September 2026
New Zealand’s proposed shift from joint and several liability to proportionate liability under the Building Amendment Bill 2026 (Bill) in the building sector has attracted plenty of discussion. Most of it, so far, has focused on litigation – how will claims be structured, how will proceedings run, and whether claimants will be worse off without the opportunity to seek full recovery from deep-pocket defendants such as councils.
While those are important questions, they are not the whole story. The impact of proportionate liability will first be felt much earlier, at the procurement and contracting stage.
If this reform goes ahead as proposed, everyone involved in a project will need to rethink how they choose contractors and consultants, allocate risk, structure security, and draft their contracts. This is as much a procurement reform as a liability reform.
The Bill is not expected to come into effect until 2027, with a one-year transition period for proportionate liability. That means any building consent issued after the first anniversary of commencement brings the project within the new regime. For projects seeking building consent in 2028 or later, proportionate liability is already a live issue from a procurement and contracting perspective.
New Zealand is not working from a blank slate here. Australia introduced proportionate liability nationwide in the early 2000s. Two decades of operation gives us a useful, and sometimes cautionary, picture of how this kind of reform reshapes procurement and contracting in the building sector.
Among other reforms, the Bill introduces proportionate liability for ‘building project work’ as defined under the Building Act 2004. The regime applies where multiple parties contribute to defective building work and a claim is pursued through litigation, adjudication under the Construction Contracts Act 2002, or arbitration. Multiple causes of action arising from the same defective work are treated as a single apportionable claim, with each party bearing only the share of loss corresponding to its contribution.
Notably, parties who contribute to loss but do not perform ‘building project work’ as defined in the Building Act (building product manufacturers, for example) may fall outside the framework entirely. The regime also does not apply to disputes resolved by agreement, such as mediation or settlement, although the shadow of proportionate liability exposure will obviously influence settlement dynamics.
Under the current joint and several liability regime, if something goes wrong and multiple parties are at fault, a claimant can recover the whole loss from whichever defendant has the funds to pay, even if that defendant was only partly responsible. The reform aims to change that, so liability is aligned with fault, and councils and other ‘last defendant standing’ parties no longer bear disproportionate cost.
Under proportionate liability, where two or more parties are each independently liable to the claimant for the same loss, each party is only on the hook for its share. That is arguably fairer for defendants. But it also means claimants now carry the risk if a party that has contributed to the defect has gone insolvent, disappeared, or was never properly insured.
That changes the question owners need to ask. It is no longer just ‘who can we recover from if something goes wrong?’. It becomes ‘how confident are we that the party responsible will still exist and be good for the money in 10 years?’.
The Australian experience confirms that this concern is not theoretical. Phoenix company activity (where operators fold one entity and start afresh to avoid liabilities) has been a persistent problem, with parliamentary inquiries identifying billions in losses across the broader economy. For New Zealand, that is a strong signal: counterparty due diligence at the procurement stage is not optional.
The Bill prohibits a party from excluding or limiting their liability for defective building work on houses and small-to-medium apartment buildings (up to three storeys, no more than 10 metres high). Beyond that, the Bill is silent on whether parties can contract out of proportionate liability. It is also unclear whether head contractors will remain liable for their supply chain in all scenarios.
These will likely be among the most fought-over questions as the Bill progresses. How they are resolved will largely determine what contracting looks like under the new regime.
The Australian experience shows that where contracting out is expressly permitted or simply not addressed, parties will use contractual mechanisms to replicate joint and several outcomes and effectively engineer around the reform. Expect increased scrutiny of:
Where contracting out is permitted, enforceability will not be a given. Clauses that shift disproportionate risk onto smaller counterparties may face challenge under the unfair contract terms regime in the Fair Trading Act 1986, particularly where bargaining power is unequal.
Insurance is another constraint. Policies may not extend coverage to losses that a party has voluntarily assumed by contracting out of proportionate liability. So even if a clause is legally enforceable, it may not be insurable.
The Australian position on contracting out varies by state. New South Wales generally permits it; Queensland and Western Australia are more restrictive. Where it is allowed, Australian construction contracts now routinely include detailed proportionate liability exclusion clauses. Whatever position the New Zealand legislation lands on, the contractual response will be immediate and sophisticated.
Historically, procurement decisions have been dominated by price, capability, and programme. Those factors obviously remain critical, but they will not be enough on their own.
In a proportionate liability world, principals will need to weight financial resilience more heavily. This will include analysis of the contractor’s corporate structure, their insurance arrangements, claims history, and whether they have the long-term capacity to stand behind their work and satisfy a judgment.
