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Analysis of the Commercial Building Project: HSBC Tower New Zealand

BXAC700  Bachelor of Construction Advanced Contracting

LEARNING OUTCOMES

This Assignment will address the following learning outcomes: 1. Critically examine various means of resolving disputes arising in construction contracts. 2. Critically examine current issues in construction law. 3. Critically examine ethics within the construction industry.

ASSESSMENT TASKS:

Part 1. Analysis of a Commercial Building Project in respect to the:

(a) Method of engaging a Head Contractor, (b) Contract Terms (including any Special Conditions of Contract), (b) Payment Provisions, (c) Allocation of Risk, and (d) Resolution of Disputes

(a) Evaluate the method used by the Principal to engage the Head Contractor and identify compliance/non-compliance with Ethical Standards and Probity Guidelines during the engagement process.

(b) Critically compare the Head Contract (including any Special Conditions) and the contract(s) between the Head Contractor and Subcontractors and Suppliers for potential conflicts between their provisions, in particular relating to payment provisions and the allocation of risk.

(c) Analyse compliance with the provisions of the Construction Contracts Act 2002 and its Amendments in relation to the payment provisions and treatment of retentions under the Head Contract. Identify and analyse the risks associated with any potential for conflicts with sub-contractor and supplier agreements.

(d) Describe the Dispute Resolution provisions contained in the Contractual Documentation, i.e. Head Contract and Sub-contract(s). Analyse any potential for conflict between these provisions. If any dispute(s) has/ have arisen with the project, critically analyse the method(s) used to resolve those disputes and the result of the Dispute Resolution process.


Answer

Analysis of the Commercial Building Project-HSBC Tower New Zealand

Executive Summary

This assignment provides a complete analysis of a commercial building project of HSBC Tower New Zealand. The analysis includes method of engaging a Head Contractor the principal, terms of a contract, provisions for payments, allocation of risk and dispute resolution. Apart from this, the assignment also focuses on the analysis of current issues in construction law and ethics within the construction industry.

Introduction: HSBC Tower, New Zealand

The HSBC Tower is considered as one of the high rise office building located in Wellington, New Zealand. The aforesaid building completed its construction process in August 2002. The building comprises of office spaces of 12 floors, car parking of 10 floors and retail complex on the ground floor. The building was constructed by the personnel of Xigo and developed by Birnie Capital Investors as, Project Manager and Cost Manager and Client Representative respectively. The lead tenant of the building was Ministry of Foreign Affairs and Trade.

It was the desire of the developer to minimize the risk of the aforesaid project. For this negotiation is required for fixation of the price of the contract. The construction of the building also required Fletcher Construction at the outset. The client was not satisfied with the risk-averse nature according to the standard condition of contract. Thus, the developer consulted with their legal advisor for the negotiation with Fletchers for planning a completely new construction contract.

The aforesaid project needed a specific written development agreement with the tenants.  This is required to adhere the requirement of the funder and construction contract. Later, the personnel of Xigo supervised the documentation of the construction contract to find out the solution which can be satisfied with all parties.

Part A: Analysis of a Commercial Building Project

a) Evaluate the method used by the Principal to engage the Head Contractor and identify compliance/non-compliance with Ethical Standards and Probity Guidelines during the engagement process. 

 The principal in a construction project must consider some important points and methods for the engagement of a head contract who can work for him. A principal can engage the head contractor on the basis of the following criteria and conditions; (Cotteri, 2018)

To engage competent and safe contractor

Providing the information to the contract that they should keep the work environment healthy and safe

Monitoring the performance of the contract as per the standards of safety and health issues

Coordinating the activities of the contractor

The following are the methods and relevant safety and health rules while choosing a contractor by the principal;

The principal has to verify that the employer has placed a well organized and documented safety management process and system before the commencement of project operation and that periodic audit must be made to verify effectiveness of the process or system for the management safety. (Ellis Baker, Luke Robottom and Anthony Lavers, 2018)

While choosing a contractor, the principal also must determine the suitability of the contractor which includes health and safety experience and process so that he can chose the best person for the engagement process. (FAIRBAIRN, 2017)

The below mentioned points must be considered before choosing the contractor for the engagement process;

