Construction Law - With Michael Weatherall
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Chris Patterson 0:00
Hello and welcome to the Law Down Under podcast with Barrister Chris Patterson. We will provide you with insights into the laws of New Zealand and Australia, their application, and the future direction of the law. Each episode features a new guest who will spark your interest in the law and provide a deeper understanding of the legal issues that shape our justice system here in Australia. We thank you for tuning in and enjoy the podcast.
Construction law. Now I am concerned that this episode could be an entire series in itself, so we are focusing on keeping it within a manageable limit, but we've got a lot to talk about on today's episode of the law down under podcast, we are joined by Michael Weatherall, an expert on construction law and dispute resolution. Michael joined Simpson Grayson in 1997. He is a partner and heads the Construction Law Team. Michael has specialist expertise in virtually all areas of construction law. Before joining Simpson Gresson in 1997, he worked for the most prominent construction law firm in the UK. Previously, he worked as a structural engineer and project manager at BECA. He remains a Chartered Professional Engineer. Michael is a past president of the New Zealand Society of Construction Law. As a current member of the standards New Zealand Committee, which drafted nzds 391 Oh, which is the the new standard, we're going to get it, get into this topic, probably in quite a bit a bit of detail, a little bit of a deep dive into what the what the new revised advantages are of it, But the standard conditions of contract for construction in engineering projects. He is also the co-author of Kennedy Grant and Weatherall on Construction Law in New Zealand, which is the country's leading legal practitioner text, but is also, I understand, referred to and relied upon by several construction professionals who aren't necessarily lawyers. We spoke with Michael about various aspects of construction law, including contracts and dispute resolution processes. I hope you'll enjoy this episode with Michael Weatherall. Michael, how are you today? Well, very well. Thank you. Thanks for joining us in the studio. It's an absolute pleasure to have you here. Good to be here. I'm a bit nervous about the scope of what we're trying to tackle here. Partly because I am not that anyone can see this, because they're listeners. Still, I do have in my hand. You can confirm that Kennedy grants a second edition, which you'll refer to as assisting with it, as it has a second edition of Construction Law. And when one looks at the scope I'll adopt from the introduction, along with the other scope of works, it is quite a feat that that book. It's quite a tomb to go through. Please don't say what Michael Webb said a few episodes back, Boy, Chris, that's a pristine-looking copy. There. Have you invited it? I can confirm that
Michael Weatherall 3:04
there are actually, I can see a few wrinkles on the sky. There's even
Chris Patterson 3:07
greasy fingerprints in here. Not that I was working on an automobile when I went through it, but I was. It is a well-used and well-referenced book. But the exciting thing coming up is that you and your team have been busy working on, effectively, the fourth print edition, while at the same time regularly updating the Online Edition. And there's not a small topic, given the scope of of law that has to be covered on it.
Michael Weatherall 3:33
Yeah, it's quite a I guess, with the with the shift online of textbooks, it became a whole lot more work, in many ways, to be a be an author. You know, once upon a time was every 10 years there was a new addition. You didn't need to do much in between. But I think in terms of the, you know, the the audience and the users of the textbook, having that online edition, which is updated regularly, we aim for updates at least three times a year, to pick up legislative updates, case law updates and contract updates. The real driver behind the new print edition has actually been probably the last sort of, I guess, straw on the camel spec around needing a new print edition was the updates of the new NTS 391, oh and 2023, which is extensively referred to throughout the book. And so it seemed like a good opportune time for a new print edition as well. With the Online Edition, of course, just being continually updated, we're going
Chris Patterson 4:28
to come back to to the new book, because there's a lot in it covers a lot of topics, but I did want to get a better sense for you know your your journey and your pathway into becoming one of the country's leading experts on construction law. So look, you clearly have juggled, it seems to me, two careers. Can you tell us a bit about that? Yeah,
Michael Weatherall 4:52
it's interesting. Really, my career as a structural engineer was only lasted for a few years, and I think it's one of those things where opportunities. Happened to walk you by, and many times you wouldn't notice, but it was all about going to a pub on a Wednesday night. That's how much planning went into my construction law career. We arrived in London after traveling for a long time, and in the early 1990s 1992 or whatever it was, the construction sector was in really bad shape. In the UK, there were more spawning buildings. And I was a structural engineer, of course, as it happens, you know, I found it difficult to get a structural engineering job when we first arrived. But as it happens, when construction downturns happen, construction litigations upturns. And I had a friend who was working in a construction law firm, and I literally went to the pub on Wednesday night and and she said to me, Oh, we've got an in house engineer at masons, which was the biggest construction law firm in the UK at the time, yeah. And he's resigned. Give me your CV. And I think I biked my CV to her back in the days when there was no email or anything, of course. And a week later, I had a job in the construction litigation team. So that's how much planning went into it. And year and a half or so later, after spending, you know, a year and a half or so with with masons, they managed to cajole into putting me through law school. So had two years full time at law school in the UK, and then worked for them for another year and a half before home beckoned. And then that's when we arrived back in New Zealand In New Zealand in 1997 tell
Chris Patterson 6:23
me, Michael, how did you find from I'd imagine, I don't want to put words in your mouth, but it was, it was it a cultural shock, going from an engineering background to suddenly working with a bunch of lawyers? Yeah,
Michael Weatherall 6:35
there's lots of differences, but a lot of them are probably a bit superficial, in a way. You know, one of the reasons I sort of thought well might be quite good, as you know, I was watching La law at the time, which I think was one of those first programs about glamorous lawyers. And who is it? Who is your favorite?
Chris Patterson 6:53
I can't even remember. They had
Michael Weatherall 6:56
much nicer offices. They wore suits and they, you know, and the engineers were all crammed together. I can plan with drawing boards, and hadn't even seen the side of a computer in those days. And you know, I guess there was that, that sort of outward appearance of it being different. But what I really rapidly found, and I think this is across all legal sectors, it's not just construction law, is that clients don't come to you for a treaty on construction law. They don't want an opinion on what the law says. They simply have a problem that needs to be solved. They've got a company that needs to be sold. In my case, they've got a construction dispute that needs to be resolved, or they've got a construction contract that needs to be written, a procurement process to go through. All they want is the solution, yeah, and I think it'd really helped. Because I think engineers naturally, and I probably am naturally, just, you know, go to the solution and and I'm sort of solution focused, but I think I've observed that, of all good lawyers I've worked with, is that they're not there for the treaty, they're there for the process. They're there for the for those for delivering solutions to their to their clients. And so it's kind of weird, but it's actually very similar. You know, both in both engineering and in law, we're both consultants, whereas we both, you know, generally working on an hourly rate type basis and and we're generally trying to deliver solutions to what the client does. So the problem is, or challenges?
Chris Patterson 8:19
Yeah, well, look, you might have picked up. Last week, the Attorney General, of course, announced the latest silk around. And so there's been some great appointments in there. One of the things that's always perplexed me in terms of, I guess, the state sponsoring, you know, a, you know, so called, you know, higher expertise at the bar is, is that there seems to be this absence of the point that you've actually made, and that is, clients are looking for solutions, and most of those solutions, as far as clients are concerned, Don't involve a courtroom, okay? They they involve getting a problem, ie, a dispute, resolved as efficiently as possible. And our court processes aren't really set up that way. I mean, we'll come back and talk about the construction, contracts, act processes. It's
Michael Weatherall 9:12
fascinating, interesting observation. So, you know, I would say in my observation is that, is that it's very hard to get justice through arbitration or court proceedings. It's too expensive and takes way, way too long.
