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 employers two general

obligations
The employers general obligations are:
To pay the agreed price in the agreed manner.
To cooperate with the contractor.

Devonport Borough Council v Robbins

The employers 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 contractors performance of the contract.

Employers 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

Employers 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

Employers Duties
To nominate a new sub-contractor in specified
circumstances.
To make original and replacement appointments of the
employers 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 Contractors General

Obligations
The contractors 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

Contractors Duties

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

To appoint a contractors 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

Contractors 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
Contractors 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 Principals 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 Contractors General Obligations in

relation to tendering
The contractors 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
latters 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 Contractors 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 Gregorys 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 tenderers 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 cant 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 cant 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 Contractors attention error by
the Contractor in pricing of the tender which
was known to the Council.