PROPERTY & CONSTRUCTION LAW

LECTURE 20

PROPERTY & CONSTRUCTION LAW

Aim

To equip students to be able to:

• 1. Explain the nature of the Construction Contracts Act / Tendering.

• 2. Explain the issues with tendering in construction.

RESOURCES

Refer to library copies or search online

• “Understanding Commercial Law”, Lawrence, M. & Gerbic, P., LexisNexis NZ Ltd, 6th Edition, 2006 or 7th Edition, 2007.

• “Construction Law in NZ”, Kennedy-Grant, T., LexisNexis NZ Ltd, 2003.

• NZS 3910:2003, Conditions of Contract for Building and Civil Engineering Construction.

What is the purpose of the Contracts Construction Act?

The purpose of this Act is to reform the law relating to construction contracts and, in particular,—

• (a) to facilitate regular and timely payments between the parties to a construction contract; and

• (b) to provide for the speedy resolution of disputes arising under a construction contract; and

• (c) to provide for the speedy resolution of disputes arising under a construction contract

How does the CCA achieve its purpose?

• (a) preliminary matters (for example, the interpretation and application of the Act) are set out in sections 5 to 12:

• (b) provisions invalidating any contractual clause that makes payment to any party to a construction contract conditional on the payer first receiving payment from someone else are set out in section 13:

• (c) provisions confirming that parties are free to agree on a mechanism for determining progress payments are set out in section 14:

• (d) default provisions granting an entitlement to progress payments, and setting out a statutory mechanism for determining the amount of, and the due date for, those payments, in circumstances where the relevant construction contract is silent on any of those matters are set out in sections 15 to 18:

How does the CCA achieve its purpose?

• (e) provisions establishing a procedure that allows a party to a construction contract to recover a progress payment by making a payment claim, and the party who is liable for that payment to respond by means of a payment schedule, are set out in sections 19 to 24:

• (f) provisions relating to the adjudication of disputes are set out in sections 25 to 71:

• (g) provisions granting a party to a construction contract who is owed money under the contract a statutory right to suspend the carrying out of construction work until payment is made are set out in section 72:

• (h) provisions enabling an adjudicator's determination to be enforced by entry as a judgment on application to a District Court are set out in sections 73 to 78:

• (i) miscellaneous matters (for example, the method of service of notices) are set out in sections 79 to 8

9 types of documents that may be found in a construction contract.

• The agreement.

• General conditions of contract.

• Special conditions of contract.

• Drawings.

• Specifications.

• Schedules of quantities or prices.

• Tender documents.

• Tender.

• Post-tender correspondence.

Also refer to NZS 3910: 2003, P86

What do the tender documents usually comprise?

Tender documents comprise:

• The documents intended to form the basis of the contract.

• The conditions of tender.

• Notices to tenderers.

• Post-tender correspondence.

The employer’s two general obligations

The employer’s general obligations are:

• To pay the agreed price in the agreed manner.

• To cooperate with the contractor.

Devonport Borough Council v Robbins

The employer’s implied obligations

A) The employer will cooperate with the contractor to enable the performance by the latter of its contractual duties and the exercise by the latter of its contractual rights.

B) The employer will not hinder nor prevent the contractor’s performance of the contract.

Employer’s Common Law Specific Duties

• Possession of the construction site within a reasonable time of signing the contract.

• To provide access to the site throughout the period of the contract .

• To obtain permits which it is within the power of the employer to obtain, and which the contractor has not expressly agreed to obtain, in sufficient time to avoid delay to the contractor.

• To supply materials or do work at the proper time which the employer has expressly agreed to do either personally or by other contractors.

Perini Corporation v Commonwealth of Australia

Standard conditions of Contract Employer’s Duties

The standard conditions of contract impose specific duties of cooperation.

• To define the site by survey.

• To give the contractor possession of the site.

• To arrange access to adjacent properties if necessary for the performance of the contract.

• To obtain necessary licences, approvals, etc.

• To secure the cooperation of separate contractors working on the site.

• To secure that nominated sub-contractors and suppliers enter into contracts which contain specified terms.

Standard conditions of Contract Employer’s Duties

• To nominate a new sub-contractor in specified circumstances.

• To make original and replacement appointments of the employer’s professional representative.

• To ensure delivery of drawings or other information and the supply of materials and execution of work the responsibility of the employer at the stipulated time.

• To arrange for the searching of records to determine the existence and positions of underground and above ground utilities.

• To insure in certain cases.

The Contractor’s General Obligations

The contractor’s general obligations are:

• To carry out and complete the contracts works to the agreed standard.

• To complete the contract within the agreed time in return for payment of the agreed price.

Standard conditions of Contract Contractor’s Duties

• To not assign or sub-contract except as expressly provide for.

• To appoint a contractor’s representative.

• To afford reasonable facilities for separate contractors.

• To provide for the security and safety of the site.

• To take all reasonable steps to avoid nuisance and prevent damage to property.

• To provide a programme if required to in terms of the contract.

• To advise the engineer of the likelihood of delay.

• To comply with all laws, regulations, bylaws, and permit conditions.

