Do your
homework
A contractor’s guide to rights and obligations
when contracting withhomeowners
Disclaimer: This document is a guide only. It should not be used as
a substitute for legislation or legal advice. The Ministry of Business,
Innovation and Employment is not responsible for the results of
any actions taken on the basis of information inthis document,
or for any errors or omissions.
© Crown Copyright 2017
Publication date: Published in February 2017 by the
Ministry of Business, Innovation and Employment, Wellington,
New Zealand.
Guidance disclaimer: This document is issued as guidance
under section 175 of the Building Act 2004. While the Ministry
hastaken care in preparing this document it should not be
relied on as establishing compliance with all relevantclauses
of the Building Act or Building Code in all cases that may arise.
ISBN: 978-1-98-851733-9 (print)
ISBN: 978-1-98-851732-2 (online)
1
Skills Maintenance
If you are a Licensed Building Practitioner (LBP) you can earn skills maintenance
points for reading thisdocument. You can assign the time you spend learning this
material to an elective activity.
Contents
Consumer protection measures ....................................................................2
Before building work starts .......................................................................... 6
Once building work finishes ......................................................................... 16
If things go wrong ........................................................................................ 20
It’s your
business to
understand
the consumer
protection
measures
2
Consumer
protection
measures
3
The consumer protection measures encourage
aprofessional, no-surprises relationship between
you (thecontractor) and your homeowner clients.
Themeasures should also help homeowners make
better-informed decisions about building work.
Key consumer protection measures related to residential buildingwork:
1. You must provide a written contract for residential building work
costing $30,000 or more (including GST) whenever you are contracting
directly with the client (not subcontracting). We recommend you
have a contract even if the work will cost less, so everyone has an
understanding of obligations, requirements and expectations.
2. Before the contract is signed, if the building work is likely to
cost$30,000 or more (including GST) or if the client requests it,
youmust provide:
• the standard checklist
• a disclosure statement including information about your skills,
qualifications, licensing status and any insurance or guarantees
youprovide.
3. Once the building work has been completed, and regardless of the
size of the job, you must provide certain information or documents
related to the building work. These include ongoing maintenance
requirements, guarantees orwarranties and any ongoing insurance
policies.
4. You must fix any defects you’ve been told about in writing within
12months of the work being completed.
5. The homeowner can take action, for up to 10 years, when warranties
inthe Building Act have not been met.
6. You can be fined if you don’t comply with the law.
4
5
Who is considered
acontractor?
A contractor is any person or business contracted
directly by the client to do residential building work,
whether they are doing all or part of this work.
‘Building work’ covers many different trades and is any work for, or related
to, the construction, alteration, demolition or removal of a residential
building. Note that ‘buildings’ include structures that are not occupied by
people, such as fences and retaining walls.
Remember, all building work must comply with the Building Code, even if
the building work does not require a building consent.
Changes to the Building Act and supporting
regulations
The consumer protection measures are included in Part 4A of the Building
Act 2004, which came into force on 1 January 2015.
Other changes came into effect in November 2013, including an updated
list of work on homes and outbuildings that do not require a building
consent (in Schedule 1 of the Building Act). More low-risk work has been
exempted, but there are limits on who can do some potentially higher-
risk work. For example, certain plumbing and drainlaying work can be
done without a consent but only by authorised people (as defined in the
Plumbers, Gasfitters and Drainlayers Act 2006).
Check out our guidance on building work
that does not require a building consent
atwww.building.govt.nz/projects-and-
consents/planning-a-successful-build
6
Before building
work starts
7
Restricted Building Work
If you’re planning on doing or supervising building or design work as part
of the construction or alteration of residential buildings, this work may
be classified as Restricted Building Work (RBW). You must be an LBP in
the appropriate licence class to do or supervise this type of work. RBW is
everything that involves or affects the following:
> Primary structure – for
example, building work
that contributes to the
resistance of vertical and
horizontal loads (such as
walls, foundations, floors
and roofs).
> Weathertightness – any
work done to the outside
of the building to protect
it from the weather or
elements.
> Design of fire safety
systems – this work
involves elements intended to protect people and property from fire
(egescape routes) inmulti-unit residential buildings.
