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Protecting New Zealand construction subcontractors Baas, Susan Catherine

Abstract

Non-residential construction projects typically involve a large number of parties and a complicated "pyramid" of contractual relationships. At the top of the project an owner or developer commonly employs a head contractor, who employs specialist contractors, who employ subcontractors, who finally employ workers and material suppliers. Funds for the project are fed in at the top and are intended to trickle down to those at the bottom. However, evidence indicates that this often does not happen and that those at the bottom - most significantly subcontractors - suffer substantial losses. Many countries attempt to reduce subcontractors' losses through legislative intervention. The Canadian common law provinces apply both a statutory "builder's lien", which allows an unpaid subcontractor to register a charge against construction land, and supplementary holdback and trust requirements. By contrast, New South Wales, Australia and the United Kingdom apply a "quick and dirty" form of adjudication in an attempt to reduce the delays in payment disputes. New Zealand is currently investigating the form of legislation that it should enact and has modelled the Construction Contracts Bill on New South Wales adjudication measures. This thesis examines the Canadian, New South Wales and United Kingdom systems for protecting subcontractors, as well as the New Zealand Construction Contracts Bill. It describes these different systems, and applies Cooter and Ulen's perfect contract analysis in an attempt to compare them. It concludes that the New South Wales approach is the most favourable, particularly because of its attempts to reform areas of the construction industry beyond just the problems that subcontractors face. However, it also notes that this approach has very high transaction costs, to such an extent that some proposed reforms may never come to fruition. It therefore recommends that New Zealand take a cautious approach in copying these measures. In addition, the thesis recommends that New Zealand researchers take more time to examine North American builder's lien systems. Protecting construction subcontractors is a complicated issue and the best solution for New Zealand will result from a careful consideration of the many different systems, both before any legislation is enacted and afterwards.

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