Geoff Parish as at 15th September 2017

0-CA CONS 6812 – 2017 – Exam – Marking Schedule G:

Marking Guide for Contract Administration CONS 6812 Exam 2017

This document does not represent the level that student’ papers must achieve to earn maximum
marks. If the marker considers a student’s answer is sufficient to earn maximum marks, s/he should
be given them, even though it falls short of the following answers. The Guide addresses ‘typical’
situations that occur on construction sites and is intended to be a resource for students.

QUESTION 1 (Total 12 marks)

While excavating for the foundations Ground Grubbers discover buried hazardous waste material.
Ground Grubbers’ supervisor tells his operatives to stop work and tells Lucy what has been found.

1a. Describe the process that will follow according to physical action, not
the physical aspects of how the waste will be dealt with, but the
physical process that Lucy will start. (3 marks)

1b. What process will take place regarding the cost involved in dealing
with the waste material:

(i) as between Ground Grubbers and JJDCL (3 marks)

(ii) as between SSCL and JJDCL (3 marks)

1c. What impact will this situation have on the Due Date for Completion
of the Contract Works in including cost? (3 marks)

1a. “Hazardous waste” seems to fall within the meaning of “physical conditions” 9.5.1 NZS 3910.
GGL’s supervisor is a subcontractor to JJDCL, and having stopped work, s/he will want to pass
the responsibility on to JJDCL because a term of GGL’s contract with JJDCL reads:

“Subject to our agreement on additional cost if ground excavated on site is

sufficiently different as to affect our excavation costs”

As soon as GGL stops work its cost rise, the supervisor will probably contact Janet as well as
having told Lucy. GGL should also write to JJDCL confirming the situation in detail i.e. when and
where the waste was found and how many operatives have stopped work etc. GGL has a duty to
minimise its losses, it cannot just stop work and do nothing, so at the least it should redeploy its
resources onto other work insofar as that is practical.

Under NZS 3910 JJDCL must deal with the problem itself unless it considers its costs will be a
affected because it could “not reasonably have…foreseen” [9.52] the likelihood of waste which
will “substantially increase [its] Costs”. Janet should “before the conditions are disturbed
notify [Lucy]”. Together they can decide what to do about the waste. There are health and safety
issues to consider as well.

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1b(i) GGL and JJDCL entered into the following contract:

“We accept your offer* of $X to carry out [insert relevant trade] work as
shown on the drawings and specification as attached list [details entered here].

The Conditions of Contract are NZS 3910 Conditions of contract for building and
civil engineering construction which take precedence over any other conditions**.

Please carry out the work in accordance with a programme to be agreed. A

complete set of drawings, specifications, conditions and contract documents is
available for inspection at our office at [address].”

JJDCL’s acceptance of GGL’s offer arguably over-rides GGL’s condition**:

“Subject to our agreement on additional cost if ground excavated on site is

sufficiently different as to affect our excavation costs”

GGL is bound by NZS 3910 conditions insofar as they may be relevant but GGL’s offer expresses
entitlement to be paid the extra excavation cost if sufficiently different, without saying different to
what, so as to affect GGL’s Costs, whereas NZS 3910 requires conditions to be “unforeseen” and to
also be of a nature that “significantly” affects JJDCL’s Costs.

Whether an “experienced” contractor could have foreseen the presence of hazardous waste
depends on the circumstances of the Site, for example was a previous user a chemical manufacturer
[Penrose industrial estate by ‘Tip Top’ corner on the southern motorway out of Auckland has had
some unpleasant activities carried out in the past including arsenic deposits from a timber treatment
plant for example]?

JJDCL would want GGL’s Costs to be of sufficient “significance” so as to be claimable as a “Variation”

under 9.5.4 NZS 3910

1b(ii) SSCL and JJDCL entered into a lump sum contract with NZS 3910 conditions. As outlined above
the “physical conditions” on Site had to “significantly” affect JJDCL’s Costs and be “unforeseen”
by an “experienced contractor”, in JJDCL’s “opinion”, “when tendering” 9.5.2.

That is an objective test, not what JJDCL itself could have foreseen, but what JJDCL thought an
experienced contractor could have foreseen. JJDCL would tend toward the view that the waste
was unforeseeable as supported by a site investigation report given to it by SSCL which failed
to identify any hazardous waste. Who authored it for who is largely irrelevant to JJDCL.