As a contractor, it is an offence with a fine of up to $20,000 to carry out
RBW unless you or someone supervising your work is appropriately licensed.
Each LBP who carries out or supervises RBW must, by law,
provide a Record of Work to both the homeowner and the
relevant council upon completion. You cannot contract out of
this obligation; and could be subject to disciplinary action and
any applicable penalty.
BECOME AN LBP
If you’re interested in becoming
anLBP or you want to find out
moreabout the scheme, go to
www.lbp.govt.nz.
8
Written contracts are
mandatory for higher
value work
You must provide a written contract for residential
building work costing $30,000 or more (including
GST) whenever you have contracted directly with
ahomeowner (effective from 1 January 2015).
If you are a subcontractor reporting to a main contractor, the requirements
do not apply to you – no matter the value of your work.
Contractors are encouraged to provide a written contract even if the
building work will cost less than $30,000. Having a written contract
helps protect you in case of a payment or quality dispute. It means you
have a written and signed record of how much your client has agreed to
pay for the building work provided, with specific terms and conditions
relevant to the project. See page 12 for information on what your contract
shouldcover.
Calculating the cost
When you’re pricing a job, the price should be the total cost of all
the building work (including supplies, fixtures and fittings) plus GST.
This is regardless of whether all or part of the work is being done by a
subcontractor. The cost of the subcontractor’s work can only be excluded
ifthe subcontractor enters into a separate contract with the client.
Attempting to avoid your obligations by splitting work into separate
contracts of less than $30,000 will not be to your advantage. A written
contract protects you as much as it does the client.
Make sure you’ve included GST in your price.
9
Before signing
thecontract
You must give your client a standard checklist and a disclosure statement
with information about your business before they sign a residential
building contract if:
> the building work will cost $30,000 or more (including GST)
> or the client has asked for these documents.
You can be fined $500 per offence for not
supplying homeowners with a checklist
or disclosure statement if you are
required to.
Standard checklist
The standard checklist has been prepared by the Ministry of Business,
Innovation and Employment and includes information on how the building
project will be structured and managed, having a written contract, and
resolving disputes. This is a standard document that you can easily print
oremail to clients directly from ourwebsite.
DO YOUR HOMEWORK – GET THE CHECKLIST
• The checklist is available at
www.building.govt.nz/projects-and-
consents/why-contracts-are-valuable
• You must not make any changes to the
checklist (ie you cannot add your business
logo or contact details)
• Make sure you have given your client a copy of this (either
printed or electronic). You may be fined $500 if you don’t.
10
Disclosure Statement
By law, if you are going to contract directly with the homeowner you must
givethem a disclosure statement that includes:
> your full legal name
> whether you are trading as an individual, partnership or limited
liabilitycompany
> the address of your business and when it was formed
> contact information, including phone numbers and emailaddress
> information about the key contact person (eg the project manager
or site foreman) who will be involved in carrying out or supervising the
building work, including:
• their relevant qualifications, skills and experience
• their LBPnumber (ifapplicable)
• their contact phone numbers
> information about insurance policies you have, or intend to have,
forthebuilding work. This must specify the amount of the cover and
anyrelevant exclusions on policy coverage
> information about any guarantees or warranties you offer in relation
tothe building work. This must include the period of time the guarantee
or warranty is offered for and any limits or exclusions. If it is a product
warranty, you must specify what products are covered.
If you have been hired by the main contractor (you are a subcontractor),
youdo not need to provide this information.
Anyone who knowingly provides false or misleading information,
orwho knowingly leaves out information they are required to
providein the disclosure statement, is liable on conviction to a fine
ofup to $20,000.
11
Do your homework – prepare a disclosure statement
DO YOUR HOMEWORK
– GET THE DISCLOSURE STATEMENT
You can find a disclosure statement template
online at www.building.govt.nz/projects-
and-consents/why-contracts-are-valuable/
consumer-protection-disclosure-and-checklist
> You can use this template to produce your own disclosure statement,
covering the requirements. Give a copy to every new client before
the contract is signed if the building work willcost $30,000 or more
(including GST), or if the client requestsit.