The in construction, I think we very rarely go to court, and these days, we actually rarely go to arbitration. And again, I think that's because of a real industry driver to make this work, there's always going to be battles and disputes in construction. Construction projects are about building stuff and paying money, and then things don't get built right, or the money's not enough, or someone else thinks it's too much. There are disputes, but you can't go through a two or three year arbitration or court proceeding to figure out what
who's liable for. Foot for a defect, it needs to be fixed quickly, and payments need to be made to keep solvency going. Yeah,
Chris Patterson 10:04
look, we'll come back to dispute resolution and construction, because there's a big topic, and I do really want to, I do really, really want to dive quite deep into that area with you. Let's just talk about construction at a much higher level, maybe let's deconstruct it and build it all up again. A very old friend of mine that I met at law school and back in 1992 he's a partner specializing in property and UAE, but I remember him saying to me, maybe it was 30 years ago. Okay? He said, Chris, if you want to get into an area of law where you'll always be busy in New Zealand, get into construction and and I asked him why, what his thoughts were on that. And he said, well, because New Zealand is still being built, you know. And now these, these are sort of my words, not his. I mean, we were the last, basically, pieces of earth or dirt on the planet that there hadn't undergone significant structural engineering as such, putting aside construction of Maori powers and that aspect of it. So we are a very young nation that is still literally being built. So construction plays quite an important part. I mean, look, maybe, let me do a contrast. I mean, you lived in London, didn't you? Yeah, yeah. I mean, it's possible you could have lived in a house that was 300 years old, gone through a few renovations in that time. But, you know, in New Zealand, anything that's sort of over 50 years is regarded as old, because we just, you know, construction is going on all the time. And, you know, look, while we're going through a cycle at downturn. I mean, there was a point in time where there were more cranes on the Auckland skyline. They were in New York City. That's, you know, how important construction is. I mean, what? Yeah, what's your thoughts of it as an industry and its importance? And, you know, I've been at a wider level, our climate, yes, really
Michael Weatherall 12:14
is fundamental to any sort of growing country, which, you know, we still hopefully, last couple of years have been a bit of a shock to the system, haven't they? But the the I think that the reach of construction law, and the reason it sort of exists in the way it does, is not just related to the to the sort of nature of the of the of the country. It's related to the nature of the industry. And unless you're going to pay somebody on a on a cost plus basis, which does happen. You know, we have Alliance contracts that are being paid in billions of dollars on a cost plus basis, but it's quite rare if you're going to sort of pay somebody on the basis of a of a price you fundamentally need it was going to be successful to enable that person to work out what the cost to them is going to be before you set the price that the client's going to pay for that building. And through all these years and through all the technology that's come through, it really hasn't got much easier for contractors to determine the actual cost of a project in advance. Estimating in the 1960s was probably just as accurate as estimating in the 2020s and you sort of wonder why. But with technology like our contracts, for example, a contract might have been 50 pages long or five pages long 50 years ago. Now we have contracts that are regularly 700 or even 1000s of pages long because technology allows us to that's happened. And in the construction sector as well, you've now got projects that have literally 10s of 1000s of drawings, and so someone has to price those drawings and estimate them before they set a price. And so at every stage of the sort of step forward and a step backwards, and that that essentially at the at the base of all construction is okay. How do we get that the give the contractor the best opportunity to determine the cost. How do we then set the price that principals going to pay? How are we going to locate the risk if they've got it wrong, because they can never get it perfect, and then fighting about it when it when inevitable happens, that the cost that was estimated was not the final cost, and the price may not have been adequate. And so, yeah, I think it's just inherent in the nature of the game, fixing prices for things that can't be fixed as is really the underlying driver. And
Chris Patterson 14:38
are you really saying, Michael, that I think your point, if I'm understanding it correctly, is it's to know it's to no one's advantage to have failures, financial failures in the construction sector, because everyone loses along along the way. It's
Michael Weatherall 14:56
right, and you can allocate risk to a. Contractor and say, I want absolute certainty of contract price as a client. I want to know that I'm only going to pay the number on that piece of page paper. And you can, you can write contracts. You know, lawyers love give giving it a go. We have many examples in the last decade in New Zealand of construction contracts where the client has written contracts which don't really and hit procurement processes which don't really give any attention to giving the contractors the opportunity to determine the cost. They just allocate the risk of the cost to the contractor and and when you allocate the risk of the cost because you only want to pay a set price, when the cost, you know, doesn't come through it, what it is there is always going to be a Barney. And a lot of those contracts don't stand up, or where they do contractors for reasons that are often actually not to do, do with them, because the nature of the risks that have been allocated to them end up going into insolvency, losing, losing 10s of millions in the case of some of our contractors in New Zealand, billions of dollars. And, yeah, that's in nobody's nobody's interest.
Chris Patterson 16:08
Yeah. I mean, we've had some spectacular failures. I think we're just finally at the tail end of the main Z litigation. The Supreme Court have now handed down its decisions as terms of the directors liabilities of that but I guess failures have prompted a need for reform. And the construction contracts Act, which came into effect in 2002 which was really a reaction to try and deal with one of the difficulties in the construction industry, and that is, you know how to keep its lifeblood, ie cash, flowing from principal through head contractors and through to subcontractors, following a series of quite large collapses of a number of head contractors was
Michael Weatherall 16:50
interesting. Back up in those days, you could say a subcontractor sued you, if you're a head contractor, if you're a principal, if a head contractor sued you, the big dispute, you could, you could delay an arbitration just with a little bit of trickery for a couple of years. You couldn't delay it points and be arbitrator for three or six months, let alone that arbitration proceedings. And then, if you really set your mind, you could probably delay that arbitration for two or three years. That contract is just not getting paid. And so it was just, as you mentioned earlier, with with those processes, high court processes, there's no justice there, because by the time the contractors get paid, or before he gets paid, he sees out of business. Yeah. And the the real theory behind that adjudication, dispute resolution process under the construction contracts Act was okay, let's set up a quick, Rough and Ready process. It's actually quite contractor friendly or claimant friendly, whether that be the sub contract or the contract, depending on who they're soon to get paid. This let's have a fast track, Rough and Ready process, and it won't be final, but it will be binding until another one of these processes, like arbitration, overtakes it and and what's really happened is it's taken, I think, aside from sort of Lefebvre buildings, but you've just talking about construction project disputes, payment disputes for construction under construction contracts. Essentially, it's really dominated. It's pretty much the only formal dispute process that people follow now. And I've, I'm sure there'll be others out there that have but and all the adjudications I've done over these I've never seen one subsequently go to arbitration, because no one can be bothered. And funnily enough, even though it's a fast track process, and lawyers were up in arms, to give you an idea how quick it is, a contract has put a claim in, and the principal has to give a give a response within a week, and and that response has to have all of the evidence with it. Now that often gets extended to three or four or even six weeks on a massive dispute, but that one week process and an arbitration let's say it could take three months to deploy, engage the arbitrator, another couple of months for a claim, another couple of months for a response, another couple of months, or for longer, for evidence and discovery and then change exchange of pleading. So you probably condensed a minimum 12, minimum 12 to 18 month process until one to two weeks yeah and and yeah, it's rough evidence. There's no rules of evidence. Really chuck it all on it within hope no one notices it. But it's been effective. And most of the time, the decisions aren't too far off. And so we're something has gone a bit haywire. As I said, my experience anyway, the parties agree to settle on a slightly different basis of this because they don't want to go to an arbitration or whatever. But more often than not, people go, Ah, shit, walk away and live with the decision. So it actually has been very effective, and of course, since then, it's been expanded to include consultants, so engineers, architects, project managers can also make claims under the construction contracts and utilize the adjudication process. So I think if you judge something on the basis of its six. Success. It has to be judged as a success, because everyone's doing it and, you know, that's, that's where it gets to. I think
Chris Patterson 20:06
the other Hallmark to judges success is that the percentage of, you know, adjudications that end up being taken to hearing and come up with a different result are quite low, very low. So, I mean, that's a really good measure there as well. Look, I mean, in many respects, it still intrigues me that anyone who is in the construction industry, because, as you rightly say, the scope has been widened to those that can use the adjudication process, you know, put a payment claim in okay and avoid the delays, because you know it needs, as you rightly say, There's got to be that payment schedule back. You know, it's 20 days, and then they're off to adjudication. It's all done very fast track too. Why anyone wouldn't use that as beyond me. Because, you know, as a I'm a generalist litigator, and it's heartbreaking for clients when they realize that, you know, they could be it could be two, three years before a judge actually even looks at their issue, and in the meantime, they've got all that delay and
Michael Weatherall 21:15
claimant, yeah, that it's really no reason not To use it, because the claimant has all the advantages. So to prepare that claim, you know, I talked about how long would take to get the response and evidence and under an arbitration but if, back in the old arbitration days, to prepare that claim might take six or 12 months as well, you know, especially on these massive, you know, 10s or hundreds of millions of dollars construction claims that we get, and the claimant's still got exactly the same amount of time to repair the claim. Yeah, it's only the time frame for the response that has been. There's, there is no time frame for the preparation of the claim by six years they should take, as you like, yeah, and and, so as a claimant, you have this inherent advantage that you can get your experts you can get expert evidence, you can get all your documents lined up. You can get legal opinions around, you know how a contract should be interpreted, or, you know where the risk should fall. You can get everything lined up. And, you know, you we get examples where 20 libre arch files of claim documents are landed on our client's desk, usually the day that the client they had the you know, the contractor had heard the client had gone away on holiday, and, you know, they have literally a week to respond. And that sort of situation with a really massive claim, you might get an extension of six weeks. So the advantage is always the claimant. And there was the intention, because, as you mentioned earlier, it was about contractors getting a hard rub, a subcontractors going into insolvency. So the idea was to have a very contractor claimant friendly process, so the money would flow, and then, if you wanted to go to arbitration, the money be sitting the contractors pocket while you spend the two years fighting about it, as opposed to the money being in the in the client's profit pocket for the two years of the more formal dispute.