By 5.1.6 “the Principal makes no warranty as to the sufficiency or accuracy of such information.” but
it is nevertheless a pointer toward the expectation that there was nothing untoward in the ground.

JJDCL would almost certainly be considered to be an “experienced” contractor in this form of

construction. If records showed the existence of a manufacturing process on the Site that could
conceivably generate toxic waste then it could be argued that JJDCL could “reasonably have…
foreseen” the possibility of toxic waste being buried on the Site. If however there were no such
records in existence, it is unlikely that its presence could have been anticipated.

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1c. The discovery will impact on the progress of construction work on Site, which may be localised if
the waste is in a limited area, but will have a bigger effect if the waste is located over a wider
area. The important issue is whether the discovery disturbs the regular progress of work on Site
to such an extent that it causes [an important word in law, refer “causation”] the “Due Date for
Completion” [10.2.1] is affected.

A second issue is the nature of the toxic waste itself, whether it is safe to build over an area that
may contain it, asbestos* for example, or whether is of a nature that will permeate the ground
and cause serious problems if left untreated, such as the ground left behind after gasworks were
dismantled i.e. gas generated from coal e.g. Victoria Park at the junction of College Hill and
Franklin Road, now occupied by a New World supermarket, Lake Road, Devonport opposite the
golf course occupied by a builder’s merchant, and Little Shoal Bay reserve, Northcote, were
replaced by natural gas pipeline supplies, taken from the Taranaki Basin mostly. *asbestos is a
health hazard when a fibre attaches itself to a lung wall from breathing in particles, but whilst
contained, it is an inert material.

When investigating a Site near a residential area at tender stage, it can be useful to speak to long
term local residents; they often know things about Sites that are not easily obtained from
available records.

If a “Variation” arises from the process [see 1b(i) above], then by “10.3.1 [Lucy] shall grant
an extension of the time for completion of the Contract Works… if [JJDCL] is fairly entitled to an
extension by reason of: (a) The net effect of any Variation…”. There is no argument against JJDCL
being “fairly entitled” in which case by 10.3.7 [JJDCL] shall not be entitled to compensation for
time-related Costs where an extension of time is granted on grounds other than those in 10.3.1(a)
or (g)”. Therefore JJDCL can claim payment for any delay Costs which will incorporate any costs
claimed by GGL from JJDCL.

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QUESTION 2 (Total 12 marks)

*The Contract Period for the contract between SSCL and JJDCL is 42 weeks
*The period between JJDCL’s occupation of the Site and the date of issue of a Practical
Completion Certificate** is 54 weeks
*Lucy gives JJDCL the following extensions of time:
*[1] Two weeks for SSCL holding up the work on Site as it was unable to provide
mechanical equipment it had to provide to JJDCL under the construction contract
*[2] Three weeks for inclement weather that interfered with the progress of work on Site
*[3] One week for a national strike that interfered with the supply of essential materials
*[4] Two weeks for dealing with the hazardous waste which Lucy decided SSCL could not
have foreseen
*Each additional week on site costs JJDCL an additional $1,500

How much extra to the Contract Price must SSCL pay JJDCL or deduct from the Contract Price for
completing the work 12 weeks later than originally anticipated? [ignore holidays and show all your
calculations as well as explaining the relevant parts of NZS 3910]

Additional time spent by JJDCL on Site = 54 – 42 = 12 weeks

Extensions of time given by Lucy = 2 [1] + 3 [2] + 1 [3] + 2 [4] = 8 weeks

By 10.2.1 The Due Date for Completion of the Contract Works…shall be calculated by adding to the
date of commencement… (a) The period provided in the Special Conditions [42 weeks]; and (b) All
extensions of time, if any, awarded under 10.3 [8 weeks] = 50 weeks.