The reporting procedure of the contractor in relation to incidents and hazards

 Independent Health and safety performance assessment

Investigation of injuries in the workplace for the last five years

Enforcement information if any and any prosecution has undergone thereof

The evidences of capacity of work and details of their finances

When an employer is also the contractor, the principal must consider the following;

The ability of the contractor in terms of providing competent workers and equipments essential for the project

To ensure the training plan of the staff members and collect evidences that the training has been conducted

To consider the accounts and turnover of the workers

It is also important to ensure that the workers have signed written employment agreement which includes health and safety standards. The health and safety standards of the agreement include; (Government, 2017)

Drug and Alcohol policy for testing

Working Hour/Labor Hour

Facilities Available

Clothing Supply and equipments for protection

Participation and representation of worker effectively

Appointment of trained and experienced safety and health representatives

According to the provisions of the Employment Relations Act 2000 under section 65(1), the persons who are not obliged to have a collective agreement must have a employment agreement in writing containing the present terms and conditions of the employment. The employer has to retain the intended agreement although it has been signed by the employee or not. (Employment)

It is the duty of the principal that the agreements of the contracts must clearly define and incorporate the duties and responsibility according to the act, regulation and the Hazardous Substances and New Organisms Act 1996.

The Government of New Zealand government has provided five principles along with the Rules of Sourcing. The framework for the procurement process of all kinds includes; (Government, 2018)

Five Principles of Procurement as prescribed by the Government

Rules of Sourcing as prescribed by the Government

Guidance on Good Practice

The following are the five principles for procurement;

Planning and managing results with utmost care

Act fairly with the suppliers

To get the right supplier

To get the best deal among the available choices

Act according to the rules as prescribed by the Government.

The following are the Acts as prescribed by the Government of New Zealand for the procurement of contracts, these acts also considered as part of common law contracts; (Government, 2018)

Construction Contracts Act 2002

Contract and Commercial Law Act 2017

Commerce Act 1986

Fair Trading Act 1986

The principal is of the responsibility to ensure that the engagement of the head contractor is according to the rules and regulation of the five principles and aforesaid common law acrs. (Employment)

The following are code of conduct that must be followed by each member during the engagement process;

The acceptance of commission, allowance and discount in relation to any service in which they are engaged

After accepting the engagement and the contract can be terminated on the reason of failing to satisfy or fulfill the obligation professionally or

Acceptance of engagement as the surveyor of the building and provide it to another person, company or partnership with the information which is confidential in nature in respect of the business activities of the client. This cannot be done without the permission of the client.

The members must conduct themselves according to the goodwill and status of the profession

Obtaining the registration by misrepresenting the qualification or eligibility is not allowed

b) Critically compare the Head Contract (including any Special Conditions) and the contract(s) between the Head Contractor and Subcontractors and Suppliers for potential conflicts between their provisions, in particular relating to payment provisions and the allocation of risk. 

According to the traditional head contract, the employer in the beginning generally contracts with the designer or developer of the construction project. Once the design is chosen, the employer of the project made a head contract with the contractor for the construction of the provided project according to the chosen design. Meanwhile, the contractor divides the whole construction work within various sub contractors who take the contractual responsibility for the completion of the specific part of the construction project which is assigned to them. In this process and structure of contract, the terms and conditions of the head contract provides the responsibility to the contractor for imposition of design. However, the responsibility of the design will remain constantly with the employer or proprietor on whose design the contractors gave his nod for the construction process. (Lawyers, 2018)

 The association civil contractors of New Zealand have recently published a CCNZ subcontractor which suggests a new standard for the subcontract for the members of the association. This subcontract was prepared according to the industry standards which can be used fir wide range of civil construction process. One of the key considerations for this sub contract is to make the contract flexible enough so that it can be beneficial while reflecting the realities of the projects which are being handled individually. The other aim of the sub contract is to fair allocation of the risk between the parties. (Margaret A Helen Macfarlane and Sarah Holderness, 2017)

The CCNZ subcontract is considered as an important factor that has been obtained from contractor and sub contractor. One of the important schedules of this subcontract is the allocation of risk. It contains a large number of provisions for the parties for the allocation of the risk factor. The main areas of the possible risk of any project can be identified which will encourage both the parties in the contract to allocate the risk for a specific project. (Ministry of Business I. a., 2017)