Chris Patterson 22:59
Yeah, although I'm saying that. And look, I'm gonna, I'm not gonna mention any names. Are very aware of the laws of defamation here in New Zealand, but the, you know, there are some property developers, fortunately, some of them are no longer, you know, out active who got very good at just taking the flip side of the coin here of getting kind of their payment schedules all lined up in advance and getting ready for a dispute in anticipation of using that as a way of withholding payment. Because, of course, once they got their payment schedule in, the ability to get summary judgment was then immediately gone, because you then into the arbitration process. It's
Michael Weatherall 23:44
interesting, because all you really have to do with a as a property developer is you just have to, you can't. You are entitled to make whatever deductions you like from the claim, as long as you state your reason for doing it. Now, you may not be legally entitled to do that under your contract, but the construction contracts Act allows the payer to make whatever deductions they want on the basis that whatever they don't deduct whatever's left at the bottom of the page, the scheduled amount is payable as a debt. General law immediately. But that does mean that people do misuse that and state valid reasons. But of course, if that property developer does state those invalid reasons, there is that arbitration adjudication process to quickly bring them to task. But I thought to you that anyway, the other, the other reason that people don't use adjudication, the question, going back to your earlier question, is that New Zealand is a small place, and nobody wants to get in fights with anybody, really, because there's only so many clients out there and And equally, if you're a developer, there's not that many contractors out there anymore, either, from some of the reasons we're talking about as well. And so it's really important in the New Zealand market, much more so even in the Australian market, let alone the huge overseas markets. So it's very important the New Zealand market to to try and stay, you know, with a good reputation. And I think that stops people even using adjudication and still relying on the likes of mediation and just negotiating settlements in perhaps getting back to something where we'll move on to I've always said that 98% of 99% maybe even 99 point 9.9% of construction disputes are actually resolved under the construction contract with the engineer of the contract making a determination and maybe a bit of negotiation and what agreement, but but very few. Every construction contracts has 1000s, hundreds and 1000s of disputes around variations or extensions of time, but they very rarely make it outside of that contractual framework into even something like adjudication. Yeah.
Chris Patterson 25:45
Now look, let's just start going over how wide construction law is. At a fundamental level, there's two parts of our general law which Construction Law will fit under. We've got contract. And, I mean, I mean, you'd agree with me that construction law, construction contracts, are a subset of contract, you know, our contracts around it, yeah, it applies to construction applies, yeah. And you know, there's, you know, we've got literally hundreds of cases that affect the law of contract and construction law, then we've got the law, you know, the law of torts, you know, civil wrongs, in particular, negligence, sometimes the tort of deceit, negligent misstatement, those sort of aspects. So we've got that at an umbrella, but we've also got our statutory controls that sit on the things like the Resource Management Act and the building act 2004 now I want to talk to you about the building act more in the context of, you know what New Zealand's gone through, particularly Auckland, because, I mean, Auckland really is a barometer of construction, okay, The industry, its health and and also the quality in which, you know, work has been done, as you'll you'll probably recall when you came back from the UK, it was really kind of the start of the leaky
Michael Weatherall 27:10
the water prices underway by the time I got back in 97 but it was, it was probably at its at its peak, almost.
Chris Patterson 27:16
Yeah. Now, um, can I just reflect to you a comment that an architect made to me in a watertight homes case in the High Court, he said to me, I was actually a little bit kind of taken back, in part because I was cross examining. I mean, he said, Chris. He said, Look, the Auckland Town Hall was constructed with literally four, a three size pieces of plants, yeah, okay, and it is still standing today, and it doesn't leak, okay? Because he said back then, builders actually knew how to build buildings. They were water tight. Okay? Architects shouldn't need to tell them how to keep water out. And I reflected on that and thought, Well, yeah, no, I know that some of our building methods have possibly become more complicated. You know, the materials are different, and you know, there's trying to find ways of keeping cost pressures down. What were your view or what are your views on, what really prompted or led to that crisis beginning, and is there an end in sight?
Michael Weatherall 28:18
Just back to that comment, the architect chose the materials and shows the design details, yeah, and so, of course, the client is entitled to rely on the architects having specified those to be put together in a way that keeps the water out. And I'm pretty sure that client didn't specify, you know, two foot thick stone and and, and massive eaves and, and a construction methodology that Let the water flow ours rather than, you know, go through through cracks. Look, I think it's pretty well understood that the cause of of that there was multiple, multiple clauses. And, you know, I think people, people will have their own opinions, but a fundamental part of it was that the government sort of decided to buy into performance standards rather than methodologies for construction, and so they sort of set, you know, design lives, you know, I think actually was not 50 years. It was actually a minimum of 50 years. But it got taken as 50 years, yeah, and, and it sort of left it to the industry to to come up with products, innovation, things that were going to make building cheaper but just as effective, because the performance standards would be met and and so specified actual details, specified actual methods, specified materials, took a back seat to to to the performance standards of the of the building code underneath the building act. And of course, what happens is, yeah, a lot of people came up with some great materials and some great methodologies that are still worth taught to this day. But equally, a lot of people came up with other materials, which, when combined with. A whole lot of other things, like how they were maintained, or, you know, how they were constructed, perhaps not quite in accordance with what the supplier of the materials thought they would be. They just didn't meet the performance standards. And so this reliance on the private profit making private sector to to meet these performance standards didn't really, didn't really eventuate. And so we've gone back much more, I think, to a bit of a hybrid. Another thing I would say, what happened this is probably speaking with my engineers hat on, is local authorities used to have engineers reviewing building consent applications and and then for a long time, there, for quite a while there, the engineers sort of got dragged out of the local authorities. You know, there was a lot of outsourcing, privatization of engineering, and you got a lot of people who didn't have the same level of expertise who were reviewing that were not methodology, not not sort of reviewing designs against these performance specifications. And became something that just didn't happen. Well, the professional side of the industry that was reviewing these things, the building was going through a substantial change. At the same time, the underlying building code had gone to this more performance code, and everything just didn't cluck together. You could probably name a lot of things, but I think that changing of expertise, as well as the shift to the performance spec, building code is really the fundamental underlying thing. Look,
Chris Patterson 31:27
there are a number of excellent developments. Some of the more spectacular ones, I'm thinking Andrew crock seen as Metropolis really added to the Auckland skyline, a great design element. More recently, Gary Grove, with the International up on Princes Street, again, an outstanding construction effort in terms of world class builds. But of course, not all property developers have produced world class builds, and that has been a real problem in New Zealand. And I guess in part, it reflects that conflict between needing to make a profit while at the same time meeting meeting obligations.
Michael Weatherall 32:11
I really don't put it down to the developers in that sense, because, you know, a developer has no interest whatsoever in producing something that isn't fit for purpose and water tight. And no developer would have deliberately saved costs and increased the risk of weather tightener. So it does get back to the comment you made before that developer engages an architect, and that architect says this is cheaper and it will be waterproof. And the developer goes, Great. Everybody's relying on everybody there, and nobody's really trying to make a profit from cutting corners that they're trying to make a profit from being more efficient, introducing these new materials, monolithic cladding and stuff. Hey, it looks great. Looks just like a, you know, a rough cast building, but a bit of concentrate,
Chris Patterson 33:05
yeah, where it doesn't really some sort of architecture, but, but, yeah, I don't think,
Michael Weatherall 33:11
I don't think you can put your finger on, on the, you know, any, any greed or profit making driver and anybody in the sector, because nobody was trying to cut corners to increase their profit. I think that was more the case that people were trying to take advantage of the building code, take advantage of the new products that were being produced in response to that new performance code, assuming and relying on professional advice that there was going to be adequate and it wasn't, but you couldn't. You cannot put your finger on anyone. You can't put your finger on the builders, the developers, the suppliers, the architects, the councils, absolutely everybody got it wrong. Yeah, absolutely everybody. So I think you said to go, let's take a step back and go. Shit, that system didn't work. Yeah, it was this. It was a systematic failure without being able to point the finger at anybody.
Chris Patterson 34:03
Yeah, it will look, look exactly because, of course, the territorial authorities, the councils who you know, had responsibility to come in and inspect and sign things off as as being compliant with the code. They were under a lot of pressure as well. I mean, they were contracting out that task huge boom
Michael Weatherall 34:24
in the building sector in particular, and commercial building and as I say that the resourcing of the local authorities was going through a fairly substantive change. The beginning of the 1980s most local authorities of the country had whole engineering departments full of Professional Engineers by the end of the 1990s you know, I think all of those had been outsourced and disappeared from within the local authority falls and so probably for good reason. There's other reasons you know why that happened, but it did. It did all happen at the same time.
