PRM SEM 01 - 09. Concrete Law

Question 1

What is a Contract?

Answer 1

A contract is an agreement between parties for an item, service or act. It is legally binding and can be enforced by the court system. Contracts can be oral (and most are, such as buying something in a shop) but written contracts are preferable for clarity and as evidence of obligation.

Some contracts must be in writing such as real estate; the sale of land and houses in NZ.

Contracts can be implied (eg when you go to the dentist, you accept you are going to have to pay). Even a written contract can have implied terms and conditions that aren’t written.

Question 2

Key Contract Components:

Answer 2

The three key components of a contract are:
Offer (by one party), acceptance (by the other) and consideration (a price, generally money
but could be goods or services. It doesn’t have to be adequate).

In addition there must be an intention to contract, to be legally bound (rather than an accident),
however if you sign a written contract without reading it, you are generally still bound by it (eg
parking in a carpark).

Question 3

Capacity to Contract

Answer 3

You must also have the capacity to contract: being sober, over a certain age and of sound mind
(not suffering dementia, psychiatric problems etc). You can not contract someone else (eg if the
architect signs a Building, Consent application, they are liable for the Council fees, not the
client). In Practice Management (semester 2) we will discuss the architects role as agent.

Question 4

Illegal or Forcible Contracts

Answer 4

Contracts can’t be illegal, can’t be based on misrepresentation, and can’t be agreed under duress or undue influence. These are said to be unenforceable, voidable or void, depending on situation.

Question 5

Mistake in Contract

Answer 5

However if a mistake exists in a contract (eg contractor got his maths wrong) it is still valid. But it is likely the contractor will opt to break the contract as the penalty might be less than his loss otherwise. The CMA 1977 (see below) deals with this.

Question 6

Contract Generally Exists

Answer 6

Remember, in construction, a contract generally exists, whether there is an actual written contract or not. And so our relationships, goods, services and payments are subject to construction law.

Question 7

Contracts on a Typical Architecture Project : Architects and Clients

Answer 7

On a project the architect has a contract with the client and either or both of us will contract consultants. In most building projects a contract exists between owner/client and builder that the architect facilitates. This means we mediate it, we discourage the client and builder from communicating direct to each other.

Question 8

Contracts on a Typical Architecture Project : Contractor and Tradespeople

Answer 8

Builders in turn have several contracts with tradespeople such as carpenters, joiners, plumbers, electricians etc. Hence the very common names contractor for builder and subcontractor for tradesmen.

Question 9

Contracts on a Typical Architecture Project : Responsibility of Relationship

Answer 9

Architects are responsible for the relationship between the owner/client and builder.

But not for the relationship between the builder (contractor) and their tradespeople
(subcontractors). We try not to get involved in their affairs or disputes. We deal with the
contractor only. On building sites it is good practice only to communicate with subbies
when the contractor is present.

Question 10

Draw Contract Diagram

Question 11

Term: Agreement

Answer 11

An agreement that you sign up for is generally just a friendly name for a contract (eg a
phone service).

Question 12

Term: Contractor and Contractee

Answer 12

The party who performs the service or supplies the goods is the contractor, the one who
accepts is the contractee.

Question 13

“Invitation to Treat”

Answer 13

In a shop, the display of priced goods is “an invitation to treat”, not an offer.

When you take the item to the counter you are making the offer and the shopkeeper may accept it or not.

Likewise, when architects ask builders to quote or tender, that is an “an invitation to treat”, not an offer. The quote is the offer.

Question 14

Counter Offer

Answer 14

If the price changes that becomes a counter-offer (a term often heard in real estate
sales).

Question 15

Offer Communication

Answer 15

The acceptance of the offer or counter offer must be communicated, made known to the
offerer.

Question 16

Offer Withdrawal

Answer 16

Offers can be withdrawn after acceptance but prior to communication of acceptance.

Question 17

Offer Expiration

Answer 17

Offers can have a time limit on them and expire at a nominated date. The standard for
quotes is 30 days.

Question 18

Quotes for Goods and Services

Answer 18

Sometimes when sourcing goods or services (eg a chandelier) the architect gets the supplier to provide a quote.

