Updated Feb 2017As a matter of prudence, the architect should identify and confirm whether the principal is a consumer at an early stage. This is a legitimate discussion to acquire the information necessary for setting up both NZIA AAS contracts and SCC contracts involving a consumer.Because of the mandatory provisions for adjudication in the Construction Contracts Act (CCA), arbitration has been rarely used for recent construction disputes, but remains available. Because adjudication is binding but not final, and arbitration is both binding and final, an arbitration decision could potentially overturn an adjudication determination.
A consumer is defined as “an individual” who enters into a contract “otherwise than in trade”, with the other party entering the contract “in trade”. Accordingly, a consumer could not be a company, a trust, a charity/school/church, or someone offsetting expenditure through GST.Regardless of any arbitration provisions in a contract with a consumer, after a dispute arises, arbitration cannot commence unless and until the consumer has specifically and separately agreed to it going to arbitration. (Arbitration Act Section 11)Under the Construction Contracts Act and subsequent amendments and regulations, neither the contractor, consultants nor principal can contract out of the CCA dispute resolution process: disputes can be resolved by adjudication whether or not they choose to participate in the process.
Disputes over service agreements may involve (for example), fees, scope of work, responsibility for defects, or instructions given by the architect contrary to the principal’s wishes. If these disputes cannot be resolved by negotiation, or mediation, the availability of adjudication will in most cases avoid the need to go to court. Court proceedings carry potential costs which may put the architect in the situation of being leveraged into an unsatisfactory settlement proposal.As in all projects, goodwill should be maintained, fees collected regularly, matters of potential dispute identified and defused as early as practicable, and clients educated in the benefits of the architect continuing to be involved in the project.
Ahead of entering into the contract, the contractor is entitled to know whether the principal is a consumer, and that should be confirmed in the documentation issued for tender.It would also be prudent that the owner is made aware that adjudication is unable to be contracted out of. This may facilitate an early settlement of disputes, and makes it clear that sooner or later there is a clear process to resolve them.
It is always easier to explain and agree the procedures for dispute resolution ahead of disputes arising. Ideally, disputes should be addressed at the earliest opportunity that the facts allow. Ideally they should be dealt with as a problem arising out of the performance of the contract instead of a confrontation between the parties to the contract. Therefore the mediation provisions in the contract should be utilized to their utmost to avoid escalation of the dispute and the resultant costs.Arbitrations and adjudications are confidential, the resolution process can be structured around the specific circumstances, and the matters can be dealt with promptly by an appropriately knowledgeable person chosen by the parties.Other than disputes in front of the Disputes Tribunal for minor disputes, adjudication under the CCA is likely to be the most cost-effective option for all but major and complex disputes.