Chris Patterson 34:59
Um, all right, perfect. So I then, is your sense that we're, you know, we've learned from that as a nation that, well, you know, those, those mistakes aren't, you know, being systematically or systemically, being repeated, or is if further more work that needs to be done so that, you know, people can, you know, look at an apartment building and go, Oh, you know, am I buying an absolute nightmare that's going to ruin my life? Or can I be secure in the fact that, you know, this, is this, this? This is going to be fit to be, be my new home. I think we'll
Michael Weatherall 35:33
just have to wait and see, won't we? I don't have 100% confidence. I think buildings will always be defective, you know, one way or another, but hopefully, very, very few that was endemic. A huge percentage of buildings were defective. And so I think when we say we've learned, yes, we've learned in the context of building houses, I think we've certainly learned, you know, at every level, at the design level, at the at the council, you know, sign off building consent level, the code compliance certificate level, the whole process, we've learned, but perhaps at a price as well. You mentioned the four drawings for, you know, the town hall. You know, I did a house reservation renovation a few years ago. I think the original drawings on our house, there was three drawings of plan and two elevations. And I think to the entire housing innovation, it was like 90 drawings. And so, yeah, the builder can't really make a mistake. He follows the architectural plans anymore, but it has come at a price that there is a massive, massive cost to the industry of the regulation that has evolved in the last 4050, years, probably for a good reason. I'm not saying it shouldn't have, but it has. It has happened. And, yeah, hopefully those you know what has happened is a reflection of what we've learned and is going to be much more effective in terms of reducing the risk of defective buildings. And
Chris Patterson 36:53
look, construction is terribly expensive for New Zealand. I mean, you know we're talking about new houses. I mean, look, anyone who watches grand design UK, you know, will will go up. You know, their budget is 200,000 quid. That equates to less than 400,000 New Zealand dollars. We can't even get it. Get a garage built for that. Yet, they're, they're building an entire house. So we do have, you know, hurdle in terms of cost, but we've also got that the issue of, I think at last estimates, we're shorter, about 150,000 homes in New Zealand, and they're not going to get constructed overnight. That's, you know, like almost a generation. Cost is a critical
Michael Weatherall 37:33
thing, is it? I think you probably have to double those, those estimates that people share with the interviewer, on, on those programs, but, of course, look, there's lots of things behind that. They don't have horizontal forces anymore, any greater than wind. Over there, we have horizontal forces that effectively mean buildings need to be strong enough to, in effect, be sticking horizontally out of a cliff and still stay standing, because our horizontal forces are greater than gravity forces and and so, or even houses, buildings, commercial buildings, far, far greater cost to deal with the earthquakes and so on, but also our isolation, our sort of tendency to tailor things bespoke, rather than just, you know, do cookie cutter things. There's a lot of challenges and cost in the industry, but probably, probably nothing that's going to get solved by by on the construction law side of things, and hopefully, something that will make a that will continue to, you know, to to improve in the industry. I
Chris Patterson 38:36
hope you're enjoying the podcast. I just want to put forward just a little plug for NZ ausli. It is such a great resource. It's a free on for those who don't use it, I think most listeners, if you're practicing law, will, or if you're listening in from Australia, then ausli Anyway, going back to NZ, Lee. It's just such a fantastic resource. I use it all the time. But the great thing about it is it's also free, okay, it's free to anyone who can access the internet. And it is just such a massive collection of databases of legal information. It's, I just encourage listeners to support it. And in particular, you go on to NZ Lee, you will find a link through to where you can make a donation. And I really encourage you to be generous and contribute to the great work that's being undertaken by the team, primarily coming out of Otago University. Now look, we've talked about the building code and the we'll touch that. But there is also, you know, sort of other statutory controls affecting construction. You know, just very short list here, the electric the Electricity Act, Energy Efficiency Act, in Conservation Act, fair training. Act, fencing, swimming pools. Act, Fire Services Act, Gas Act, hazardous substance act, new organism. Act, health and safety, employment, I just go on and on and on and on. How do you find being able to keep across all of those pieces of legislation, and do you not question whether you chose the wrong area of law to specialize on? Well,
Michael Weatherall 40:15
I'm quite fortunate that Simpson grace, and it's a big specialist and full service firm, and so I don't really need to have expertise in all of those areas. You know, we have people that are really experts in health and safety. I've got a passing knowledge of health and safety enough to keep me out of trouble, just maybe, but, but, but, you know also, and even in things like the building Act, the Resource Management Act, these are all absolutely fundamental to the construction sector into the legis legislative framework controlling the sector. But I have the great benefit of being able to go down the coronal and speak to some of New Zealand's greatest experts on that in those areas. And so I think, with most construction lawyers in the country, and this is by no means all of them, but with most people who would call themselves construction lawyers. They are probably more focused on construction contracts and dispute resolution in the construction industry, rather than that huge breadth of of legislation. But you know, there's, there's so much more, I mean, competition law affecting the construction industry that, as you, I think you mentioned the Fair Trading act affecting the construction industry. There's not that much law that doesn't affect the construction industry. Then you've got all the other contract legislative law, the contracts and Commercial Law Act and all of that. But fortunately, as long as I kind of recognize what it is, I could generally find the person that can help me. And it's not something that I probably deal with on a have to deal with on a day to day basis.
Chris Patterson 41:41
Yeah, it does, to a certain extent, give me the sense that, you know, it would be beneficial to have a generalist knowledge of of, you know, law generally, given the just the whites government, I'm thinking about like even the statutory control of the personnel involved. You know, cathedral surveyors act, charter professional engineers in New Zealand Act, the engineering associates act, plumbers, gas fitters, drain layers, quantity surveyors. You know, all of the registered architects, you know, they've all got a statutory regulation sitting in
Speaker 1 42:13
fire legislation. Chris, yeah, that's right before we get into that. Yeah, I don't think anybody
Michael Weatherall 42:18
can really be an expert in all of those areas. It's more a case, I think, like everything, I think in every area, you know, if you're a banking lawyer, for example, you're not going to know everything affecting the banking industry. You're not going to know everything even affecting the financial lending laws, but you're going to recognize them. You're going to know what it know what it means at a at a very high level. And that's enough, because there's always people out there that are experts, or if there's not, you've always got really skilled people who can do a bit of research and find it out. And so we do get, often novel questions, some questions around fire issues and in things a couple of months back, and you get really deep, deep into the legislation and the industry standards around fire. And look same about earthquakes, same about everything. But, yeah, it's something that we're lucky that, I guess, that the broader industry has enough experts where you really need them and hone
Chris Patterson 43:17
in. We are going to start getting into construction contracts, because I've been promising this, and I see where, you know, and I see we, you know, we quite we weigh in, but I do want to, just before we do, I want to talk about contracts for professional services, because there isn't just one person and generally involved. I mean, unless, you know, it's a small residential building deck out the back of the house. Scenario, you might get to get a builder into help to the deck. There's usually, you know, a suite of professionals involved. I mean, you sure your advice would be that, you know, there should be a contract if you if someone's engaging, you know a construction professional. You know, what are some of the things that someone would need to be looking at or thinking about, what are the issues with engaging, let's say, an architect or an engineer in a construction project, there's some really,
Michael Weatherall 44:08
real fundamental differences when engaging a consultant as opposed to engaging a contractor. In essence, a consultant's agreement is just the consultants promising to use reasonable skill, care and diligence, which is the negligence standard, to perform the services that you've asked them to perform, and it's the client saying, well, we'll pay the fee for that. Sometimes the fee is fixed in those contracts, but often it's hourly rate. Sometimes it's a percentage of the construction value or whatever. But there's nothing in those contracts about the timing of the performance of the services. There's very little about variations in the services. There's actually almost nothing on transfer of risk of the services. And yeah, the building could fall over, and your designer could be get off scot free, because they still use reasonable skill. Care and diligence and the design, and any reasonable designer wouldn't have noticed or designed for what caused the building to to fall over. So these are very at the heart of it. They very simple contracts, a promise to not be negligent in performing the services and a promise to pay a fee. So you see these contracts being very, very short, you know, maybe the standard form professional services contracts, 1220, pages, something like that. But the crux of these contracts is often in the description of the scope of services the technical documents attached, which is a recurring theme with construction contracts as well. How well if you describe the services you want that person to perform? Have you built time frames in the description of that scope of services, and indeed, in the fees? Have you just said you pay the hourly rate for as long as it takes? Or have you actually been a bit more sophisticated on that? And I think unfortunately, the consultants are in a position where not unfortunately, I think generally, the consultants are in a position where their clients are quite often, not all that experienced in engaging consultants and and in my experience, most consultants will do a really good job in describing the scope of services and providing a description of fees, but I think the contracts at the end of the day are a lot, lot less sophisticated, but still really important, because you still need to track your obligation if something does go wrong, essentially, if the building is defective, or even sometimes, you know, you do try if the if the design has been inadequate, and it's called construction delays, you to try and bring claims against the consultants for those construction delays. But I've always said with consultants, it's like nailing a jelly to the wall. It's very hard, because the underlying obligation is not to actually deliver anything that's fit for purpose. It's not to do anything specific. It's just not to be negligent and and then if you are saying they're negligent, you have to link your loss to their negligence, and not some other failure that happened on the project. So, yes, it's a tricky area. And I think I would say in all of the big disputes, I've been involved with an above ground construction, you know, commercial buildings, apartments, all that sort of thing. It might be public buildings or whatever, the biggest and most endemic problem in these states which causes the biggest disputes and many of the huge losses that we've talked about is the quality of the design, or the contractors ability to properly interpret that design. I'm being careful here not to blame anyone, either the designer or the contractor, but these contracts where you see hundreds of millions of dollars being lost are essentially because that point I made earlier, essentially because the design was not a reform that the contractor was able to cost and you ask any contract, I'll say, you know, we all get, always get told the design is a detailed design. It never is. This clashes. It has to be redesigned 100 times all through the job. And I'm supposed to take the risk of that. I didn't even engage that architect to begin with. They've been Novated to me, along with all the problems. Architect will say, well, contract had the design well and well and well enough time, and they just didn't have the appropriate skills in house to properly interpret that design and identify the further design development that was required. There's two sides of that, but it is the most fraught area of vertical construction is design development to a level that everybody understands, not blaming anybody for for it, but it is the most fraught area in vertical construction.