**10.4 Practical Completion Certificate

10.4.1 Practical Completion is that stage in the execution of the work under the Contract when
the Contract Works… are complete except for minor omissions and minor defects:…

JJDCL completed late in 54 weeks minus revised contract period of 50 weeks = 4 weeks of delay

By 10.5 Damages for late completion

10.5.1 - The sum stated as liquidated damages in the Special Conditions shall be paid by the
Contractor to the Principal for the period between the Due Date for Completion of the
Contract Works… and the time of Practical Completion…

Clause in General Conditions - Title and subject matter Specific condition data
10.5 Damages for late completion
10.5.1 Liquidated damages shall be applied as follows:
• In respect of the Contract Works: ($500 per Working Day)

By 1.2 Definitions
Working Day - A calendar day other than any Saturday, Sunday, public holiday, or any day falling
within the period from 24 December to 5 January both inclusive, irrespective of the days on which
work is carried out

Therefore a week contains five “Working Days” at “liquidated damages” of “$500 per Working Day”
equals $2,500 per week times 4 weeks of delay = $10,000 that JJDCL must pay to SSCL

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By 10.3 Extension of time

10.3.1 The Engineer shall grant an extension of the time for completion of the Contract Works… if the
Contractor is fairly entitled to an extension by reason of:
(a) The net effect of any Variation; [4]*
(b) Weather sufficiently inclement to interfere with the progress of the works; [2]*
(c) Any strike, lockout, or other industrial action; [3]*
(d) Loss or damage to the Contract Works or Materials;
(e) Flood, volcanic, or seismic events;
(f) Any circumstances not reasonably foreseeable by an experienced contractor at
the time of tendering and not due to the fault of the Contractor; or
(g) Default by [SSCL], or any other Person for whose acts or omissions [SSCL] is
responsible, which is not a Variation. [1]*
*See below for analysis
10.3.7 The Contractor shall…be entitled to compensation for time-related Costs where an
extension of time is granted [under] 10.3.1(a) or (g).

Re [4] hazardous waste:

9.5.4 [If] the conditions…could not reasonably have been foreseen by an experienced contractor
[Lucy has accepted they could not] and will in [Lucy’s] opinion substantially increase [JJDCL’s] Costs,
the effect of the conditions… shall be treated as a Variation. Although Lucy “decided SSCL could not
have foreseen” them, she still has to decide whether in her opinion, they “substantially increase
[JJDCL’s] Costs”.

Lucy’s opinion must be rational, and not capricious; she must keep an open mind in deciding the
issue, free of personal opinions.

The Engineer under the contract has a quasi-judicial role when making such decisions [see 6.2.1(b)].
For an interesting perspective on decision making see as an article by Missouri Chief Justice Mary R.
Russell at https://www.courts.mo.gov/page.jsp?id=75553. It’s a US article but they are often much
better than UK related articles, especially factual articles, which tend to pack a lot in.

A dictionary meaning of “substantial” is “of considerable importance, size, or worth”. JJDCL’s delay
costs alone are $1,500 a week without GGL’s costs, and the cost of dealing with the waste. It is
difficult to find that Lucy would not be able to conclude that the hazardous waste did not
“substantially increase [JJDCL’s] Costs” and therefore [4] can be considered to be a “Variation”.

[2] Inclement weather and [3] industrial actions excuse JJDCL from paying damages to SSCL but do
not allow it to recover is costs.

[1] Is a “default” by SSCL for delaying the contract by not supplying mechanical equipment on time,
which is not a “Variation” but as such it still allows JJDCL to recover its Costs.

JJDCL can therefore recover its Costs for [1] two weeks plus two weeks for [4] which is a “Variation”
** = four weeks at $1,500 per week, a total of $6,000.

In summary JJDCL receives $6,000 Costs but must pay SSCL damages of $10,000 so the answer is
$4,000 deducted from the Contract Price for delay in completion.

** This only applies to JJDCL’s delay Costs, the actual cost of the “Variation” e.g. removing toxic
waste from Site is recovered separately

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QUESTION 3 (Total 6 marks)

If a dispute had arisen over responsibility for the cost involved in dealing with the hazardous waste
in QUESTION 1 explain what the benefits to both SSCL and JJDCL would have been by using the
adjudication process under the Construction Contracts Act 2002 to resolve the dispute compared to
taking the issue to the District Court for resolution by litigation.