Standard conditions of Contract Contractor’s Duties

• To cooperate with the engineer in inspections and to comply with directions issued by the engineer consequent on inspection.

• To arrange specified insurances.

• Not to vary the works without the authority of the engineer and to cooperate with the engineer in relation to the definition and pricing of variations.

• To give notice of the occurrence of unforeseen physical conditions.

• To proceed with due diligence.

• To give notice of circumstances giving rise to a claim for extension of time.

• To make claims for interim and final payments in proper form.

• To continue work notwithstanding referral of disputes to arbitration or other contractually agreed dispute procedure.

REMEDIES FOR BREACH OF OBLIGATIONS

If the Contractor does not honour its obligations:

• The Principal may claim for damages and/or end the contract.

• The Principal will be entitled to cancel the contract where the Contractor’s delay amounts to repudiation, or otherwise gives rise to a right to cancel under the Contractual Remedies Act 1979. S 7(3).

• In the absence of conduct justifying cancellation under the Contractual Remedies Act 1979, the Principal’s only remedy is likely to be in damages.

• That remedy may be lost if the contract contains a liquidated damages clause and the agreement between the parties is that that shall be the

sole remedy for the breach. CLNZ, 10.30, P 375.

DUTY OF CARE BY CONTRACTOR

In any circumstances in which the Principal relies upon the Contractor for information, the latter will owe a duty of care to the Principal unless the terms of the contract between them are such as to exclude such a duty. CLNZ 20.13 P 530.

• Eg. The Contractor is required to provide a firm price if work has commenced on site, where the Principal engages the Contractor on the basis of an estimate which is to be converted into a firm price as soon as the Contractor is able to do so.

• The Contractor is required to notify the Principal immediately of any factors which are likely to take the price substantially beyond the estimate.

J & JC Abrams Ltd v Ancliffe [1978] NZLR 420.

The High Court held that where a Principal engages a Contractor on the basis of an estimate which is to be converted into a firm price as soon as the Contractor is able to do so, the Contractor owes a duty of care to the Principal to notify him or her immediately of any factors which are likely to take the price substantially beyond the estimate.

The Contractor’s General Obligations in relation to tendering

The contractor’s obligations are imposed :

A) by statute.

• The Contractual Remedies Act 1979

• The Fair Trading Act 1986

Eg. for loss caused to the employer as a result of the latter’s entering into the contract in reliance on inaccurate statements by the contractor .

Eg. For inaccurate statements as to the cost of the job where the price is not fixed by the contract.

The Contractor’s General Obligations in relation to tendering

B) Standard conditions:

• Inspection of the site.

• Completeness of price.

Refer to:

• NZIA SCC 1 Conditions of tender.

• NZS 3910:2003 Conditions of tender, p100.

Tenders

The invitation to tender is no more than an invitation to treat, which will not give rise to a contract.

• An invitation to treat is not an offer.

• Once an invitation to treat is accepted by the contractor wanting to tender, it becomes an offer.

• The tender is an offer to do something.

Tendering

The construction contract is the result of the acceptance by the employer of an offer by the contractor in the form of a tender.

There is offer and acceptance, one of the 6 elements when forming a contract.

TIME OF FORMATION OF CONTRACT

A construction contract will be formed between the Principal and the lowest tenderer at the stage of the submission of tenders if the invitation to tender contains an express offer to accept the lowest tender.

• In the absence of such an offer, a construction contract will not be formed between the Principal and the tenderer at the stage of submission of tenders.

• The contract will only be formed on acceptance of the tender by the tenderer which made an offer which was accepted by the Principal.

• The time of formation is the time of acceptance.

2 common classes of tender in the construction industry

1. An offer (tender) to carry out work or supply labour or material for a project whereby a single contract is made.

2. A standing offer (tender) where goods or services are offered for supply as and when required whereby multiple contracts are made.

How ambiguity or unclear documents are dealt with in the tender process.

1. As tender documents can be ambiguous or unclear, Standard Conditions of Contract frequently include standard conditions of tendering which deal with this problem.

Eg. Where the tender documents are unclear the tenderer may request the issue of an explanatory notice (“Notice to Tenderers”) which becomes part of the tender documents and is sent to all

tenderers. Refer to NZS 3910, 2003, s104.1, p100.

How ambiguity or unclear documents are dealt with in the tender process.

Eg. In the absence of an explanatory notice, tenders may be submitted subject to a reasonable interpretation of any ambiguity or uncertainty in the tender documents, which must be endorsed on the tender.

NZS 3910:2003, S 104.2, P100

How ambiguity or unclear documents are dealt with in the tender process.

Eg. Tenders must be based on the tender documents.

Tenders will be interpreted as relating to the Tender Documents unless clearly endorsed otherwise.

Tenders submitted subject to endorsement will be considered in light of the endorsement. CLNZ, 7.04,P 314.

Why the lowest or any tender may not be accepted

Traditionally, an employer is not obliged to accept the lowest or any tender, and often put words to that effect in the tender documents.

Refer to NZIA A7 Clause A.10.

The tender is considered to be an offer so there is no contract unless it is accepted by the employer.