Chris Patterson 48:52
Is this just with professionals, engaging professional services. You know, the more the consultants, rather than the contractors, per se, is a large part of this getting the expectations of the parties somehow documented so that each party is aware this is what we expect. And I guess that's really the challenge, is having the foresight to say, well, we're all the areas that could possibly go wrong. And can we get these expectations in a document so that if something does go wrong, we can point to the clause and say, This is what should have happened.
Michael Weatherall 49:26
Yeah, I think the fundamental thing is not to ever have to point to a clause, right? And Construction Law is actually about never having to point to a clause. We spend all our time pointing to and fighting over clauses, but if you stand back, Construction Law is about construction contracting processes and engagement of all the parties and a project to ensure that you never have to look at a clause. So just on that example, with consultants, there are so many ways to procure a construction project. And, you know, one the simplest way, is to engage a consultant to fully design the project, to to beyond detailed design, to what they called it, you know, issued for construction design. Take that fully detailed design. Take it out to the construction sector under ended s3 nine, when I build only contracts. Contract is not responsible for any of the design, and ask the contractor to price that detailed design. Contractors love that. Design is detailed. They can price it. They can get costs. They can flip drawings out to their subcontractors. They can engage their subcontractors, yet another person in the whole network, but they're doing it on a detailed design. And and you'd think, well, that's pretty simple, right? And so you'd encourage your clients to do that, because you're unlikely to have as many disputes, and the price is unlikely to be varied that much, because the design is detailed. But of course, the design wasn't quite detailed, and, you know, and it gets changed too late, or the design that goes out to tender is actually only a developed design level, not a detailed design level, or they say it's a detailed design level, but parts of it are actually woefully undeveloped and as clashes and and so you then say, well, okay, what's better process here? And then you go to design and build, type contracting, where you say to the contractors, well, you gotta give you just a half developed design, and we want you to engage the designers. You be responsible for design and build, and build all that design development risk into your price, but tell me what it's going to cost you to take this design and and go through and and be fully responsible for design development and construction. And that was popular for a while, until that didn't really work either, because the design, you know, often the client wanted to keep the same trendy architect, so they innovated that architect to the contractor, and that architect had no interest whatsoever, and saving your cost for the contractor, they were trying to get an architectural magazine Right, yeah, win some awards. Yeah, that's right. And so you just get to this terrible position where the contractor isn't either capable or able to really manage the design, the consultants are perhaps not doing as good a job as they could as well. And then that all unraveled. And so in some of the most spectacular ways, on some of the biggest construction losses we've had in the last five or 10 years in New Zealand, tendency to then go, what next? And and, you know, it sort of seems to be going a few different ways. There's Okay, well, why don't we just live with cost? Plus, let's have an, it's incentivize everybody, and have a, have an alliance type agreement, where we all work together and collaboratively develop the design, collaboratively work up a target cost and then collaboratively deliver the project. There's still contracts under there between contractors and clients and professional service contracts and things, but often they say the parties can't sue each other. They're banned from having a dispute. It's almost like a partnership. Everything must be resolved. It seems like in sourcing a team that you're employing and you can't see them. And that works in terms of delivery. It's a good delivery model, but it's not really a very good cost control model. I think if you look at the history of all the alliances in New Zealand, the average increase in end price from the original target prices is, I would conservatively say, 30, 40% it could be more significant. And then the end of the spectrum, you go on the PPP path and say, Okay, let's just tell we want a road from A to B. They're going to work out how to design it, build it. We want. We will just have a really short list of performance requirements. The problem with that is the client's really happy to say is a short list of performance requirements. But when the design comes in and it's read and they actually wanted it green, and it wasn't one of the performance requirements, then you get a whole lot of variations and things from the client side and and you don't need the client never gives the contractor the freedom to actually go away and do it. They will always want to control it. I think you know the that what we're seeing a lot more of these days as a sort of a hybrid, is now engaging the contractor and the consultants together in a pre contract phase before you sign the construction contract. And look really good example. This was the takaha Multi Use Arena in Christchurch. They engage one contractor with the contractors design team, not, not that, not the design team that had done the concept design that was part of the tender documents, but the contractors all tender with their own design teams, and then worked with that contractor and design team for nine months to get the design to quite a detailed level, not fully detailed, but detailed enough for the contractor. Cost comes back to given the opportunity the contractor cost, contractors then got nine months to cost that design, that contract engaged the consultants, and so they're going to be fully responsible for design and construction to the to the client. Now it's a scary process because the client realizes it can't quite afford the design it wanted, and so there's a lot of budgetary, you know, pluses and minus, pulling things out of the design, but by the time you. Get to the contract being signed. The designers have developed the design. The contractor knows what's in there. The contract is about to get a price with the supply market has a really good understanding of how to build it, because I had nine months to work at that methodology, not like six weeks on a normal tender. And so you get these processes where everybody is engaged, perhaps not under contract, but a lot of them under contract before you even sign the construction contract. So it's reversed engineered everything. Yeah,
Chris Patterson 55:28
it's almost deconstructed. It's
Michael Weatherall 55:30
like the death for the birth, in some ways, but it works so well. And you know, it does have challenges. It's not the panacea, but you know, there's all these different methodologies for engagement of consultants contractors, but they're actually processes as well as contracts, and that's what I say. If you get that process right, if for a state a project like to Carhart Christchurch, you get the right procurement process, you sign a fixed lump sum contract. We might just get to the end of that contract. I'm touching wood here and hoping not to jinx it, but we might just keep them that contract not too far off the original price and duration. And so, yeah, I think that is a successful Construction Law Project, because no one really has to look at that contract. And so often, more often than not, when you're looking at the clause, it's because the process wasn't right, not because the contract wasn't right, but isn't
Chris Patterson 56:23
there, isn't the contract to a certain degree, a little bit like an insurance policy. You put it in a bottom drawer somewhere, and you just hope you never have to pull it out. Okay, that it really goes for. Let's talk about the contract. NZs, 3910, okay, so you're, you're being quite actively involved in this, because this has this come into effect, yet has the standard come in? Yeah.
Michael Weatherall 56:45
390 23 was published at the end of last year, okay? And look, it's it goes back 50, 6070, years to contract according to NZs six to three, and then it became NCS, 391, oh, I think in 97 and it's been through several iterations since then. I was involved on the drafting committee of the last two editions in 2013 and before that, in 2003, I think it was a random 10-year gap. So I think that was intentional. I better
Chris Patterson 57:19
To get you to tell the listeners, because there will be some listeners who will say, ' What are you guys talking about? ' Okay, so, so, so what is NZ? 3918,
Michael Weatherall 57:27
so it's a New Zealand standard form of construction contract. And you know, you don't really want to be going to a lawyer and saying, Please draft me a construction contract. Is every different lawyer, if it wasn't a standard, would give you a different construction contract. And as I say, you know, not all lawyers are focused on solutions. Sometimes they've got clever ideas that they Yeah, that aren't a great solution to anything. And so you know, the experience of bespoke construction contracts is pretty ugly, really. Most of them are pretty unreadable and and usually they severely allocated risk to one party or another, whether it's cost plus at one end of the spectrum or a full, you know, guaranteed maximum price time on some contract or the other. And so, what the New Zealand standard construction contract is, I think it originated from the Ministry of Works back in the day, saying, 'Okay, we're going to have all these contracts. ' We want one contract. Can you give us one? And so we don't have to go to anyone. And so, it was a contract that was essentially a standard for building and civil engineering construction, featuring standard clauses from start to finish, standard definitions, and standard industry terminology, which engaged all parties in a standardized manner. So it was a standard approach where the principal provided the design, so the contractor wasn't responsible for the design. They were just responsible for construction. There was an engineer on the contract, administering it on behalf of the principals. Principals typically lack knowledge on how to administer construction contracts. Have to engage a consultant and or it was really part a reflection of the standard practice and procedures, but also had a significant effect and and I guess, prescribing the standard features of how a construction project was managed and run and how the risks were allocated. And, of course, the insurance provisions have to align with the assurances in the market because the people at Lloyds aren't going to change their policies for the New Zealand standard form contract. However, some New Zealanders also don't know what the policies from Lloyds entail, so there is an insurance section. What are all the clauses that are consistent with industry standard construction contract works and public liability policies? So, yeah, it's a document which, again, has been shown to be, by its success, to have been a really effective document. Every country in the world now has them. And well, I think they all did. They were all being developed, really at the same time. Some of our contracts, I think, might have been based on an Institution of Civil Engineers contract in the UK way back in the day, but it's evolved independently. So. Items. I
Chris Patterson 1:00:00
Meaning, it does sound like a great panacea that there will be one standard contract. And you know, you know, anyone involved in the industry can look forward to just seeing the same wording time and time after game. Still, you'll have seen some absolute Frankensteins of of contracts come through, using 3910, where you kind of look at it and say, God, how many times has this been cut and pasted and reworked over to end up on my desk? Yeah, it's endemic.