The obligation of a head contract has the primary importance as compared to the sub contract work. In case of failure of the sub contractor to perform the obligation will have a significant results under the terms of cost and time of the head contract. For this reason, the contractor is required to provide all the information to the subcontractor with an authority to inspect the terms and conditions of the head contract which is concerned with the sub contract work. The time period should be taken in to consideration for in relation to the head contract with sub contract work. Ample of time must be taken to ensure that all the relevant obligations of the head contract have been clearly made and that this will help to attain the expectation for the smooth and effective completion of the construction project. (Zealand W. S., 2017)

The specific are of time is directly related to the head contract. The sub contract generally provides both the contractors and sub contractors act outside the scope of construction project and control of the contractor then the sub contractor will be liable for a extension in time and can be awarded for the head contract later. (Employment)

Generally, the subcontracts have limited liability concept considering the risk profiles of the subcontractors and head contractors. It needs to be considered if there are limitation for the liabilities in which the contract is engaged into. The sub contracts are neutral on if the limitation is really included in the specific conditions of the sub contract. In such scenario, the position of the subcontractor will be in default and the liability of the sub contractor will remain the same until and unless it is agreed.

Construction Contracts Act 2002 provides the provisions for the default payment and also provides the ban for the use of pay when paid. The aforesaid act also provides immediate adjudication of the disputes in relation to a contractor along with the solution for the enforcement of payments. (Building disputes)

A contractor can make payment under the Act by following two ways;

Progress payment which is also known as several installments

Single Payment, Lump sum payment

The payment must be made according to the terms and conditions of the contract. In case of any default the provisions of the aforesaid act can be applied. It can be a monthly progress payment. A payment can be claimed for the amount which is believed to be due under the terms of the contract. The due amount can be claimed with a notice. The outlines of the notice are as follows;

The methods for the response for the claim of payment

The results of no response or the payment of claimed amount

For allocation of risk the concept of alliance contracting has been introduced which is growing popularly in New Zealand as well as Australia. The alliance contracting is considered as a procurement model which includes the parties in a contract with cooperation and mutual trust.  Alliance contracts generally include the allocation of risk which is basically different from the design of the contract as it involves sharing of cost. This also leads to savings between the parties to the contract. (Zealand W. S., 2017)

Before allocation, identification of risk is important. A equitable and fair risk allocation is essential to ensure the effective completion of a construction project. In this, both employer and the contract must cooperate in the work for equitable sharing of the risk in a successful and effective manner. This can be done considering the project and specific requirements. The intention of the frustration in a schedule project can create dispute which can be reduced by accurate risk identification and allocation of risk. (FAIRBAIRN, 2017)

In case of head contracts, the employer has the basically appoints the developer of the project to chose the design of the project. When the design is chosen for the project, then the employer makes a head contract with a contractor who later works on the construction project on the basis of the design provided by the employer which he had chosen with the help of the developer. After this process, the contractor distributes the duties and responsibilities to some sub contractor for the smooth operation of the project.  The sub contractors then take the responsibility to complete the project within the provided deadline according to the requirement of the design provided to them. In this work, the sub contractors play a essential role in the completion of the project. However, the responsibility looking after the design will be of the employer on whose choice the whole project was designed and implemented accordingly. (Cotterill, 2018)


c) Analyze compliance with the provisions of the Construction Contracts Act 2002 and its Amendments in relation to the payment provisions and treatment of retentions under the Head Contract. Identify and analyse the risks associated with any potential for conflicts with sub-contractor and supplier agreements. 

The Construction Contracts Act 2002 provides the provisions for the process of dealing in relation to payment of a disputed contract which is under construction. The aforesaid act covers all types of construction contracts in New Zealand. According to the Construction Contracts Act 2002, the construction work includes the following; (Lawyers, 2018)

Buildings and structures which is formed with part of land including the constructions made temporarily

Fittings that are made in the building such as fire protection, heating and lighting

The infrastructure process includes the form of the land, for example. Land drainage, utilities and roads

As per the aforesaid act the construction work also includes altering, maintaining, removing, installing and constructing of the infrastructure, fittings and building. It is also considered as an integral work to the construction work for example scaffolding, excavation and components in relation to prefabrication. The construction work also includes surveying work, design and engineering process. (Margaret A Helen Macfarlane and Sarah Holderness, 2017)

