It can be confusing to deal with construction contracts. This is because they may contain niche clauses relating to payments and security interests. The Construction Contracts Act 2002 provides a process for dealing with payments and disputes between different parties. It is important as it helps regulate the industry and reduces added costs. However, there are parts of the Act that can be confusing. This article will explain what the Construction Contracts Act covers in New Zealand.
What is a Construction Contract?
A construction contract is a contract between two parties that applies to all types of construction work. The Constructions Contracts Act covers all types of contracts regardless of whether parties negotiate orally or in writing.
When is a Construction Contract Binding?
All contracts must meet the elements of a binding contract for it to be legally enforceable. The elements of a binding contract are:
| Unequivocal Offer | An offer is when one party sends another a proposal. This offer must be clear and has to come from you. |
| Correct Acceptance | The other party accepts the offer as prescribed in the contract terms. For example, if the acceptance must be via email and they accept the offer by phone, the acceptance may not be binding. However, there are exceptions, such as the postal acceptance rule. |
| Consideration | Any contract must have consideration from both parties. Consideration is something of value that you give to one party in return for the promises of the other party. In the case of an auction, the consideration is the money given in exchange for whatever product you were seeking to purchase. |
| Intention to Bind | There must also be an intention from both parties for the contract to be binding. For example, if a child bids on an item through their parent’s phone, the parent is not bound to pay for the item as they did not intend to be bound by auction. |
| Certainty in the Terms | The terms of a contract must also be certain. This means there is no ambiguity or uncertainty in the terms that either party can dispute. |
What Does the Construction Contracts Act Cover?
The Construction Contracts Act covers all the relevant issues relating to construction contracts in New Zealand. It has four main functions:
- protect retention money;
- ensure an appropriate payment regime;
- provide an adjudication process for people with disputes; and
- provide mechanisms to recover payments.
Retention Money Provisions
The Construction Contracts Act provides that any retention money must be held in the form of trust or other liquid assets. However, an exception to this is if a complying instrument is obtained. For example, this could be a bond or an insurance product.
Payments
The Act also regulates payments between parties entering a construction contract. The Act makes any conditional payments unenforceable. An example of a conditional payment is if Party A waits until Party C pays them before they pay Party B. In the industry, this is often known as ‘pay when paid’ or ‘pay if paid’.
Adjudication of Disputes
The Act also covers any disputes due to a construction contract. These disputes could relate to payments or rights and obligations under a construction contract. You must understand how the process works regarding dispute resolution under a commercial construction contract. If you wish to dispute via adjudication, you must serve a written notice to the other party.
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Key Takeaways
The Construction Contracts Act is important if you are in the construction industry. It regulates how commercial construction contracts are formed and bars certain practices regarding how different parties get paid. It covers commercial construction contracts, which are only enforceable when it meets all the elements of a binding agreement. For example, it stipulates that any retention money needs to be held in trust. Additionally, it bars conditional payments so that a party is not waiting to be paid because another party has yet to be paid. Furthermore, it outlines the process for the adjudication of disputes.
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Frequently Asked Questions
The Construction Contracts Act regulates all commercial construction contracts.
The Construction Contracts Act bars conditional payments, which means that a party cannot wait for a payment from a third party before they pay someone.
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