Michael Weatherall 1:00:29
And it's hard to put your finger on, actually, how it even happens. Now, if you're, say, a private developer, I won't sort of name names here. And you know, you've got one project that's kind of costs $500 million you're never going to be able to recover any great losses on your next project by getting it cheaper or whatever. And you can see there are commercial drivers to allocate all the risks to a contractor. And there are contractors out there who would be quite happy to take that risk, all of the risk if they were given the appropriate opportunity, as I say, to to have control over the project and the cost of the project, and then they can determine that cost from the outset. And so, there are clients out there who want something different, and they don't want a standard allocation of risk. They don't want a standard contract. And there are contractors out there who appear to be preparing to affect. A lot of contractors pride themselves on the ability to to price and risk and then beat what they've you know that that price, and there are many examples of contractors who have done well out of pricing risk and then being able to deliver projects for less than that estimated because the risks didn't eventuate. But of course, at the other end of the spectrum, there are many examples the other way. So I think there's an underlying reason. You know, you could, you can generate reasons for these substantial changes to the to the general stand for contract, but often, I think, as you say, they end up there from cut paste to previous project and and, funnily enough, it's often the government departments that have the worst special conditions, but a lot hundreds of pages of special conditions from some government departments. And you ask yourself, ' Why? ' Because they're not getting any real benefit from delivering dozens of projects, and so they're going to get more benefit from not paying these risk margins on every project. One or the other will blow out, you know, because look at NZTA; they use very waka katae. They use very few special conditions because they know for the one blowout they'll get effective prices on the other 20, yeah. And so, they have a good logical reason not to ask contractors to price the risk that's being allocated to them. However, it's endemic, and it's not something I encourage clients to do: having endless pages of special conditions. Okay, so
Chris Patterson 1:02:52
I'm glad you've said that, because I've compiled a little list of seven or so improvements to the to the last version of 3910, and I just thought, I just run a couple by you, seriously, if you, if, if you can add something to so the first one is taking an increased collaborative approach and refining the contractual risk allocation. So, so, so more working together and making sure can contractual risk allocation has some more flexibility. I mean, is that one of the improvements to the standard? Yeah, we
Michael Weatherall 1:03:26
only went a couple of steps down that path. And so the NZs 391, as a standard contract with a standard allocation of risk, which essentially means as a contractor on one side and a principal on the other, contractors promising to build the work principals promising to pay the contract price, and the contract price is set, and the works have been described in the drawings. It's a pretty simple contract, and there's a lot of standard allocations of risk, which are largely based on who controls the risk and that sort of thing, or whether the risk is insured or that sort of thing. But there was some in the consultation prior to the new addition coming out, there was a lot of pressure to go say, let's have a more collaborative construction contract. Let's, let's have a genuinely collaborative, partnering based construction contract and standards. New Zealand, I think, made the correct decision that there is a good case for a more collaborative construction contract, but it's not this one. So we weren't going to throw out NGS 391, oh, and completely change it and then replace it with a completely different contract. But we did try to make it more collaborative. And you know, I think there's a really good justification for that. Yeah, there were people, contractors out there, clients out there, people out there that have worked in the industry for 30 or 40 years, and they would have done hundreds of NZs, three no one contracts or projects which were based on they probably
Chris Patterson 1:04:51
think about it in their dreams, and they know exactly what
Michael Weatherall 1:04:56
the entitlement is when it rains or when they. Yet, you know, fall down a hole that they wouldn't, didn't expect on the site, they'll know exactly what their entitlement is under that contract, and most of them will never have read a word of that contract, because the whole risk allocation has been standardized across the industry and in most people know exactly what their entitlements under are under because there's three, no one, oh, and most people have never read it. And so that's really strong thing to have in the sector. You don't have to rely on people these days, in particular, reading stuff. Everybody knows where the risks fall. It's when you get those special conditions that you people do have to read. Is where that falls down.
Chris Patterson 1:05:37
Okay? Well, that's good. I move into my number two. I'll just talk about sort of, you know, the area of making it more plain English, getting the definitions right, you know, cleaning up the paper trail, covering instructions, completion records, just, I guess, using it as an opportunity to tidy the standard up a bit. I mean, would
Michael Weatherall 1:05:59
you Yeah, I think that kingdom decision was made not to go full plain English, because you can go quite a long way down that path, and it can look very different. Big supporter of plain English, but is there sort of a compromise from not going all the way down the path? A number of things were done to introduce a sort of basic level plain English. And what we're really talking about there, it's made talking about there is making it more easily understandable, right? And one of those things is aligning with standard industry terminology. We had a concept called off site overheads and profit, but every single person industry called that margin. And we had a concept called on site overheads, a big definition of it, and the industry called that permanent, general PNG. And so it was decided, let's just stick with the industry terminology. It's the same thing, just don't use different words. Didn't change the definitions, or a thing just aligned with the terminology, obviously made it generate gender neutral and, and, and in made a number of under a number of stylistic drafting changes. But I think certainly progress was made there. But I think maybe, maybe 10 years down the track, another step will be made for plain English. I think it was something that the committee was reluctant to jump the whole of an incremental change, but like the collaborative stuff we were talking about before. Now, big topic in
Chris Patterson 1:07:21
construction is variations, and the standard looked at trying to improve that a little bit. Yeah,
Michael Weatherall 1:07:28
funny thing about variations and extensions of time. There was a big consultation process, and nobody really minded the risk allocation industry. No, no. There's no big objections. There was no one saying we should get variations for different things that we don't already get variations for. And there was no one really saying we should get extension of time for things that we don't already get into three no one know. So the substance of those absolutely critical clauses that everybody relies on whether they've read them or not they know what their entitlements are. They largely in terms of entitlement didn't change, but the processes around them changed it, but as you mentioned earlier, a little bit more opportunity for discussion and agreement before you get to a decision on a claim for variation, things like that and and some more guidelines around around entitlement, but without really changing to a great degree the fundamental underlying entitlements. A few changes were made around pandemics and and things, just to make it clear, you know, where they fitted. But really not, not, not a lot of other substantive changes around entitlement for those right now,
Chris Patterson 1:08:33
I'm going to jump into pool of going numbers right three, adding new target pricing for a contract and tell us about that?
Michael Weatherall 1:08:40
Yeah, the target price is something that's used not all that frequently, but in any sense, there is a way of pricing a contract where you ask somebody to give you a it's like a cost reimbursable contract. So I go to you and you say, I'll pay you your cost, your cost to all your subcontractors and suppliers, plus 12% you start four will be happy with that, and that is used quite often, cost reimbursable. But I might also say, but can you tell me what your target is? What do you think it is going to cost? Because I want to know, is it 10 million or 15 million? And you'll tell me 12 million, and I'll say to you, okay, if you get it in under 12, we'll pay you on a cost reimbursable basis, cost plus 12% same basis. If you come in at under that 12 mil, let's share the benefits, right? Split the savings 5050, or whatever. And if you come in and over there, we'll split the savings that they overrun, 5050 but only up to your profit margin. So we're not going to make you broke. But if you get it really wrong, and you've led me into this contract based on on a really hopeless estimate. So you were expected to be put some diligence into that expert, that estimate, because you're both potentially being benefiting from it, potentially being being being subject to some pain share there as well.