The complete meaning of the ‘construction work’ has been provided in section 6 of the Construction Contracts Act 2002. The Construction Contracts Act made certain amendments in the act for the dispute resolution in terms of payment. The major changes or amendments made in relation to the payment and dispute resolution are mentioned below; (Government, 2018)

Commercial and Residential constructions will be considered and treated as the same under Construction Contracts. However, there is an exception in case of changing orders. The parties engaged in residential construction will have complete access to the act in relation to the payment and resolution of disputes. (Employment)

The engineering, surveying and designing work of the construction project will be included under scope of the Construction Contracts Act. According to this amendment, the parties engaged in residential construction will have complete access to the act in relation to the payment and resolution of disputes. (Zealand W. S., 2017)

The streamline in adjudication process

The strengthen of enforcement process 

 Construction Contracts Amendment Act 2015 was also made in the year 2015. The Construction Contracts Amendment Act 2015 and the Regulatory Systems (commercial Matters) Amendment Act 2017 also introduced new provisions and requirement for the protection of retention money. According to new provisions from 31 March 2017, commercial constructions will be held on trust for retention of money in whatever form it may be such as in the form of cash or liquid assets which can be converted in to cash until and unless a financial instrument is bought. However, these requirements are applicable to the contracts which were made or renewed after 31 March 2017. (Government, 2017)

According to the amendments made in the Construction Contracts Act, the payers whether it may be contractors or developers who have chosen to withhold the retention money have two options available which are as follows;

Withholding the retention money with the hope or trust in the form of liquid assets which can be redeemed into cash readily or in form of cash s required by the Construction Contracts Act as an default option (Ellis Baker, Luke Robottom and Anthony Lavers, 2018)

By obtaining the instrument of finance complying the provisions of the Construction Contracts Act which includes payment bond, insurance or third party protection for the retention money

However, there are a few strict requirements to ensure the payment of the retention money on the financial instruments. The following are the requirement for the same;

The providers of financial instruments are limited to the licensed insurers and banks which are registered

The financial instruments must be issued for payment in the favor of the payee and allow them the right to enforce the promise for payment against the provider of the financial instrument. The condition for the promise of payment is that the payment for the retention money must not be made under the construction contract on the date it is payable. The records for the payments in relation to the financial instruments must be kept safely and should be made available to all sub contractors at reasonable time without any cost. (Employment)

Construction Contracts Act 2002 has also laid down the provisions for the ban for  payment and for payments which are in default. According to the provisions of the aforesaid act immediate adjudication in case of any dispute is also required. The disputes may be related to the contractor or to find out a solution for the payment enforcement. (Building disputes)

A contractor can make payment under the aforesaid Act in below mentioned ways: by 

Firstly, in terms of progress payment this is also known as installment structure of payment

Secondly, onetime payment which is also known as single payment or lump sum payment

The payment must be made according to the terms and conditions of the contract. In case of any default the provisions of the aforesaid act can be applied. It can be a monthly progress payment. A payment can be claimed for the amount which is believed to be due under the terms of the contract. The due amount can be claimed with a notice. The outlines of the notice are as follows;

The methods for the response for the claim of payment

The results of no response or the payment of claimed amount

d) Describe the Dispute Resolution provisions contained in the Contractual Documentation, i.e. Head Contract and Sub-contract(s). Analyze any potential for conflict between these provisions. If any dispute(s) has/ have arisen with the project, critically analyze the method(s) used to resolve those disputes and the result of the Dispute Resolution process.

The Ministry of Business, Innovation and Employment (MBIE) had made an attempt to consult the construction industry on the reason if any for the regulation of the contract made under the provisions for the retention of money of the Construction Contracts Act. The Construction Contracts Act provides the power and authority to make regulations and set minimum amount for the retention of money so that the provisions will be applicable for setting standard methods of accounting for the payment of the retention money. (Employment)

No regulation has been proposed for the same till now. However, the provisions of the retention money will be applicable irrespective of the amount of money included which are ensured for payment to the sub contractor is safe and protected. The traditional methods of accounting for the retention of money and the books of accounts for financial instruments are clearly set out in the Construction Contracts Act. The Ministry of Business, Innovation and Employment (MBIE) anyhow considered the participants of the industry for reporting of developed methods which are suitable for the accounting system. (Ministry of Business I. a., 2017)

