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Adjudicators key to solving disputes

Despite all building work being subject to the Construction Contracts Act 2002, there is still little knowledge of its existence and importance in the construction industry and to the public, says Dr Kelvin Walls (pictured), president of the Adjudicators’ Association of New Zealand Incorporated (AANZ).

Walls is also owner of building consultancy, Building Code Consultants Ltd in Newmarket.

Formed in January, the professional association for adjudicators arose from the introduction of the Act in April 2003. There are 17 members.

“Not many people know about it, in or out of the building industry, it seems,” Walls says.

It’s nothing to do with the Weathertight Homes Resolution Service Act 2002, for example.

“People are not making the most of the situation,” says Walls.

“They are losing out on an advantage they could have. Compared to old disputes resolution processes (eg, mediation or going to court) this adjudication resolves many disputes more quickly.”

In almost three years about 50-100 disputes have been adjudicated nationwide under the Act, he estimates.

“It will increase as more people become more familiar with the Act.”

Another problem with increasing understanding is adjudications are private and confidential unless they are appealed in court.

The Act provides for payment disputes in the building industry to be determined by an independent, but trained, person called an adjudicator who “comes to a judgment”.

The AANZ liaises closely with the Building Research Association of New Zealand and aims to develop this new profession in such areas as educating the public, mentoring and monitoring professional development of adjudicators.

Suitably qualified adjudicators are encouraged to apply for membership.

Walls points out all construction contracts are subject to the Act and cannot be contracted out.

The meaning of “construction work” is wide, and includes maintenance work, building work — from having a bath installed to constructing a factory — and covers any utility such as a road or pipeline. There are few exemptions.

The Act is designed to redress payment problems existing in the building sector.

Under the Act, if a legitimately claimed payment is not made or another dispute relative to a construction contract arises, any party in the dispute can invoke adjudication. 

All parties pay the adjudicator’s fee, with the person causing the payment dispute or acting vexatiously likely to be considered more blameworthy.

Furthermore the Act provides remedies and allows for those remedies to be enforced by the courts.

Another feature of this Act is the ability of the dispute resolution process (adjudication) to run alongside other dispute resolution processes such as arbitration and litigation.

“There is such a lot the public needs to be aware of,” Wall says.

For example, written documents with reasons for who pays what must be produced if there is a dispute.

And there are lots of forms, such as the payment claim, which a contractor can present for instant payment and can be enforced through the District Court; and the payment schedule, which a homeowner or client can issue to set out payments, in the event of them disagreeing with the claimed amount.

But the forms are complex and have not been officially produced. They are available in A Guide to the Construction Contracts Act by Geoff Bayley and Tomas Kennedy-Grant.

“Most lay people would be best to engage an adjudicator consultant when faced with the need to supply a payment schedule, as the requirements [on the form] are detailed and onerous,” Walls says.

For example, in a residential construction contract a payee must supply to the payer an explanation of the consequences of not responding to a payment claim or not paying the claimed amount.

The background to the Act is (since 1987 when the Wages Protection and Contractors’ Liens Act 1939 was repealed) a head contractor or developer who intentionally or otherwise did not pay for contracted work could leave tradespersons without reward for their efforts. 

A typical scenario might be the sub contractor would present an invoice to a head contractor for work done, only to be told, “I pay you when they pay me”, or worse, “if they pay me.” 

Sub-contractors, nevertheless, had to continue to provide their labour and materials in case they were sued for failure to complete their contract to supply those services.

Getting paid might have involved court action and the disruption to cashflow could have brought the company down, despite the success of its operations.

Consequently, the situation (existing prior to the Act) might have arisen that sub contractors were obliged by contracts they had signed to keep on working without pay for a contractor who may have gone into liquidation.

When this happened to Hartner Construction while building on the Auckland waterfront, 1100 sub contractors who were owed more than $30 million had to walk away unpaid.

That collapse, though the largest, was one of five major construction company collapses which left numerous contractors further down the payment chain unpaid. 

Under the new Act such iniquitous conditions are largely prevented, says Walls.

The Act provides for progress payments to be made on a pre-determined basis determined by the sub contactor and the head contractor or any two parties who enter into a contractual relationship in the building sector. 

In the event a timeline for progress payments is not created in the contract, the Act provides for a default position whereby payment claims (the period and amount for which an invoice is to be presented) are to be for each calendar month with the payment to be provided within the subsequent 20 days.