Chris Patterson 1:09:56
Probably also that starts lining up and trusts a bit better. You know? So you know, both parties can you know, are motivated for the same things? Alright, let's get into number four, the indemnity provisions in the standard contract, adding a contract of liability cap. What's the thinking behind that? I think, Well,
Michael Weatherall 1:10:16
I think what I put it down to is, to some degree, I might be being a bit cynical, but as Australian and internationally backed contractors came into New Zealand, or owners, the contracts in New Zealand started getting international ownership, it was as simple as there is a requirement, like a corporate requirement, any construction contract must have a cap, and so a lot of these contracts were being tagged at tender time, and then you'd have this process of negotiating, you know, the limit of liability clause. And I think everybody felt that as long as the limit of liability was reasonably high, the it's reasonable to have a liability cap, even if it's 100% of the contract price. And so I think it was, again, considered better, if the industry is going that way, to have a standard clause, rather than having a whole lot of hybrid clauses that are all over the show. Yeah,
Chris Patterson 1:11:04
yeah. Nice. Right now. Number five, you've mentioned, just the role of the of the engineer, but sort of replacing the concept of an engineer with a contract administrator now and an independent certifier. So what's their role? I mean, they're obviously swapping an engineer out, but what are they are they swapping them out
Michael Weatherall 1:11:26
for? Yeah, this probably should have been number one on the list in many ways, because I think funny way it's not as significant as it sounds. We'll explain that later. But in essence, a principal under a construction contract doesn't really have any job other than to pay the certified amounts, because the principal might be a high school or it might be a hospital, or it might be you or me, and we don't know anything about administering construction contracts, right? And so, so we don't really want to even be on site. In fact, the contract would probably prefer not to see the actual principal on site ever, because they're only going to turn around and try and change something they don't like the look of. But that's not going to happen. But what has been the established practice is, rather than having a principals representative, who's literally a representative of the principal, to have a have an engineer to the contract, and that engineer to the contract through common law, but it's now also written into contracts, that engineer has two roles. One is to act as the expert advisor and representative of the principal in relation to certain matters. And the other role, or the other hat, we often used to call it, was to act fairly and impartially and determining entitlements under the contract. And so if you're valuing payment claims, or you're making a decision on variations or extensions of time, that sort of thing, that engineer has to take off the engineers representative hat and put on the fair and partial hat. Now, the biggest bug bear that came out of the public consultation was that largely contract was obviously bemoaning that engineers don't be very act, you know, fairly and impartially, but see
Chris Patterson 1:13:00
to Patsy to the principal he's ultimately
Michael Weatherall 1:13:02
paying, yeah, fee, right? And I personally think it was, it's more perception than reality. You know, I think often a contractor just doesn't like that. He's not entitled to a variation, and the entity has told them that. But equally, sometimes the contract should have been entitled to a variation. And you do genuinely get that situation where they usually the contract is not being feeling impartial. It's a genuine thing. It happens. But anyway, Trouble was, you can't sort of get rid of this concept. And so essentially, what the committee decided to do was, rather than have two individual people involved, you know, or anything like that, to just literally split all the functions under the contract into a column A or column B. Column A is the fair and impartial obligations. Column B is the the the the principals, Representative obligations. And then we said, right? Let's make it really clear. Let's call the person who's doing the the fear and impartial obligations the independent certifier. Word independent in there, right? And that's certifying payments and entitlements to claim. Essentially, that's their role. Is there an independent certifier? All the, all the all the things, unless be that's the principles representative role. So let's call that the contract administrator now. So this is, like, absolutely major because everybody uses the term engineer the contract, nobody uses the term contract administrator or independent certifier. I think it's going to take quite a lot of adjusting to for people to use to it. When I say it's not actually that significant, there's nothing in those two lists that weren't already there. Yeah, it just we weren't clear who, you know, what hat the engineer was wearing sometimes when they were doing those things. And the other reason it's not potentially a significant is that those two people, the contract administrator and independent certifier, they're not actually two people. They just. Two contractual roles, they can be the same person, yep, yep. So it's just very clear. It can be very clear which hat you're wearing when you're doing which function, and the functions themselves, the decisions around variations and things haven't fundamentally changed, yeah. Now,
Chris Patterson 1:15:13
now the rebuild to the standard. So I'm kind of using construction phrases here, and it didn't go so far as introducing a good faith, good faith obligation on the parties was that that was raised though, during the consultation process. Yeah. I
Michael Weatherall 1:15:27
think, yeah. I think most people on the Facebook would go, yes, of course, people should treat each other fairly and good faith. But probably can get down to a few of the lawyers on the committee saying, Well, really, it's pretty hard to actually, it's going to open more of a bad difference box, and it's going to fix, because nobody really can define what that means. And that would have actually worked against clarity and plain English to introduce a term which is very hard to define.
Chris Patterson 1:15:53
Now, talking about hard to define. And you we've you've mentioned really helpfully, you know that second hat or first hat, doesn't matter which order it is. Of the individual, that's the independent certifier. There's this new cut. There's this concept of advisors to the independent certifier, but there's no detail around what they actually should be doing. Yeah,
Michael Weatherall 1:16:16
it's the big, the biggest sort of change in terminology, really, is when we were talking about before about the engineer had this dual role, the engineer could delegate virtually all of his or her functions to an engineer's representative, including both hats. They could delegate certification and decision making roles to the engineers representative, as well as the contract administrative roles to the engineers representative. We took that out. We took out the engineers representative because we've already got these two, two sort of parties now, but it's not the same distinction as it was. There were some non delegable functions in relation to dispute resolution. But that's not where we drew the line between the independent certifier and the in the contract administrator. It was really in that fair and impartial, or what expert representative line. And so there needed to be an acknowledgement that the person sitting there is independent certifier. They may well be a director of a engineering company or a very senior project manager managing a number of projects. They're probably not going to be going through line by line, the payment claims every month 10 different projects they're going to be engaging in, Quantity Surveyor currently, survey or give them a recommendation. So it's more a case that we're not take changing. The same advisors can be advising these parties as they always have, but we're just sort of acknowledging contrary, that there can be advisors, but also making it clear that they don't have any authority if a decision has to be made by the independent certifier, an advisor can advise them. They can provide a draft, I guess, but the independent certifier must issue that fairly and partially and hopefully will also actually review it and cast their eye over it and ask the key questions before they do so,
Chris Patterson 1:17:56
yeah. Now talking about sort of certifying payments and things, the standard also implements a new split final account, final payment claim process. How's that going to operate?
Michael Weatherall 1:18:07
Well, I hope it operates well, but it's also another sort of big, big change, but again, one which reflects what, certainly, in the committee's view, was already happening in the industry. So you've got this adjudication process or construction contracts, act payment claim process. Should I say? This is not the adjudication process of the payment claim process, and it's quite strict in terms of time frames and the nature of the payment claims, the nature of the payment schedules, who's liable for? What if something happens or doesn't happen? And it's actually a bit of a impediment to openly discussing stuff and taking the time you need to actually agree these amounts before you before you get into a contractual or a legislative construction contracts Act process. So in essence, what a lot of parties to construction contracts would do as I discussed the final account before submitting, like a formal payment claim, final payment claim, and then once they agree it, they submit the final payment claim for the agreed amount, and it gets certified and almost immediately, and that's what we're trying to encourage you as the parties to collaboratively discuss and agree the final account, which is not a payment claim. It's just as effectively, looks like one, smells like one, but it's not officially one. So you receive a final account, and the engineer and the contractor will negotiate it and agree it. But when it comes to submitting the actual final payment claim, which doesn't happen to often, 12 months after the contracts finished, after the final completion certificate, or whatever, you know, and every race usually forgotten what happened by then. But hopefully by the time the final payment claims submitted, that was long agreed, you know. So it's it's really again, as I say, hopefully reflecting good practice, get on with it very quickly. Agree the final. Don't wait till 12 months after, you know, the contracts finished and and then when you do have the more formal claim process, it's a bit more formality, whether it works or not as a is a more contractualized process, as opposed to just like a, you know, standard kind of best practice kind of process, you know, wait and see. But I think it is definitely a best practice process, and the fact that it's been reflecting the contract reflecting the contract, I hope, hopefully, will be, will be successful.
