This is the final article in a three-part series focussing on risk allocation in the New Zealand construction industry. You can read the full series of articles here.
The article was authored by Bell Gully partner Ian Becke alongside Glen Heath (CEO and General Counsel, Mansons TCLM), David Jewell (owner/director of BondCM), Craig Wheatley (Head of Legal, HEB Construction) and Krista Payne (Partner, Ashurst) in the lead up to a panel discussion on 10 October 2019.
first article of this series, we examined the concept of fair risk allocation in construction contracts. Aided by the views of our panellists, we concluded that the theory that risk should be 'allocated to the party best placed to bear it' does not automatically create fair risk allocation in practice. To achieve objectively fair risk allocation, it is necessary to move beyond a blanket application of the Abrahamson principles, and to look at risk allocation project by project in a realistic, transparent and informed way.
second article we tested whether the poor performance of the industry has primarily resulted from a collective failure to fairly allocate risk, or whether other factors are also culpable to a greater or lesser degree. Our panellists' collective view was that risk allocation, and specifically the drivers dictating certain types of risk allocation, contributed significantly to the poor state of the market but other factors still played a major part. These other factors included poor pricing practices, low levels of industry equity, constrained resources and the overall structure of the industry – which is geared towards surviving bear markets, rather than excelling in bull markets.
In this third article, we assess a number of options and initiatives for mitigating and allocating risks – both at an industry level and at a project-specific level – to look at where efforts for reform and improvement might best be directed.
In doing so, we asked our panellists a series of short-answer questions to uncover shared viewpoints on these options and initiatives. Many of these questions lend themselves to a 'yes/no' response, and panellists could choose from suggested options or provide their own response. Their answers and comments, and Bell Gully's own views, are set out here and in the document below.
The topics discussed include:
Construction Sector Accord
A certification scheme to set minimum finance, governance and skill standards
‘Alternative’ contracting models
The suitability of NZS3910:2013 as an industry standard
Other standard form contracts (such as FIDIC or NEC4)
Problematic special conditions of contract
Understanding the contract
Disclosure of risk allocation
Consultant limits of liability
Responsibility for buildability
Liability for buildability
Once again, we thank Craig Wheatley, head of legal at HEB Construction, Glen Heath, CEO and general counsel at Mansons TCLM, David Jewell, director and owner of Bond CM and Krista Payne, partner at Ashurst, Sydney, for sharing their views.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.