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Fixed Term Contract

Written by Nick Gillies and Michael O'Brien on January 30th, 2014.

The Fixed Term contract replaces Appendix C to NZS 3910:2003.  It is intended to be used for provision of services over a defined period of time (eg maintenance, inspection, testing, cleaning, etc), rather than for a fixed scope of work.  Parties to fixed term contracts will find it more convenient using NZS 3917:2013, as stand-alone, dedicated form of conditions. 
In broad terms, Fixed Term contracts have a specified Contract Works Period, which begins with the Date of Commencement and ends with the Date of Expiry.  The Principal must give the Contractor (non-exclusive) occupancy of the site from the Date of Commencement, so that the Contractor can begin the works.  There is a suspension mechanism if occupancy is given late.  Within five working days of the Date of Expiry, the Engineer inspects the works (or a separable portion, if applicable) and issues a Certificate on Expiry.  If the Contractor has any outstanding obligations (eg un-remedied defects), the Engineer can allow the Contractor to return to site to complete these, or have them completed by a third party at the Contractor’s cost.  Once all obligations are complete, the Engineer issues a Final Completion Certificate and the Contractor’s final payment claim is due within 1 month after this.
Defining the scope of works (including whether they are to be provided exclusively) and the time period(s) is plainly fundamental to Fixed Term contracts and care should be taken when recording these in the Specific Conditions (Schedule 1).
Some of the key changes or features are discussed further below.
There is some new terminology, including:
  • ‘Date of Commencement’, which replaces the description “commencement of the contract period”;
  • ‘Date of Expiry’, which replaces the ill-suited “Due Date for Completion”; and
  • ‘Contract Works Period’, which had no real equivalent in Appendix C to NZS 3910:2003.
Possession (clause 5.4)
Possession of the site remains non-exclusive, which reflects the fact that the site or assets will remain in use during the provision of the works.  Rights of access by others (eg other trades) during the Contract Works Period may now include organisations and body corporates (as well as natural persons). 
Programme (clause 5.10)
The Contractor is required to provide a programme within 10 working days after its tender is accepted, and at other intervals thereafter as stated in the Special Conditions. The programme must demonstrate the proposed order of work, specify dates for commencement/completion of the various parts of the works and include anything else agreed.  This differs from the programme requirements under the Construction and D&C contracts.  However, as with those other contracts, no payment is due until the programme has been submitted to the Engineer. 

Insurance (section 8)
Specific insurance provisions have been included, where previously Appendix C to NZS 3910:2003 was silent.  These allow the insurance requirements to be tailored bearing in mind that, unlike with a Construction contract, the works do not involve the creation of a financially valuable asset requiring protection.  The asset or facilities already exist and may already be insured by the Principal against certain perils.  For this reason, the provision of insurance – to protect the works and the assets – should primarily be the responsibility of the Principal (see clauses 8.8 and 8.9).  However, the parties will need to consider the particular requirements in each case, and record this in the Special Conditions.
Certificate on Expiry (section 10)
The ‘practical completion certificate’ regime is replaced with a Certificate on Expiry, which is issued by the Engineer within 5 working days after the Date of Expiry.  This certifies the end of the Contract Works Period and lists any obligations that remain outstanding (or have not been properly performed).  Where there are outstanding obligations, the certificate will also either:
  • give the Contractor a period within which to complete these (eg finish outstanding work, fix damage, remedy defects, etc); or
  • give notice that the Engineer will instruct others to undertake the relevant work at the Contractor’s cost.
While the Engineer appears to be free to elect either option, in most instances, we would expect them to give the Contractor one final opportunity with the Certificate of Expiry before instructing someone else.
When all outstanding obligations have been completed, the Engineer will issue a Final Completion Certificate in the form set out in Schedule 16.
Defects Liability (section 11)
The defects liability period under Appendix C to NZS 3910:2003 has been done away with as it was ill-suited to a fixed term contract.  Instead, all defects should be remedied during the contract works.  The Engineer can notify specific defects and/or direct the Contractor to search for defects prior to the Date of Expiry.  The cost of such searches and any remedial work will be treated as a Variation, unless the Contractor is responsible for the defect.
If any defects remain at the Date of Expiry, the process described above with the Certificate of Expiry will apply.
Payment (section 12)
A similar payment process to that used in the Construction and D&C contracts has been adopted in the Fixed Term contract.  The final payment claim must be submitted within 1 month of the Final Completion Certificate.
Retention monies (clause 12.3)
Parties still have the option to require retention of monies in the Special Conditions.  However, this may not be appropriate in some fixed term contracts.  If a retention is required, any sums retained will be calculated according to the formula/percentages and maximum retention in the Special Conditions.  These formulae/percentages/sums will generally be less than those in the Construction and D&C contracts.  One half of the retention (less the Engineer’s assessment of the cost of completing any outstanding obligations) is to be released following the Certificate of Expiry.  The remainder is due as part of the Final Payment Schedule.
A bond can be used in lieu of retentions.
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