Traditional View of lowest tender

The traditional view was that, except where the invitation to tender contained an express offer to accept the lowest tender, an invitation to tender was no more than an invitation to treat and could not give rise to a contract.

The contract, if formed, was the result of the acceptance by the employer of an offer by the contractor in the form of a tender.

Traditional view Qualified

• On this view, T Kennedy-Grant states that: “the clause, common in invitations to tender, that the employer does not undertake to accept the lowest or any tender, is probably unnecessary.” (Construction Law in NZ, p 310)

• However, it is wise to include such a clause to protect your options.

Traditional view Qualified

Kennedy-Grant qualifies the traditional view in light of recent case law.

The current position is:

a) A construction contract will be formed between the employer and the lowest tenderer at the stage of the submission of tenders if the invitation to tender contains an express offer to accept the lowest tender.

Traditional view Qualified

b) In the absence of such an offer, a construction contract will not be formed between the employer and the tenderer at the stage of submission of tenders.

c) However, the terms of the invitation to tender may be such as to give rise at the stage of the submission of tenders to separate but identical preliminary contracts between the employer and the various tenders relating to conduct of the tendering process.

Traditional view Qualified

In certain circumstances a preliminary contract may be formed when a tenderer submits a tender in response to an invitation to tender.

d) The terms of the preliminary contract will depend entirely on the terms of the invitation to tender.

e) Irrespective of whether or not there are detailed provisions governing the conduct of the tendering process contained in such a preliminary contract, there may be a contractual duty (imposed in the same way) on an employer inviting and receiving tenders to proceed in a manner which is fair to tenderers.

Traditional view Qualified

Gregory v Rangitikei District Council

Gregory ‘s argument that a preliminary contract to sell to the highest bidder had been created was rejected by the Court, because of the inclusion in the invitation to tender of the qualifying phrase “highest or any tender not necessarily accepted”.

But the Court held that there was a contractual obligation on Council to consider Gregory’s tender.

Traditional view Qualified

Pratt Contractors Ltd v Palmerston City Council

The Court held that the Council was in breach of a preliminary contract with Pratt Contractors Ltd which was the lowest qualifying tenderer, when Council entered into a contract with an alternative tenderer, without notice to Pratt Contractors Ltd and the other tenderers.

The right to withdraw a tender

A tender may be withdrawn at any time prior to acceptance of the invitation to tender.

Holman Construction v Delta Timber [1972] NZLR 1082.

Bristol, Cardiff & Swansea Aerated Bread Co v Maggs (1890)

• Sometimes, a tenderer’s right to withdraw its tender may be governed by the terms of the invitation to tender.

• Sometimes, a tenderer may bind itself to keep a tender open for a specified period and can’t withdraw until the specified period is ended.

Holman Construction v Delta Timber [1972]

NZLR 1082.

Delta Timber, a timber merchant, withdrew its tender before acceptance by Holman Construction.

The plaintiff, Holman Construction, was interested in tendering for a building contract and in order to do so, required subcontractors for doing specified work or supplying material.

The defendant, Delta Timber, quoted for the supply of timber. The plaintiff intending to accept the defendant's quote based his own tender thereon and entered into the building contract on 17 September 1970.

On 23 September 1970 the defendant on discovering a mistake in its calculations revoked its offer to supply timber as quoted. The plaintiff had to take the next highest quote for timber at an increase of $3,274.06 and sued the defendant for that sum.

At no time before revocation had the plaintiff accepted the defendant's

offer.

The right to withdraw a tender

It can be withdrawn anytime before acceptance.

It can be withdrawn if the offer was conditional and the condition was not satisfied.

It can be withdrawn if it has been rejected.

It can be withdrawn if a counter-offer is made which contains different terms. A counter offer becomes an offer in its turn.

Where an option agreement exists, and is supported by consideration, the offer contained in it is not irrevocable at will.

The law relating to mistakes in a tender.

The effect of a mistake on a contract is determined by the provisions of the Contractual Mistakes Act 1977.

• Replaces common law and equity.

• The word “mistake” is not defined, but can be a mistake of fact or of law.

• A mistake of interpretation of a document is a mistake of law.

The law relating to mistakes in a tender.

The Courts can provide relief for mistakes that qualify in circumstances prescribed by s 6.

Courts can’t grant relief where:

• The party accepts the risk of a mistake on his or her part.

• Where the mistake is a mistake as to the interpretation of the contract itself.

• Where the party seeking relief becomes aware of the mistake before entering the contract but elects to enter into it, notwithstanding the mistake.

The law relating to mistakes in a tender.

The Principal is not under a duty to warn the Contractor that its tender is too low.

• There may, however, be liability under the Contractual Remedies Act 1979 or the Fair Trading Act 1986.

• If there is an express or implied warranty in the tender documents which makes provision for the risk of mistakes, there is no relief for mistakes under the Contractual Mistakes Act 1977.

March Construction Ltd v Christchurch City Council [1995] 5 NZBLC, 103,878.

In this case, the Contractor claimed unsuccessfully that the Council was guilty of misleading or deceptive conduct by not drawing to the Contractor’s attention error by the Contractor in pricing of the tender which was known to the Council.