The part Construction Contracts Act is related to Speedy dispute resolution which deals with the adjudication of disputes.  This provides the right and authority to the parties in the construction contract to refer to a particular dispute to adjudication. The process through which the disputes are being determined, heard and enforced on the matters which are miscellaneous in nature which includes cost and fees. The different types of disputes which can be considered under this section are wide in range. Apart from that the monetary disputes that the adjudicator has the capacity to determine the provided dispute about the responsibility and rights of the parties to a contract. (Tribunal, 2018)

The following are the Relationship between Part and other dispute resolution procedures;

The part does not prevent the parties involved in a construction contract from filling a dispute from another procedure for dispute resolution. It does not whether the proceedings for the dispute resolution take place in the court with or without adjudication. (Zealand B. O., 2013)

When a party involved in a construction contract has submitted the dispute to another procedure of dispute resolution will be considered as adjudication. The filling or submission of the other dispute resolution procedure does not necessarily provide an end to the proceedings of the adjudication which can otherwise affect the adjudication process. 

However, an adjudicator has the authority to terminate the adjudication proceedings in case of dispute if it is held that the dispute is determined under other dispute resolution procedure 

This process has certainly nothing to with other enactment or laws applicable in the contract with the application of this part.

 The above-mentioned points are options in relation to a construction contract. The construction contract act 2002 has introduced the formal process for the adjudication of the disputes of the building. The act basically covers the all types of construction work which includes building, altering or decorating a home which may be commercial or residential. (Tribunal, 2018)

The route for the adjudication is simple which can process with consultation with an independent and qualified adjudicator who can make a decision after analysis of the issues. The process for the same has been designed in a quick manner so that the decision can made within 25 working days. However, the aforesaid process is expensive. The parties involved in such disputes have to pay the fees of the adjudicator. (Surveyors, 2014)

Mediation and arbitration

The aforesaid terms can also be considered as other forms of dispute resolution that can be used to resolve a problem which arises in a construction contract. It is a statutory process unlike the process of adjudication.  In this process the trade person should give his nod for the use of this option and also for the mediator or arbitrator. However the fees of arbitrator are higher than the mediation. There is no guarantee for the mediator’s role for a proper decision. On the other hand in case of arbitrator the decision becomes binding and cost of the arbitrator is also high. (Zealand B. O., 2013)

Disputes Tribunal

The Disputes Tribunal is another option for the matter which is minor in nature. However, in this dispute tribunals, the cases which have complex issues cannot be dealt easily and that the tribunal can only hear the claim up to $15,000 – or up to $20,000 if both parties to the construct contract agree. (Ministry of Business I. a., 2017)

Court action (Government, 2017)

This option can be said as the last resort for the justice. The Ministry of Justice concludes teh decision after so many civil hearings. In the High Court, it could take up to a year for your case to be heard.

In case of HSBC tower project, it was the desire of the developer to minimize the risk while fixing the price of the contract as well as at the time of negotiation. A Fletcher Construction at the outset of the building was required. According to the standard condition of contract, the client was not satisfied with the risk-averse nature. For this reason, the project developer approached the legal advisor of the company for the planning and negotiation of a completely new construction contract with Fletchers.

In this project there is a need of specific written development agreement with the tenants.  This agreement is necessary to analyze the fund requirement of the contract. The personnel of Xigo supervised in this project documentated of the construction contract to find out the solution which can be satisfied with all parties. (Employment)

In this case of HSBC Tower, the parties can either follows the route of adjudication, mediation or arbitrator. In case of adjudication, the party involved in a construction contract can submit the dispute to another procedure of dispute resolution.  After that, the filling or submission of the other dispute resolution procedure does not necessarily provide an end to the proceedings of the adjudication.  An adjudicator appointed in this case has the authority to terminate the adjudication proceedings in case of dispute if it is held that the dispute is determined under other dispute resolution procedure.

The project of HSBC Tower can also follow the route of Mediation and arbitration, where the process is also statutory process unlike the process of adjudication.  In this process the company has to agree for the use of this option and also for the mediator or arbitrator. However the fees of arbitrator are higher than the mediation. There is no guarantee for the mediator’s role for a proper decision. On the other hand in case of arbitrator the decision becomes binding and cost of the arbitrator is also high. (Surveyors, 2014)

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