This is the fifth article in our series taking a deeper look at the proposed revisions to NZS 3910:2013. Previous articles in the series are at the bottom of this page.

The existing NZS3910 deals with ‘Variations’, and valuation of the Variations, in Section 9 and ‘Payments’ under the Contract, in Section 12. 

The NZS Review Committee recognised that Section 12 contains numerous provisions regarding valuation i.e. Contract Price adjustment (cost fluctuations, Provisional Sums, Provisional Items, Prime Cost Sums, and contingency sums) alongside provisions addressing the process by which the Contractor is paid.

To ensure clarity DZ3910 has shifted all matters of Contract Price adjustment into Section 9 (see new 9.6 – 9.10), renamed Section 9 ‘Variation and Contract Price adjustments’, leaving Section 12 to solely address the process by which the Contractor is paid. Section 9 also now includes a new approach to resolving the Final Account.

Sections 9.1 to 9.3: What’s changed?

The 9.1 ‘Variations permitted’ provisions remain unchanged.

You will recall 9.2 ‘Variation orders’ (now titled ‘Notices of Variation’) provided recourse where the Contractor was of the view a Variation was involved, but the instruction stated otherwise or the matter was not covered by 9.1.1. The Contractor can give notice to the Independent Certifier (IC), who has to within 1 month or as soon as practicable allow or disallow this challenge. Previously a failure to respond in time resulted in a deemed Variation.

The DZ 3910 Committee has deleted this last step meaning a failure of the IC to allow or disallow the Contractor’s challenge results in no change to the Instruction – no deemed Variation. In practice this part of the current 9.2.4 is regularly amended in the Special Conditions. Attempts to rely it often face challenge as the timeframe which triggers the deemed Variation - 1 Month ‘or as soon as practicable thereafter’ – is not entirely objective and can vary depending on the context. 

Under section 9.3 is the most notable change, being the focus on reaching agreement prior to the IC stepping in to Decide the value of any Variation. Amendments have been made to:

• The last sentence of 9.3.2 ’…for the purposes of reaching agreement under 9.3.4.’
• 9.3.4: as far possible the Contractor and Contract Administrator (‘CA’) should reach agreement, with this formally recorded in an Instruction issued by the CA
• New 9.3.5, if agreement cannot be reached, the IC will Decide.

The balance of 9.3 remains largely unchanged.

Final Account

The most significant change in Section 9 is the introduction of a Final Account mechanism in 9.11, to enable the parties to first agree the final Contract Price (as adjusted) before the final payment process under section 12 is triggered.

Currently, 12.4.1 provides for the Contractor to submit its final account, endorsed as a final payment claim, ‘not later than 1 Month after the issue of the Final Completion Certificate’. The process from this point mirrors that employed for progress payments, except that more generous timeframes are allowed for assessment, Principal’s amendments, and payment, reflecting the challenges often faced in resolving the Project final account.

In practice, 12.4.1 is frequently amended to provide for submission of the final payment claim within several months of Practical Completion, to bring final account matters to a ‘head’ sooner and avoid any unwelcome surprises to the Principal post final completion. Such amendments are amongst others frequently silent with respect to any claims for Variations/Instructions that may occur after Practical Completion (‘PC’), and in most instances remain a ‘final payment claim’ for the purposes of the Construction Contracts Act 2002 (‘CCA’).

The new 9.11.1(a) requires the Contractor to first serve an Interim Final Account on the IC, copied to the Principal and CA, within the time stated in the Special Conditions (or further time as allowed by the IC). It must contain those matters required by 9.11.2 for the period up to the date of Practical Completion.

9.11.1(b) requires the Contractor to serve the Final Account within 1 month after the Final Completion Certificate (or further time allowed by the IC). It is limited to the Interim Final Account, costs of Variations and Instructions post PC, and anything carried forward from the Interim Final Account (i.e. not agreed at that stage).

The Final Account sum shall, as far as possible, be reached by agreement in writing between the Contractor and the Principal, in which case, the CA shall record the agreement in an Instruction (9.11.7(a)). Where the parties fail to agree the Final Account within 3 Months of submission, the IC shall at the request of either party Decide the Final Account (9.11.7(b)).

Note

New 9.11.8 states that neither the Interim Final Account nor the Final Account shall be in the form of a CCA payment claim. As to when the Contractor submits its final payment claim (under the Contract and/or CCA), this is set out in the balance of new 9.11.8 and by referring to 12.4.1 – being ‘no later than 1 Month after the latest of receiving an Instruction (recording any agreement) and/or Decision on the Final Account or issue of the Final Completion Certificate’.

The amendments encourage the Contractor and Principal to reach an agreement

The process appears logical, reflects amendments frequently used in the market and the reality of the final account negotiation process. The amendments encourage agreement to be reached between the Contractor and Principal wherever possible, and it is only when agreement cannot be reached that the Final Account falls to the IC to Decide.

Contractors must however be aware that clause 9.11.6 (taking language from the existing NZS3910 12.4.3) provides:

“submission of the Final Account under 9.11.1, or agreed or Decided under 9.11.7, shall be conclusive evidence that the Contractor has no outstanding claim against the Principal other than as contained therein, except for any item which has been referred to dispute under Section 13 or to Adjudication and remains unresolved at the date of issue of the Final Completion Certificate”.

As such all claims, including for Variations, extension of time and time-related Cost, and any other claim of any nature in relation to the Contract to which the Contractor considers itself entitled, must be referred to dispute prior to the issue of the Final Completion Certificate and/or included within the Final Account. Otherwise, the Contractor risks losing its claim.

There is also the issue of what should occur if the Contractor and Principal fail to agree the Final Account, or certain claims within it?

Notwithstanding 9.11.6, to the extent the Final Account cannot be agreed between the parties and issues are Decided by the IC (under 9.11.7(b)), the Contractor within its final payment claim may detail any areas of disagreement, and amounts claimed in respect of the same (12.4.2(d)). As under the current NS3910, the IC/Principal shall respond by way of final Payment Schedule as set out in clause 12.5. 

As is the current position, upon the issue of the final Payment Schedule the Principal shall cease to be liable to the Contractor in respect of its obligations under the Contract, save as expressly set out in clause 12.6.

Further reading

• Proposed revisions to NZS 3910:2013 released for market consultation
• The Engineer to Contract role is no more under proposed changes to NZS 3910:2013
• Failure to notify costs now the responsibility of the insurance arranger under proposed changes to NZS 3910:2013
• New provisions for requesting time extensions under proposed changes to NZS 3910:2013
• Eyes on the Price: Introduction of ‘Target Price’ included in proposed changes to NZS 3910:2013