced.
- Injunction: In some cases, courts issue injunctions to stop a contractor from continuing certain actions. Injunctions can also be used to make either party take a specific action to prevent further harm.
Damages
There are various types of damages that may be available, including:
- Compensatory damages: This covers any actual loss suffered due to the contractor’s breach.
- Consequential damages: Available for losses that naturally flow from the breach, provided they were foreseeable when the contract was made.
Commercial disputes are costly, stressful and can damage your business reputation. LegalVision’s free Guide to Resolving NZ Business Disputes can help.
How Can I Avoid And Manage Contractor Disputes?
Have Clear and Detailed Contracts
The pinnacle of avoiding disputes is having clear and detailed contracts. It should cover as many matters as possible in a way that both parties understand. It is also important for both parties to have a chance to review and negotiate the contract before signing it.
Keep Proper Documentation
Having detailed records of all communication between both parties is important. It can act as evidence if a dispute arises so that the facts are better understood. This includes keeping copies of:
- contracts;
- emails;
- meeting notes; and
- photographs of progress.
Seek Professional Advice
Working with professional advisors can ensure you access valuable expertise. This includes:
- lawyers;
- project managers; and
- quantity surveyors.
Their involvement can ensure that legal and technical standards are met, which in turn will help avoid disputes.
Prioritise Regular Communication
Maintaining open communication throughout the project’s life cycle can help identify and address issues before they become larger. This will include having regular meetings and encouraging progress reports to try to foster a collaborative working relationship.
Key Takeaways
Having disputes with contractors is a common issue in the construction and property industries. The key legal remedies available include:
- damages;
- specific performance;
- recession;
- injunctions; or
- Quantum Meruit.
If you need assistance resolving disputes with contractors, our experienced disputes and litigation lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.
Frequently Asked Questions
Some of the most common causes of contractor disputes are project delays or poor-quality work. Other common causes include payment disputes or changes to the contract.
The remedies available for disputes with a contractor vary. The remedy available will depend on the specific issue at hand and the nature of the conflict. However, some of the most common remedies include damages, specific performance, and recession. Other common remedies include recession, injunctions, or quantum meruit.
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