GUIDANCE ON USING THE BUILDING HUB CONTRACTS

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1 GUIDANCE ON USING THE BUILDING HUB CONTRACTS Introduction As of 1 January 2015 it is now mandatory to have written building contracts for projects worth $30,000 or more. The Building Act 2004 ( the Act ) has been amended to require building contracts to contain certain minimum content. You can be fined $2,000 if you don t comply with some of the requirements of the Act. The Building Hub, with Rainey Collins Lawyers, has developed simple and easy to use contracts for its members that include all information required by the Act. These contracts are free to use as long as you are a current financial member of The Building Hub. If you are not, you will be in breach of the Building Hub s copyright and the terms under which the contracts can be used. Please note that we provide both long and short form contracts and that, although all minimum content is contained in each type, there are differences in content between the agreements depending on their relevant length. This document offers advice on how to use the Building Hub contracts. It is a guide only, you should always read and familiarise yourself with the contract and not rely solely on this document. If you are in any doubt, you should seek legal advice. If you do not have a current lawyer we suggest calling Rainey Collins (partners of The Building Hub) on Disclaimer: This document does not constitute legal advice on building contracts generally. This document is intended to be used for information purposes only, to enable readers to understand key concepts and changes to requirements for building contracts and to enable financial members of The Building Hub to properly use its contracts. If in any doubt we suggest you seek legal advice. Building Hub Ltd 2015

2 Why have a contract? If the building work you are undertaking will cost $30,000 or more, it is mandatory to have a building contract. If you do not have a contract in place and the building work is worth more than $30,000, the Act sets out the terms of your contract. The terms set out by the Act are more advantageous to the client than the terms under our contracts (which are more advantageous to the builder). The terms set out by the Act include the following: The building contractor is responsible for obtaining the building consent and other approvals on behalf of the client. The building contractor is required to supply a CCC before submitting the final payment claim. Payment claims are submitting monthly and payment is 20 days following. The building contractor is responsible and liable for all sub-contractors. If these terms are not acceptable to you, you must have a contract clearly stating that this is the case. We suggest having a building contract for ALL building work even if the building work is going to cost less than $30,000. The terms in The Building Hub contracts include the following: The owner is responsible for obtaining consents unless the building contractor agrees in writing to do so on their behalf and at a fee. Payment is independent of the application for the CCC. You can elect to require payment by payment claim or on completion of the building work. If you select payment by payment claim, claims will be made in accordance with the details set out in the completed contract and are to be paid 5 working days from receipt by the client. Contracts are important for clearly defining who is responsible for what, when things are going to happen, how things are going to happen, and at what cost. Contracts also explain what is to happen when there is a dispute between the builder and the client. According to a BRANZ survey, three quarters of new builds had callbacks due to defects, and one in six had disputes over the final cost. When you include renovations, the disputes climb to one in every four builds. This alone should be a driving factor for building contractors to use Building Hub contracts for everything.

3 Using the contracts Before you use the contracts there are a few things you need to be aware of. We have split these points under three headings: before beginning the building work; during the building work; and on completion of the building work. Before beginning the building work: You need to send two signed copies of the building contract to the client with certain information completed. The information that you need to have completed includes the following: o All of the information required in the Prescribed Information Schedule. o All of the specific terms and conditions of the contract that can be completed by you, including: identifying whether the contract is a fixed price contract or is to be invoiced on an hourly rate basis; whether payment is to be on completion or by payment claim; and if payment is by payment claim, details of how payment claims will be calculated and made. The description of the building work attached as a schedule to the agreement, including: o a brief description of the building work; o attach any plans and/or specifications for the building work; and o the materials and products to be used in the building work. The details of the key contact person. If you knowingly make a false or misleading statement, or deliberately omit any material information, you can be fined up to $20,000. During the building work: You need to ensure that you keep a copy of the contract at the building site at all times. You also need to ensure that you comply with the building contract, including:

4 o Notifying the owner if the key contact person changes. o If payment is by payment claim, issuing payment claims in accordance with the contract. o Keeping the building site clean and tidy and regularly removing rubbish and surplus materials. o Recording any variation to the contract in writing, signed by both parties. o Giving the owner 10 working days notice of the date on which you anticipate practical completion will be achieved. o On or before the date on which you anticipate practical completion will be achieved, meeting with the owner on site to inspect the building work. On completion of the building work: You need to: o Sign the certificate of practical completion (if the owner agrees) or otherwise obtain a certificate from an independent registered architect certifying that practical completion has been achieved. o Provide the owner a copy of every policy of insurance that you hold in relation to the building work and that is current on completion. o Provide the owner a copy of any guarantees or warranties that apply to materials or service that comprise the building work including certain information as set out in the contract. o Provide the owner information about the processes and materials that must be used to maintain elements of the building work as set out in the contract. o Remove all rubbish and surplus materials from the site and ensure that the site is clean and tidy. o Be aware that there is a defect and fault period of 12 months following the date of practical completion where the owner may give you written notice of such defects or faults and which you must make good within 30 working days from the receipt of such notice. If you do not remedy such defects or faults within the time allowed, the owner may employ other tradesmen to remedy those defects and you will be liable for those costs.

5 Invoicing the client during the job If you are going to be invoicing the client during the job, you need to understand how to use Payment Claims and Payment Schedules. A Payment Claim is essentially the invoice. We have a Payment Claim form that you can use which is accessible via the Building Hub resources. The contracts provide for Payment Claims to be determined either on a percentage basis or by work completed to the date of the Payment Claim. You need to identify in the Specific Terms of Contract how you intend to determine payment claims. If you do not select an option, the Contract provides a default position that Payment Claims will be determined based on work completed to the date of the Payment Claim. You need to identify in the Specific Terms of Contract how many Payment Claims you expect to make. For example, if you expect the building work to begin on 1 February and be completed by 1 June and you intended to submit a Payment Claim on the first of each month, you would note in the specific terms of contract that you expected to make 4 Payment Claims. The Payment Claim forms give you space to describe the work you are claiming payment for as well as any variations which have been agreed to and recorded in writing. When you submit a Payment Claim to a client, you need to also provide a blank Payment Schedule for the client to complete and submit to you if they dispute the payment claim. If a client asks for an explanation of Payment Claims, you could say something likes this As this is a reasonable sized job, you will need to make progress payments as we move through the job. This is done by us providing you with, and you paying, payment claims on a regular basis. A payment claims is basically an invoice which describes what we are claiming for at that time. If you disagree with, or dispute, a payment claim, you can respond with a payment schedule (which we will supply to you along with each payment claim). When submitting a payment schedule, you need to state what it is you are not happy with, what portion of the payment claim you agree to pay and when, and how you calculated the difference between what was claimed and what you are proposing to pay. If you are satisfied with the work claimed by the payment claim, all you need to do is pay the claim by the due date.

6 How to handle a dispute If there is a dispute between you and the owner, try to resolve it as quickly as possible by agreement following good faith discussions. If this doesn t work, the contract sets out a dispute resolution process as follows: The party who has dispute must raise that dispute by giving the other party written notice specifying the details of the dispute The parties must then, within 5 working days or any other time that the parties agree on, use their best efforts to resolve that dispute through good faith negotiations. If negotiations do not resolve the dispute, either party is able to refer the dispute to mediation by a mediator agreed between the parties or appointed by the President of the New Zealand Law Society. A specialist mediation service is provided by the Building Disputes Tribunal. If the dispute is not able to be resolved through mediation, either party is able to refer the dispute to be adjudicated under the Construction Contracts Act At any time, the parties can apply to the Courts for urgent interlocutory relief. Each party must bear their own costs incurred resolving in any dispute.