> If your business is not an individual, partnership or limited liability
company, you will need to write ‘none of these’ against the relevant
question and provide a description ofyour entity (eg a trust).
> You can’t include other information in the disclosure statement, but this
is a good time to provide additional information to your client about your
business – you can attach other documents.
> Make sure you haven’t left anything out as this could be aproblem
later on. Remember that you could be liable for afine of up to $20,000
for providing false or misleading information, or for knowingly leaving
outinformation.
> Contact your insurance company for a copy of your insurance certificate,
and then use this information to help complete your disclosure
statement.
> It’s a good idea to make a master copy of your disclosure statement and
then amend it for each individual job – this can save you time and money.
> If you’re a bigger company and you don’t know who the key contact
person will be at the quoting stage, provide this information to the best
of your knowledge. Make sure you give your client an updated disclosure
statement when you sign the contract if the information has been
updated or changed.
> You can be fined $500 for not providing the disclosure statement,
somake sure you get on to it for each and everyclient.
12
What your written
contract must include
All contracts for $30,000 or more must contain
keyinformation.
Your contract must include the following:
> Names, physical and postal addresses (including the address for the
delivery of notices) of both parties, and all relevant contact details
(egphone numbers and email addresses).
> Address or location description of the site where the building work
willbe carried out.
> Date(s) the contract has been signed by both parties.
> Expected start and completion date and how possible delays will be
dealtwith.
> Contract price or the method by which the contract price will be
calculated (eg fixed hourly rate with materials invoiced separately by
thesupplier).
> Description of the building work that you will complete including the
materials and products to be used (if known).
> Which party will be responsible for obtaining building consents, and any
other approvals required, to carry out the building work.
> Who will be carrying out and/or supervising the building work.
> How notices and certificates will be given by one party to the other.
> The payment process, including dates or stages for payment and how
payments will be invoiced, made and receipted.
> How defects in the building work will be remedied, including reference to
the existence and application of the implied warranties in sections 362I
to 362K of the Building Act.
> The dispute resolution process to be followed if there is a disagreement.
> How variations to the building work covered by the contract will be
agreed before work continues.
> An acknowledgement that the client has received the checklist and
disclosure statement.
13
Do your homework – prepare your contract
> You can purchase NZS 3902:2004 Housing, Alterations and Small
Business contract from Standards New Zealand at www.standards.co.nz
> Check with your industry association (if you are a member) asthey may
have a standard form contract you can use.
> Ask your lawyer about creating your own contract and make sure it
covers all the required minimum clauses.
> We also recommend you talk to your lawyer before signing acontract
fora particular project.
The minimum content only covers the basics. Take time to make sure
your contract is suitable for the building work you are undertaking.
We also recommend getting legal advice about what should be in it.
You can be fined $500 for not having a written contract with the
homeowner if it is required.
14
Default clauses can be
considered part of your
contract
If you haven’t met your requirements under the Building Act and
don’t have a written contract, or if the contract doesn’t include the
minimum content specified in the Act, there are default clauses that
willautomatically be considered part of your contract.
These clauses only apply if you don’t have a written contract or if there is
no clause on the same topic in your contract. Put another way, a default
clause won’t override an existing clause in your contract on a similar topic.
The default clauses cover many aspects of a building project, including that:
> the contractor is responsible for obtaining all consents and approvals
onbehalf of the client
> the contractor may not submit a final payment claim until the Code
Compliance Certificate has been provided.
Don’t rely on the default clauses to be the
terms and conditions for your contract.
Theymay not be favourable to your situation
orappropriate for the building project.
Go to www.building.govt.nz/projects-and-
consents/why-contracts-are-valuable/
contracts-for-your-building-project for details
of the default clauses.
15
Implied warranties
The law sets out implied warranties that apply
toallresidential building work for up to 10 years,
regardless of whether or not there is a written
contract or what the contract terms are.
Implied warranties cover almost all aspects of building work from
compliance with the Building Code to good workmanship and timely
completion of building work. A breach of these warranties is a breach
ofthe contract.
There are ways for homeowners to take action when the warranties
havenot been met. These are in addition to any legal action they can
takeagainst you for a breach of contract.