Often the supplier asks you to sign the quote and return it so they can confirm and process the order (eg ship the chandelier in from Europe).

Be careful because this can constitute acceptance, thus forming a contract that you become liable for paying.

Pass it on to the client to sign or better still instruct the builder to accept it, thus wrapping it in to the main contract (they will add on their mark-up (profit and overheads) but become responsible for payment, preparation, coordination, delivery, handling, storage, protection, insurance etc).

Question 19

How Contracts can Finish

Answer 19

Contracts can be terminated by the bankruptcy, liquidation or death of a party, by the
agreement of both parties, by completion and by frustration.

If the contract is terminated by completion it is discharged.

The contract is frustrated when an “act of God” or event beyond the contractors control
happens (eg flood, landslip) that makes completion unreasonably difficult.

Question 20

Expert Advice

Answer 20

A little knowledge is a dangerous thing. The field of contract law is much more
complex than an overview allows and when issues arise the architect should seek expert
advice from the Institute, a lawyer or a consultant.

Question 21

Contract Diagram

Answer 21

LOOK AT NTOION AND PRINT TO PUT ON WALL

Question 22

Contract Failure

Answer 22

When one party fails in its obligations this is breach of contract.

However that party generally has a right to remedy, they must be given the opportunity to set things right.

Repudiation of a contract is when one party refuses to carry out a contractual obligation.

When one party threatens to break the contract a court can issue an injunction preventing the act.

Breach of contract can be remedied by the award of damages, generally money. There are various kinds of damages eg exemplary (to make an example of, in order to deter others), punitive (to punish), nominal (insignificant, in name only).

Only rarely do courts order specific performance (where a party is ordered to carry on performing the service) due to the break down of relationships and fears about the quality of service or performance.

In construction, damages are generally liquidated damages, generally estimated in advance and agreed on in the terms of the contract (eg $500 a day for every day past the agreed date of completion). This doesn’t involve any court action.

Question 23

Dispute Resolution:

Answer 23

To resolve disputes parties can go to mediation, arbitration or adjudication. This is also the case if the builder was employed without any written contract.

In certain circumstances there are other options eg Disputes Tribunal (for a small sum under $7500 - $12,000), Weathertight Homes Resolution Service (for a leaky house, generally discovered after construction has finished), a MasterBuilders or Certified Builders complaints service, or in the future a Building Practitioners Board (under the new Licensed Building Practitioner regime - to be discussed in semester 2).

Question 24

Term: Negotiation

Answer 24

Negotiation is discussion, often individually or together to try and sort out the problem. Its usually best done when people have calmed down!

Question 25

Term: Mediation

Answer 25

Mediation involves two parties negotiating a solution with the help of a mediator and is the most common dispute resolution process. It’s cheap, simple and quick but relies on a consensus or mutual agreement.
AMINZ (Arbitrators and Mediators Institute of NZ) can provide professional help.

Question 26

Term: Arbitration

Answer 26

Arbitration involves an independent and impartial arbitrator making a decision. Generally both parties need to agree to go to arbitration. This is still relatively cheap and simple.

Question 27

Term: Adjudication

Answer 27

Adjudication loosely means a process similar to arbitration except only one party can turn up at the hearing. Even if the other party doesn’t attend they are still bound by the decision (eg Disputes Tribunal).

Adjudication under the CCA 2002 (see below) has a separate and distinct meaning.

Question 28

Term: Appeals

Answer 28

Appeals: Sometimes going down one of these resolution routes will close off the possibility of action in other routes eg mediation is final once the parties sign an agreement. However for arbitration and adjudication, generally a party can appeal the decision to a higher court.

NZ Courts: The District Court is generally for criminal cases but will deal with civil cases up to $200,000.

The High Court handles most civil litigation.

Litigation: If the parties end up in civil court, this is generally the High Court (which is very expensive due to the cost of lawyers, consultants, reports etc). Generally one is seeking compensatory damages (actual compensation for losses incurred) and costs (of the action eg lawyers and consultants fees).

NZ Courts: Generally, a decision of the High Court can be appealed to the Court of Appeal and in turn to the Supreme Court. This is very expensive and time consuming.

