Brett Russell of Dominion Constructors. Photo / Brett Phibbs
In nearly four decades working in construction, one of New Zealand's top building bosses says he's never seen anything like the disputes going on right now.
Brett Russell, managing director of Dominion Constructors, said: "In my 39 years in the industry, it has only been in the last three to four years that disappointingly it seems like mediation and adjudication have become almost a necessity.
"This industry has a serious problem with getting timely, clear and impartial decisions
under contracts. Together with fundamental issues with design and unrealistic project
timeframes, these are causing many disputes in the industry," Russell complained.
He called for structural reforms so the sector was improved.
He spoke out partly because his company is owed money by developer West Village Capital Partners, in receivership and liquidation. His business finished the Union St apartments after Ebert Construction's failure in 2018.
Russell said he would do all he could to recover the money but was reluctant to say how much it is.
"Dominion Constructors will pursue all avenues for possible legal action against the relevant parties of the Union Green development," Russell vowed.
Dominion had stepped in at the request of several parties to finish the work, he said.
"Although the project had a number of challenges, Dominion had completed it within the terms of the contract and had been seeking through negotiation, mediation and adjudication to recoup payments to which it was entitled for almost 12 months," Russell said.
"We had agreed on a final account with our client last year, conditional on its funder, but that funding was not forthcoming. Over the last fortnight, two adjudications were awarded in our favour, and we had applied to the District Court for enforcement," he said.
Better systems and more timely and impartial decisions could have prevented the drawn-out process that has lead to this frustrating and disappointing result, he said.
"In the scheme of things, with costs incurred more than 12 months ago, any loss would not impact the company's wider work, but we will exhaust all our options, both for us and for the good of the industry," he said.
"This is a legacy issue for us with any impact accounted for and Dominion's sub-contractors have all been paid, aside from retentions, held separately on trust and to be paid when due," he said.
The group, which includes the building business, had re-focussed 18 months ago to deal with the challenging conditions of the construction sector and with a solid workload is confident in continuing to deliver for its trusted partners.
The Russell family featured in The National Business Review two years ago with an estimated $95m. It was founded by Brett's father, the late Alf, in 1965.
The Herald reported this month how the developer had lost $35m when Ebert went under.
The developer wants the $35m back from insolvency professionals in charge of Ebert, which failed three years ago.
Grant Reynolds of Reynolds and Associates has been appointed liquidator of West Village Capital Partners, put under this month.
Reynolds' first report described the financial fallout from the apartment project and the toll it took on a number of parties.
West Village is listed as owing unsecured non-preferential creditors $17m: $12.5m to its suppliers and $4.48m in related party advances made to that business.
Stephen Bruce Murdoch of Manurewa is West Village's sole director. The company is owned by Hawk I Construction of Upper Hutt whose sole director and shareholder is Logan Jon van Vlierden.
Previously, the Herald had been dealing Myland Partners' Fahad Moinfar and Andrew Fawcet as those controlling the development business. Their names are now not associated with the company.
West Village is also in receivership. McGrath Nicol's Andrew Grenfell and Kare Johnstone are running that. Grenfell said some Union Green apartments are unsold.
"We're just trying to realise the remaining units to be sold," he said. An initial report was not due out from them for two months.
Jeff Walters, a specialist in property and construction law of K3 Legal, said almost every time he hears about the main contractor being liquidated, he also hears of subcontractors suffering losses.
After the collapse of Hartner Construction, the Construction Contracts Act 2002 was introduced to put an end to this problem. But come 2013, Mainzeal collapsed and subcontractors were left owing. And the same happened with the collapses of Ebert and Corbel, he said.
Fundamentally, the act is not working because it prejudices main contractors who generally do not have large balance sheets and are very vulnerable to financial shocks. And when there are disputes, adjudication decisions are not made public – and that needs to change, Walters said.
"Practically speaking, subcontractors will hardly ever be current in terms of payments because offsite work exceeds any deposit received, variations have yet to be assessed and payment arrangements do not match work completed, he said.
Subcontractors get paid by main contractors. Main contractors get paid by the owners.
The adjudication process which the act created is particularly problematic. This process was intended to be an interim dispute mechanism to ensure contractors could get paid and maintain cashflow.
"However, in some cases owners are using the adjudication process as a de facto way of bringing an interim claim for damages.
"Owners are using the process to raise disputes which would be more suited to substantive proceedings. It is not clear why an owner should be able to take advantage of the interim resolution process. The act was not intended to protect owners. It was intended to ensure money flowed through to subcontractors for the work they had performed," Walter said.
A large award against the main contractor can be enough to render it insolvent and the subcontractors will miss out again.
The decisions are confidential and in some cases can be completely conflicting.
"There is no public database of decisions which can be used as guidelines. In a case where the exact same argument was put to two different adjudicators, two different decisions were issued. It would be more efficient if decisions were public and parties could learn from previous decisions and the adjudicators could be more consistent," Walters complained.
The inconsistency problem was due to some adjudicators having a legal background but others not. There was no prescribed expertise for adjudicators and this leads to a disparity in their abilities, Walters said.
The act cannot be used by developers as an interim dispute resolution process, he said.
But John Green of the Building Disputes Tribunal says the system works well, decisions in the forum he established are less expensive than going to court and are delivered much quicker.
The tribunal hears disputes ranging from $50,000 up to more than $100m in a timely, fast, efficient way, he said.
The nature of disputes hadn't changed for years: "Money - it's always money but also variations, extensions of time, contractual interpretation, time-related costs and defective works. More than 100 cases are heard annually," Green said.
Industrial projects dominate new supply, the study found, comprising 65% of new stock.