Chris Patterson 1:20:24
Now, I've got my last one, number seven, okay, which is, which is a big one. It's one that I'm interested in, because I've, you know, dispute resolution, lawyer, litigator, and that is dispute resolution. Now, going back a few episodes ago, we had Dr Bridget Troy Cronin and to talk about access to justice. And she made the point, very good point. She said, Where's the effect? That conflict is inevitable? And of course, the construction industry is not immune from from disputes. When things go wrong and construction they can, they can go horribly wrong. What is the standard? The standards look to try to revamp the dispute resolution processes. How's it done that
Michael Weatherall 1:21:07
I would, I would put it a different way. I would say that resolution is inevitable point, because I've been in this game a long time, and I've never had a dispute. It wasn't resolved. Yeah, right, and one way or another and one way or another through both parties, but they get resolved, yeah? And I'm talking about construction contracts here. I'm not talking about the other kind of disputes you can have out there in the real world, yeah, you know, personal disputes or whatever. But a construction contract, it's just about how much you pay, yeah, or if something leaks, or whatever, yeah, and they will get resolved. The resolution is inevitable. It's about getting to that resolution as effectively and fairly as possible. And as you've mentioned, going through court procedures or even long wind arbitration procedures, we've mentioned this already is just it's just not a way to get to that inevitable position of resolution. And so the way a construction contract typically works, and we've split the contract to make it clear in ours, you have a whole process with the independent certifier, the old engineer, to the contract, but wearing their fair and impartial hat, and the contractor to properly notify claims, to endeavor to agree those claims, that agreement is actually done with the with the contract administrator. And if they can get an agreement, they advise, effectively advise, the independent certifier just certifies the agreement, job done, and but you can still, if you think that certification got wrong, you can still dispute it. And then ultimately, the engine, the independent certifier, makes a final decision. And that really means by final, it means final before you go to a more formal process. Now, resolution at that stage is not inevitable, but as I said before, with good parties acting, you know, like grown ups, 99.9% of all construction disputes get resolved at that level and never go to the next level. I think in the news, three, no one know, we put that process under the independent, certified section of the contract because we don't want to see that as a dispute resolution process. It's just the contractual process for getting to resolution, you know, and then the dispute clause now has the more traditional refer to mediation, or if you can't agree, mediation or it doesn't work, onto arbitration. But look, I don't think there has been many construction arbitrations, and by that, I don't mean defective buildings or leaky buildings, or, I think, or negligence claim for consultants. What I mean is claims for the amount payable under a construction contract, extension of time, claims, variation, claims, that sort of thing. I don't think many of those have gone to arbitration in the last decade. It's just something that they do. The resolution of those claims is inevitable, and in the process of under the contract that we've got now reflect what we think is the best practice, try and resolve it between the contract parties. Try and resolve it by agreement. If you can't, somebody independently, someone experienced, capable, independently, issues a final decision. Have a long think about that, because the next step is something much more formal and costly. And
Chris Patterson 1:24:25
then, of course, we've got a, you know, you know, which I'm I've always been a massive advocate of of the benefits and the power of mediation as a way of getting the parties to stop, reflect, see things from a different perspective, and then actually collaboratively work together to a solution which results in the resolution. And we're fortunate in New Zealand, we've got, we've got some very good mediators. Now
Michael Weatherall 1:24:50
it's one of the, I would say it's probably the one sort of negative, not the one it is. One of the negative things of judication is you've now got this fast track, rough and ready, quite claimant friendly adjudication process, which is still incredibly adversarial. It's very you're literally and trenches chucking bombs at each other. Yeah, you don't even really think what the checking if the fuse is like when chucking them and in in what that is the availability of that has meant that I think people are a little less reluctant to be reasonable in negotiation, because they can always threaten adjudication, and also that they're a bit less reluctant, but more reluctant to go to mediation, because it's kind of constant as much to go to mediation as it's going to cost to adjudication, and I don't know that I'm going to get a resolution if I go to mediation. I do think mediation as in particularly construction disputes. I can't really speak for for, as I say, other other sort of areas, but for construction disputes, which are largely about complex technical issues that are only understood by the parties. To the contrary, they're never going to be understood by the arbitrator or the adjudicator or or the mediator, who doesn't need to, but the other two do because they're making a decision. I think it's a really good process for construction disputes and and one that I've found to be, I've not, I've not had a mediation my career that didn't result in settlement, maybe not on the day, but you know, then the day or two after and, and I think hopefully nobody contradicts me on that, but I think everybody would have got up from those mediations and thought, Oh, well, I don't like it, but I can live with it, yeah, and they living with it, and they can get on without months or years of dispute in front of
Chris Patterson 1:26:41
them. Well, I mean, would you agree that, generally speaking, any resolution where all the parties are unhappy is probably the fair one? Yeah,
Michael Weatherall 1:26:48
I think I don't know who it was that described it to me, but, but it was in that context of getting up and not being happy, but being but also, I think not being unhappy would be ideal as well. You know, not being totally happy, but, but being being glad it's over. Yeah? And so I think, yeah. I think, and look, sometimes you get mediation outcomes which are much more favorable, much less favorable to your client than they'd hoped for. But you know, my experience also is, these guys are experienced. These people, should I say, are experienced, and when you get the prop the right people under the room, not those that have been battling this thing for two years in a construction project, but, but you know, the senior managers and directors of the respective parties, they've often been in the industry for decades, they can sniff what the dispute is worth, but that the minute they walk into the mediation, the rest of it is a process for getting them to acknowledge the other side, and, and, and, yeah, I think for construction, mediation is a great, a great process, and it is often, often very successful. So I, as I say, I think is a little bit of a shame that we've got this fast track, Rough and Ready process, which is very adversarial, which is in some part at least replaced what would have been more likely mediation, yeah. And I
Chris Patterson 1:28:08
guess the difficulty with it is, is that what it does is it gets parties very much as your point about the adversarial is thinking on an adversarial basis, rather than going, okay, hey, look, I know we've got this, you know, adjudication process going, and we've got to, we've got to deal with it, but we also need to keep our minds open and be open to the prospect of actually reaching a resolution on agreed terms as well. Look, I think you made a really good point when you were saying about New Zealand being, you know, smaller numbers of people. I mean, we're a big country geographically. I mean, we talk about New Zealand being small, I go realize that Holland, if you're walking from north to south, you know, we were actually geographically, a large company. Thank you country. And we've, you know, we've got lots of resources. But going back to the point I'm trying to get to is, is about relationships. And, you know, the construction industry is relatively speaking, compared to other nations, small there's a fixed number of participants. And if you're you know, if you go through this process on the adversarial side, it could be very corrosive and to ongoing relationships, but I guess that's probably more so if the parties are also stuck in a relationship, like if the dispute arises during the construction process, versus, you know, a year after everyone has left the site. You know, there is that dynamic as well.
Michael Weatherall 1:29:36
Yeah, it's interesting. As I say, you get disputes arising all the way through construction contracts. They usually start on week one integration claim number one, and week time claim number one, right? Yeah. And often they just get agreed. There's a good, valid reason for it, and it's clear in the contract, which, well, everybody knows, even though they haven't read the contract, what the entitlement is. And you. Yeah, and in these all do get resolved in through that contractual machinery. It's quite rare to have a big dispute on an ongoing project. It does happen. But generally, even with adjudication, you sort of people get to the end of the tether because they are reluctant to fire a gun. You know, on an active project. It certainly does happen. But usually people see the benefit of exhausting the engineer to the contract process, which is now the independent certifier process, and really also the benefit of wrapping all the claims up in one dispute. So with construction claims, I'm talking about money and time. You might have 40 or 80 or even 3000 variations that are still open at the end of the job. You might have five or 10,000 that have been closed and have been settled, you know, not settled, but just, you know, agreed and or determined and not disputed. And so I think people do like to just use it as a wash up at the end of the job, simply for the Expedit, you know, to expedite things. But also, do think that people are much more aware of of having to maintain their reputation in the market and not being unreasonable, probably more so contractors, unfortunately for them, because they're the ones that need to, you know, go out on the market the next day. Some developers think, why? Because I'm not doing another one of these and they I think that does encourage some developers to be pretty unreasonable.
Chris Patterson 1:31:27
Take a hard line. Hey, now look, we're getting pretty close to winding up. I just the you and I have been around for a couple of cycles now, actually more than probably a couple. Do you? Do you find that, you know, dispute resolution becomes more active. It's more challenging. You know, when the construction cycle goes more to the to a slower process, you know, there's less work around, there's less money around. Suddenly, disputes seem to have a bigger significance than they would otherwise.
Michael Weatherall 1:31:59
Well, we kind of gone full circle there, because, as I said, when I arrived at LA and there was a massive downturn, and there was lots of construction disputes and that, so I ended up being construction lawyer. But I have to say, I don't know they've noticed as much at this time. It has certainly been the case in previous downturns. And I've actually spoken to some other construction laws about this, and it's not immediately obvious why there's not more construction disputes out there at the moment, because there's a lot of people and and stressed projects and things. And it may be something to do with the sort of hiatus we had with with COVID, no one was really wanting to fight anyone through COVID. It was, it was logistically difficult to begin with, but most construction projects actually kept going and and in but, but not much started. So I think we've actually what we're sort of experiencing now out there is not battles about existing projects, but just not new projects, you know, coming to the fore, coming online. And so, of course, you can't dispute that a project's not You're not being asked to tender because there's no projects out there. There certainly has been a bit of an uplift in insolvencies in the construction sector, and there has been a bit of an uplift in in construction disputes. But yeah, for reasons I can't quite explain, I don't think there has been as big an uplift in with pure construction disputes that delay instruction, variation, claims, type disputes, is that is there has been, with some of the other two or three significant downturns in the industry that we've looked sorry. Hey look.
Chris Patterson 1:33:35
Michael Weatherall, thank you so much for joining me today on the law down under podcast. You know, I did say I was concerned that we were possibly biting off more we could then we could chew going over construction law in New Zealand, but we've covered a lot, and look, I've been greatly enriched by just the depth of your knowledge and and what, and I'm very grateful that you've shared it with with myself and the listeners. So thank you for joining me. Well, thanks for having me. Thank you for tuning in and listening to this episode of the law down under podcast. You're welcome to join in on the discussion via my podcast page, which you can access@patterson.co.nz that's P, A, T, T, E, R, S o, n.co, dot n, z. Thanks for supporting the podcast and tune in again for more on the law, its application and the future of the law here down under.
Unknown Speaker 1:34:22
You.
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