Question 29

Construction Contracts

Answer 29

It is now compulsary to have a written contract for construction costing over $30,000.

In construction architects generally use construction contracts prepared by the NZIA (NZ Institute of Architects).

However other contracts are available (produced by other professional bodies including MasterBuilders, Certified Builders and the Standards Association for example).

Some large building firms refuse to use the NZIA contract because they feel it favours architects.

You can even write your own contract, however this is not recommended.

When using an unfamiliar contract, the architect should have it reviewed by a lawyer or consultant with expertise in the architectural field.

When using the NZIA contract and issues arise, the architect should seek expert advice from the Institute or a consultant.

In some cases parties can “contract out” of the law, that is agree not to be bound by it.

Question 30

Contractual Remedies Act 1979

Answer 30

This important act formalised a lot of contract law in NZ. It aims to “provide remedies for misrepresentation and breach of contract” and the cancellation of contracts.

However parties can contract out of this Act eg agree on their own remedies in their own contract.

Read this Act

replaced now

Question 31

Contractual Mistakes Act 1977

Answer 31

This Act allows a party that has made a significant and genuine mistake to seek relief from the courts, particularly if misrepresentation has been an issue.

The court has wide powers to vary the contract but only if there is likely to be serious disadvantage.

It is not a “get out of jail free” card for most mistakes and is not widely used.

Question 32

Construction Contracts Act 2002

Answer 32

Remember the difference between contractors and subcontractors:

In most building projects a contract exists between owner/client and builder that the architect facilitates.

Builders (contractors) in turn have several contracts with tradespeople such as carpenters, joiners, plumbers, electricians etc. These are subcontractors.

Architects are responsible for the relationship between the owner/client and builder.

But not for the relationship between the builder (contractor) and their tradespeople (subcontractors).

We try not to get involved in their affairs or disputes. We deal with the contractor only.

On building sites it is good practice only to communicate with subbies when the contractor is present.

In construction, contractors and subcontractors (subbies) don’t just get paid at the end of the job;

Because of high costs and the length of time, they deserve regular payments for work done or materials supplied to date.

These are “progress payments”. They are usually monthly but can be by stage of work.

This law aims to “facilitate regular payments between parties”, “the speedy resolution of disputes” and “provide remedies for the recovery of payments”.

It is mainly aimed at the relationship between contractors and sub-contractors.

No one can “contract out” of this Act, meaning no contracts may breach this law.

It establishes regulations reflected in all construction contracts, oral or written).

An important aspect is that conditional payments are illegal, such as “I will pay you when I’m paid”.

Contractors/subcontractors also have the right to suspend work if they don’t receive a progress payment.

However parts of the Act don’t apply to residential construction, see sections 10 and 15-18 of the Act, on default progress payments when there is no written contract.

If the job is commercial (including speculative houses) and there is no contract the Act allows for default progress payments if none have been allowed.

The act also establishes a quick, easy and cheap adjudication system that is enforceable in the District Court if disputes arise over payments.

Question 33

Construction Contracts Amendment Act 2015

Answer 33

This amendment deals with improving processes around payments and disputes and making them the same for both commercial and residential contracts.

It also included design, engineering and quantity surveying work.

It also specified retentions (see later lecture) in commercial work have to be held in trust.

It also specifies a notice of rights and obligations that must be included in payment claims.

Question 34

Consumer Guarantees Act 1993

Answer 34

It’s very common when buying goods (eg mobile phone) to be told they have a one year warranty and the retailer advises you to buy an “extended warranty”. You don’t need to do this. The Consumer Guarantees Act protects you. Tribunal and court decisions have established that a mobile phone should last about 3 years, a fridge about 10.

Question 35

Fair Trading Act 1986

Answer 35

This Act aims to protect the consumer from misleading and deceptive conduct, particularly in relation to prices and advertising. It allows for the disclosure of information relating to the real costs of goods and services that a party may sign up for.

Examples of this are cheap offers where the true costs are hidden eg magazine subscriptions or air fares that don’t include full service, gst, airport taxes etc

Question 36

Contract Law: Remember!

Answer 36

Remember the field of contract law is much more complex than an overview allows and when issues arise the architect should seek expert advice from the Institute, a lawyer or a consultant.