The implied warranties are listed in section 362I of the Building Act.
Theymust be met for all residential building work.
For the full list of implied warranties go to
https://www.building.govt.nz/projects-and
-consents/why-contracts-are-valuable/
contracts-for-your-building-project
16
Once building
work finishes
17
Information you must
give the homeowner
You must give clients the following information/documents once
the building work is completed, regardless of the price of the work
(effectivefrom 1 January 2015):
> A copy of any current insurance policy you hold for the building work
completed under the contract. This does not include policies that expire
before the work is completed.
> A copy of any guarantees or warranties for materials or services used
inthe building work, including:
• information about how to make a claim
• if the guarantee or warranty is transferable
• and if it must be signed andreturned to the issuer.
> Information about the processes and materials to be used to maintain
the building work. This is particularly important if maintenance is
required to meet the requirements of the Building Code or could affect
any guarantee orwarranty.
Do your homework
> Make copies of any insurance policy certificates you have forthe building
work you carried out, and any guarantees or warranties for the materials
or services you used. Give these to your client at the end of the job.
> Source information on product maintenance from the manufacturer
or supplier, and then give a copy to the homeowner. You might find
this information online (forexample, BRANZ maintenance schedule) or
through theproduct supplier.
> This is an additional requirement, over and above any maintenance
information supporting a consent application.
> It’s okay to provide information on maintenance and insurances as you
go, but it’s easier to save this up and hand it over in a tidy packet when the
project is finished. That way, you also know exactly what you’ve provided.
> Neglecting to provide this information could mean a fine of$500.
18
12-month defect repair
period
There is a defect repair period of 12 months from the date the building
work is complete (effective from 1 January 2015).
If your client tells you about any defective work before the 12 months
areup, you must put it right within a reasonable timeframe from receiving
written notification. It is your responsibility to prove that any defects are
through no fault of your own (or the subcontractors or products you’ve
used) if there is adispute.
How the process works
If you are the main contractor or you have been contracted directly by
thehomeowner, they must notify you in writing of any problems. It’s then
up to you to arrange and manage the repairs, including any issues with
subcontractors. If you’re a subcontractor, the homeowner must advise
themain contractor, not you, of any problems.
When does the clock start?
The completion date is when all the physical building work agreed to by
youand the homeowner has been finished.
The 12-month defect repair period applies to all residential
building work, regardless of theprice.
19
Once the defect repair period ends
Implied warranties in the Building Act apply for up to 10 years, so you
will still be required to remedy defective work after the defect repair
period ends. If you do not agree the work or product is defective and the
12-month repair period has lapsed, the homeowner must prove there
is a defect before you are required to have it fixed (ie it becomes their
responsibility to prove that there is a problem).
Your responsibilities
> You are required by law to fix any defective building work.
> It’s a good idea to do a walk through with your client after each
milestone to show them progress and to check the quality of the work.
It will be much easier (and more time and cost effective) to repair any
defective work or products as you go. If you wait until the end of the
project, you may have to leave work on other projects to come back and
fix something.
> Remember that when clients visit you on site, your obligations under the
Health and Safety in Employment Act 1992 apply. This means taking care
to ensure that visitors aren’t harmed by any hazards in the workplace
that youcontrol.
> If you are the main contractor, you will need to organise therepair of
anything faulty for the homeowner. You are responsible for the work
done by your subcontractors, somake sure you keep an eye on the
quality of their work.
> If a product is defective, it has to be remedied. It is your responsibility
toarrange a replacement for any product you supplied.
Use our guidance on acceptable levels
of workmanship and tolerances at
www.building.govt.nz/projects-and-
consents/sign-off-and-maintenance/
completing-your-project/how-to-
identify-defects/
20
If things
gowrong
21
You have a number of options if you are in dispute
with your client. Some of the basic steps are set
outin the standard checklist you provided before
building work started.
Refer to your contract
and talk to your client
If you have concerns, start by discussing them with the client directly
(orwith the main contractor if you are a subcontractor).
Many complaints and disputes result from misunderstandings, such as:
> Not understanding the terms agreed in the contract.