To file a claim in the District Court is quite simple, and can be done on Forms obtained by either SSCL
or JJDCL from the internet [https://www.justice.govt.nz/courts/going-to-court/without-a-
lawyer/representing-yourself-civil-high-court/documents-prescribed-forms-and-useful-templates/].
The claimant pays a fee to file the claim with the Court and the respondent must have a copy served
on it by the claimant. The respondent then files its version of events in reply. At this stage there is no
need for lawyers to be involved. Whether a party needs one depends on how competent s/he is in
relation to construction work and the law. There are several potential interlocutory processes* that
may be performed before a Court hearing takes place, for example an order for discovery and
inspection of documents. The Court will probably call for a conference ** to take place where the
parties are persuaded to reach a settlement between themselves, but eventually a hearing can take
place.* see https://www.turnerhopkins.co.nz/faq/interlocutory-orders/ which has some useful
information ** The purpose of a judicial settlement conference is to give the parties to the
proceeding an opportunity to negotiate a settlement of the claim or any issue...A judicial
settlement conference must be convened by a Judge and held in chambers.
District Courts Rules 2014 (LI 2014/179) 7.3 Judicial settlement .

Research in 2011 for the Law Foundation on civil cases produced the following conclusions:
http://www.lawfoundation.org.nz/?p=1119
 The majority of cases in the High Court are resolved relatively quickly (84% of these types of cases last year
were resolved in an average of 252 days); However, there is a subset of cases (those that proceed and are
allocated hearing dates) that can take a considerable time to progress (an average of 608 days).

 Similarly, in the District Court, most cases are resolved relatively quickly (99% of cases did proceed to the point
of being allocated hearing dates last year and were resolved in an average of 307 days), with a small number of
cases that proceeded to being allocated hearing dates taking some time to be resolved (an average of 589 days).

 In the Disputes Tribunal cases are resolved fairly quickly, with cases last year taking an overall average of 82
days to be resolved.

Factors accounting for slow progression time: Drawing on international research and anecdotal reports and views
of members of the New Zealand legal profession, the following factors were identified as contributing to delay in
some cases:

 Lack of judicial control over proceedings

 Lack of management of judgment delivery times

 Demand on limited court resources

 Increase in case complexity

 Lack of judicial specialisation

 Discovery processes

 Counsel behaviour

 Local legal culture

If the parties are able to reach an agreement between themselves the District Court can offer a reasonably
effective solution but once lawyers become involved, the atmosphere changes. Lawyers have an obligation to do
their best for their client to ‘win’, not ‘horse trade’.

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Time is an issue, and cost become a big issue with lawyers.

Another big cost in a hearing is the need for the opinion of experts. Judges don’t decide facts on specialist areas
for themselves.

Money is the predominant issue in construction disputes but it typically involves issues of quality and time for
completing the work. Whether work satisfies contractual requirements and when the Contract Works should have
been completed involve opinion, and the Court is only interested in opinion delivered by experts who typically
offer diametrically opposite opinions given the same facts, hence the joke popular amongst lawyers that: ‘there
are liars, damned liars, and then there are expert witnesses’. A magistrate in England some years ago added:
‘and then there’s my brother in law”.

In the adjudication process the parties can choose an adjudicator who understands construction work and can
make up his or her own mind up about issues such as qualiity and time. Given the nature of most construction
disputes, an adjudicator who has some knowledge of the law is preferable to a lawyer who thinks s/he has some
knowledge of construction work. In my opinion.

In the case in the Exam question the circumstances would have influenced the choice of adjudicator, for
example, if the waste had affected the structural design, a structural engineer may have been the best choice. It
depends on why the issue was in dispute, if it was about how to remove the waste material, someone who
understood hazardous waste removal techniques could have been preferred. Ultimately the advantage with
adjudication is the flexibility it offers to employ a suitable person as adjudicator; horses for courses.

The second big advantage of adjudication is speed of the process. One party files a notice of adjudication and if
there is no problem between them choosing an adjudicator, can expect an outcome [a determination] in about six
weeks.

Each party has a single opportunity to put its case forward, the adjudicator considers them, publishes a decision,
and regardless of its accuracy, a Court will enforce it. For this reason it is only an interim decision which can be
challenged in litigation or arbitration, but anecdotal evidence suggests most parties will abide by the adjudicator’s
decision for reasons of economic efficiency.

This is why choice of adjudicator is essential. Most construction disputes revolve around the work done rather
than complicated legal issues, which is what lawyers are trained to focus on. An adjudicator also needs to be
able to adopt an independent role, for which reason I wouldn’t recommend anyone to use an ex builder to act as
an adjudicator unless wanting the contractor to win. Architects are slightly better than the typical builder having
more focus on the legal side of things. Quantity surveyors are probably the most independent profession,
followed by engineers. This is my personal opinion.