A contractual framework for two-stage early-contractor involvement (2S-ECI) in New Zealand commercial construction projects : a thesis submitted in fulfilment of the requirements for the degree of Doctor of Philosophy (PhD) in Construction at Massey University, School of Built Environment, Massey University, Albany, Auckland, New Zealand
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Date
2021
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Massey University
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Abstract
Two-stage early contractor involvement (2S-ECI) is a two-stage procurement process for firstly employing a contractor during the design stage, and then entering into a contract for construction. 2S-ECI contractual practices remain generally unknown in New Zealand despite the well-documented advantages of involving contractors in the design-stage planning. Clients, with the help of their consultants or lawyers, must draft their own, often bespoke contract to engage the contractor’s services during the design stage because there are no standard forms of pre-construction services agreements (PCSAs) in New Zealand for employing contractors during the design stage. Some of these contracts, especially if done without professional advice, are drafted inadequately.
This study attempts to remove these ambiguities and explore the effect 2S-ECI has on contractual risks; the optimal contractual ingredients to consider at the pre-construction stage such as timing, obligations and liabilities; the effect of 2S-ECI on market pricing; and the overall benefits, challenges, and opportunities to improve the effective use and uptake of 2S-ECI in New Zealand.
A mixed-method research approach was adopted which comprised case law analysis, contract document analysis, and comparing these legal doctrines against industry perceptions which was obtained through conducting interviews and surveys. Three bespoke contract agreements used on 2S-ECI in New Zealand commercial construction projects were compared with two standard form PCSAs published in the UK. Perceptions of 2S-ECI use in New Zealand were explored through interviews of 21 senior construction practitioners. Interview findings were validated through surveying the interview sample.
A contractual framework was developed to provide a clearer contractual process, identify contract ingredients for the pre-construction stage and establishing the effect of early involvement on the contractor’s obligations during the construction stage. The framework helps clients and project managers to develop procurement strategies using 2S-ECI, including as a starting point, the type of project suited to 2S-ECI. It also helps decision makers like architects, engineers, and quantity surveyors, to make more informed decisions on who should pay for instructed drawing details that come after entering into a construction contract such as the New Zealand Standard NZS3910:2013 Conditions of Contract for Building and Civil Engineering Construction. The framework considers; (i) when to treat claims for drawing details as variations; (ii) the legal implications of a contractor’s involvement in design development; and (iii) the legal implications on construction managers if there are claims from direct trade contractors against the client under a construction management procurement.
Findings from the survey analysis shows the majority of interviewees see value in early collaboration between designers and contractors, but qualify this in that the actual value depends on the extent of the contractor’s contribution and that the tangible benefits are difficult to measure. Many felt that contractors had a moral duty to reduce their claims for design development during the construction. However, none was aware of the effect of early involvement on the contractor’s contractual obligations during the construction stage. 2S-ECI may have the potential to reduce the cyclical boom bust nature of construction pricing and provide a more equitable risk distribution between the contracting parties. 2S-ECI is best suited for projects involving work to existing building operations where the cost of disruption outweighs any premium incurred with the contractor’s early involvement in logistical planning; where the selection of preferred contractors through open-book negotiation is desirable; where securing resources in heated markets is otherwise difficult through competitive tender; and where designers want the contractor’s input for more complex design solutions.
Challenges to the effective use and uptake of 2S-ECI in New Zealand were identified as part of the survey. The challenges include lack of clear 2S-ECI definition, unclear expectations and difficulty measuring the benefits, incomplete design documentation, and amendments made to standard contract terms transferring greater risks to contractors – without fully considering which party may be best able to manage the risk. The bespoke pre-construction contract documentation used often lacked scope of obligations and liabilities. Opportunities for improving the use and uptake of 2S-ECI in New Zealand include educating industry about 2S-ECI, developing a standard form of pre-construction services agreement (PCSA) for New Zealand, contractors developing specialist expertise in design coordination, buildability analysis and value management, and agreeing fixed-price construction contracts based on fully complete quality drawings. These findings also contribute to developing procurement policies that support transparency and appropriate risk equity and transfer toward the party who is best able to manage the risk within the New Zealand construction industry.
A pre-construction services agreement (PCSA) was drafted with ingredients based on the findings (appendix 4). The framework also includes a flowchart that guides claims entitlement and a table comparing head or main contractor and consultant construction manager obligations was developed. This provide a practical guide for contract administrators and includes a summary of interpretation of terms to inform contract drafters that can help reducing ambiguity for all construction contracts. This has the potential to help avoid unwarranted disputes.
It was also recommended that skills in construction law and buildability analysis within the construction industry be enhanced and for tertiary education institutions to play a greater role. These include skills in buildability-related claims-entitlement, the effect of early contractor involvement, the application of design buildability analysis, and design coordination and management within a building information model (BIM) system environment.
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Construction contracts, New Zealand, Management, Construction industry, Law and legislation