> Homeowners having unrealistic expectations about the level of quality
they can expect for the amount of money they have agreed to pay
(forexample; if they get four quotes and choose the cheapest one,
theymay not have taken into account that the cheaper option may
uselower quality materials).
> Homeowners not understanding the impact of asking for changes
afterthe initial quote or contract was done.
> Homeowners not being sufficiently clear about the work they want
youto do.
Follow the dispute resolution process in
thecontract
If you are still unhappy after talking things through, your next step is
tocheck the contract to see what (if any) dispute resolution process
youshould use. If a dispute resolution process is stated in the contract,
begin that process.
22
More steps to consider
Seeking mediation
You can try mediation (where both parties try to come to an agreement
with the help of a mediator) if both you and the homeowner agree
to this, even if your contract does not provide for it or if you have no
writtencontract.
Any one of the following groups would be able to provide you with a list
ofsuitable mediators or appoint a mediator if required:
> New Zealand Law Society
> LEADR (an Australasian association of dispute resolvers)
> AMINZ (Arbitrators’ and Mediators’ Institute of New Zealand Inc).
A number of private mediation services are also available.
If the issue remains unresolved, how you progress your
complaint will depend on what it’s about. You should seek
independent advice as to what option is best suited to
yoursituation.
Approaching the Disputes Tribunal or District Court
You can take a dispute to the Disputes Tribunal if your claim is for up to
$15,000 (or $20,000 if both parties agree). If your claim is for more than
this or if you need to enforce the Disputes Tribunal’s decision, you can go
to the District Court.
It’s worth getting some legal advice if you are considering taking the
matter to the District Court.
23
Resolving payment
disputes
The homeowner is legally liable for the amounts due under the contract as
a debt. The most effective way to enforce payment is to use the payment
claim process, under the Construction Contracts Act. The client can object
to a payment claim under the Act, but must do this in a written payment
schedule that indicates what they are prepared to pay (which could
benothing).
The amount the client is prepared to pay is called the scheduled amount.
The written payment schedule must show:
> how they calculated the scheduled amount
> their reason for the difference from your claimed amount
> if they are withholding payment on any basis, their reasons for this.
Seek legal advice on your options if you dispute the information or reasons
in the client’s payment schedule, or the client either:
> doesn’t give you a written payment schedule and doesn’t pay, or
> gives you a written payment schedule but doesn’t pay the scheduled
amount.
For example, you can apply for adjudication under the Act. You can also go
to court to recover the debt, along with any costs.
Applying for adjudication
Under the Construction Contracts Act 2002, you can refer a dispute to
adjudication. This involves an independent person making a decision on
the dispute.
Adjudication is a relatively quick process, as decisions are usually made
within 20 to 40 working days.
The adjudicator’s decision is binding, meaning that any payment ordered
by the adjudicator will need to be paid. However, the same issues can also
be revisited in court proceedings.
24
It is up to both parties either to select an adjudicator or to agree on the
organisation they will ask to nominate one. If you can’t agree about this,
the claimant can request that an “authorised nominating authority”
selects an adjudicator.
There are a number of private organisations and individuals who provide
adjudication services and who can help you choose an adjudicator.
Theseinclude:
> Arbitrators’ and Mediators’ Institute of New Zealand Inc. (AMINZ)
> Building Disputes Tribunal
> Adjudicators Association of New Zealand (AANZ)
> Royal Institute of Chartered Surveyors (RICS).
25
Quick steps
forcontractors
1
First meeting
with homeowner
> Give checklist
2
When quoting > Give up-to-date
disclosurestatement
3
Awarded job
4
Prepare and sign
writtencontract
> Make any further
amendments to
disclosure statement
> Ensure contract meets
allrequirements
5
Check for building or resource
consents (if required)
6
Carry out building work > Provide homeowner and
council with Record of
Work (if required)
7
Provide post-build information Give copies of any:
> Insurance certificates
> Guarantees or warranties
> Maintenance information
8
Final payment
9
Fix any defects
MB13984 | February 2017
For more information about
consumer protection measures:
building.govt.nz/getting-started/
your-rights-and-obligations
Ministry of Business, Innovation and Employment
www.mbie.govt.nz 0800 24 22 43