Contractors operating through thinly capitalised entities will face harder questions. Tender evaluations may increasingly focus on balance sheet strength, group support, quality assurance systems, and evidence of adequate insurance. Given the rise in the thin prime model among major contractors, this scrutiny will need to extend through the supply chain. The practical reality is that selecting the wrong counterparty may no longer be a mistake you can fix later by recovering from someone else on the project.
Australia shows what this looks like in practice. In the two decades since proportionate liability was introduced, major project owners and government agencies have significantly expanded pre-qualification requirements. Financial health assessments, standing security arrangements, and detailed corporate structure disclosures are now standard in both public and private procurement. While these developments have not arisen because of proportionate liability alone (enhanced security of payment legislation has also played a part), they are worth studying as potential models for New Zealand.
If the law itself offers less protection against counterparty insolvency, principals will look for protection elsewhere. The logical move is to lock in stronger contractual security before work starts. For smaller residential projects, the Bill’s mandatory home warranty requirements (applying to residential building work valued at $100,000 or more, where the work includes restricted building work and requires a building consent) and mandatory professional indemnity insurance for design professionals may well be sufficient.
For larger and more complex projects, particularly commercial developments, expect renewed focus on:
More robust security and insurance requirements will cost money, and those costs will find their way into tender prices.
The long-tail nature of building defect claims reinforces the case for robust security. Under the Building Act 2004, the longstop limitation period is 10 years from the relevant act or omission. This is a hard longstop, except for contribution claims brought by defendants against third parties where a fresh two-year limitation period arises.
Proportionate liability will not change the 10-year time frame, although contribution claims will no longer feature. But combine a long limitation period with the shift of insolvency risk to claimants, and counterparty solvency becomes something you need to assess over a decade or more, not just at contract signing. Bonds, parent company guarantees, warranties, and insurance all take on greater importance, as does ongoing monitoring of counterparty financial health throughout the defects liability period and beyond.
The Government has already signalled accompanying measures, including mandatory professional indemnity insurance for certain design professionals and mandatory home warranties for parts of the residential sector. However, project-specific insurance requirements will remain critical, especially for debt-financed projects.
New Zealand’s professional indemnity insurance market already has its challenges. It is small by international standards, with limited capacity and a concentrated pool of underwriters. The legacy of the leaky building crisis has made insurers particularly cautious about weathertightness and long-tail exposures. Whether new insurers enter the market following this reform, and whether that will ease availability and pricing, remains to be seen.
Australia’s insurance market experience provides an illustration of the challenges ahead, particularly if New Zealand’s legislation permits parties to contract out of proportionate liability. The nationwide introduction of proportionate liability followed the collapse of HIH Insurance (a major professional indemnity insurer) and was partly intended to support the insurance industry. However, where parties were permitted to assume liability beyond their proportionate share by contract, this created insurance gaps and requests for coverage to be extended. Insurers were asked to extend coverage to match contractual commitments that went beyond what proportionate liability required.
For New Zealand, mandating insurance is necessary but does not guarantee it will be available on commercially viable terms. Procurement frameworks will need to consider what alternative risk transfer tools (for example, retained risk, project-wide insurances, and enhanced security requirements) might need to sit alongside any mandatory insurance regime. Proportionate liability will also force participants to ask whether standard contractual insurance provisions are still fit for purpose, and critically, whether sufficient cover will actually be available when defective work comes to light.
On projects where design, product selection, coordination or integration is spread across multiple parties (for example, design and construct projects, projects with extensive design teams or supply chains, and modular construction), the nature of disputes is likely to shift. The question will not just be whether a failure occurred; it will be which party bears responsibility for it.
In a proportionate liability regime, ambiguity around scope and responsibility becomes significantly more expensive. RACIs, risk registers, and project management tools will take on real legal significance as contemporaneous records of who was responsible for what. The practical lesson for New Zealand from the Australian experience is that investing in clear scope delineation and interface protocols at the start of a project is far more cost-effective than trying to untangle overlapping responsibilities in court.
There is also a boundary problem. Parties who contribute to loss but do not perform ‘building work’ as defined under the Building Act, such as manufacturers of building products, may sit outside the proportionate liability framework entirely, remaining subject to joint and several liability. How responsibility is apportioned in these mixed-liability scenarios is likely to be a further source of tension.
The debate so far has understandably focused on litigation. But by the time a claim is made, most of the critical risk decisions are already baked in. Australia’s experience shows that reform like this does not just change litigation, it reshapes commercial behaviour and risk allocation through the supply chain. New Zealand has the advantage of learning from that experience.
Contractors and consultants who can demonstrate strong financials, solid insurance, and a credible track record will be better placed to win work. Those who cannot, may find themselves facing tougher contract terms or being passed over entirely.
The projects that adapt best will be those that:
If you have questions about how these changes may affect your contracts, procurement approach, or projects more generally, contact your lawyer today.