Although New Zealand’s current regulatory framework does not expressly provide for nature-positive infrastructure, parties to construction and infrastructure projects can take their own proactive approach towards nature-positive infrastructure (NPI) and biodiversity net gain.

This may be particularly relevant for New Zealand contractors and designers working with large international organisations, including funders, who have internal and/or regulated obligations and commitments in respect of biodiversity and carbon targets. Equally, New Zealand organisations are increasingly conscious of their environmental footprint and may wish to consider how they can achieve their own biodiversity and carbon targets through specific clauses in their contracts. Parties can empower their commercial and legal teams to negotiate tailor-made provisions to accommodate specific goals. These goals are best identified at the very outset of projects so that they can be appropriately incorporated into and carried through existing contractual frameworks. Care should also be taken to ensure that these goals are clearly defined and measurable within such a framework, so that any loss resulting from a breach can be measured and is legally enforceable.

How parties are incorporating nature into their construction contracts

The New Zealand context

The New Zealand Standard Form suite of contracts, the most commonly used model for construction contracts in New Zealand, do not address NPI or environmental considerations (other than general compliance with environmental law obligations). Given that NZS 3910 has recently been updated, and is only updated at 10-year intervals, parties who wish to incorporate these principles into their contracts will have to use bespoke special conditions and should take care to ensure that these provisions align with the general conditions of NZS.

One way environmental concepts are considered during procurement and contracting in New Zealand is through the New Zealand Government’s focus on “Broader Outcomes”. Broader outcomes are secondary benefits generated through traditional procurement and can include environmental outcomes. A requirement for applicable public sector organisations to consider, and incorporate where appropriate, broader outcomes into procurement was included when the Government Procurement Rules were last updated in 2019. The Government has also designated certain contracts / sectors where priority outcomes must be implemented, e.g. achieving lower emissions is a mandatory consideration for the purchase of new Government vehicles.

Broader Outcomes can be (but are not always) incorporated into the contract itself following the procurement stage, through the use of targets and reporting obligations. For example, one recent government project had identified the broader environmental outcomes of striving to minimise waste and achieving Green Star outcomes. These, (along with other Broader Outcomes identified) were incorporated into the contract through (1) general obligations on the contractor to take steps and use “reasonable endeavours” to achieve the Broader Outcomes, (2) provisions requiring the contractor to report on Broader Outcomes with the submission of each payment claim and prior to Practical Completion and (3) requiring a Broader Outcomes Lead as part of the “Key Personnel” under the contract.

While not subject to the Government Procurement Rules, the heightened global focus on Environmental, Social and Governance matters has meant the private sector is also considering how to incorporate environmental considerations into construction contracts going forwards (e.g. Green Star certification is becoming a more common feature).

The Chancery Lane Project

Parties are already incorporating broad environmental considerations into private contracts through the work of The Chancery Lane Project (TCLP). TCLP has prepared dozens of model clauses and other legal resources relating to environmental considerations, which are freely accessible online for use in all types of commercial contracts. Helpfully, there is a specific clause bank that has been prepared for construction-specific contracts.

The model clauses provided by TCLP tend to focus on achieving net zero carbon, rather than the biodiversity net gain outcomes sought in NPI. Nevertheless, some nature-positive principles are incorporated. Further, the net zero carbon provisions provide a useful starting point for considering how to craft NPI-specific clauses.

For example TCLP’s Edgar’s Clause, designed for insertion into landscape architect appointments and/or building contracts, incorporates NPI principles such as nature-based solutions and biodiversity net gain. It requires the landscape architect to work with other professionals to ensure that the development achieves a specified percentage biodiversity gain which will be maintained for at least 30 years. It also imposes a minimum percentage of native flora and an obligation that only native trees are specified for use in the landscaped area.

TCLP’s Mary’s Clause requires the contractor to promote “Environmental Objectives” when performing its obligations under the contract. One such environmental objective is “the protection of the environment (including the prevention of atmospheric and other pollution and the protection of wildlife and wildlife habitats)”. The contractor is also required to use all reasonable endeavours to “protect and enhance existing ecological features on site”, aligning with the NPI principle of enhancing the environment rather than just preventing harm.

TCLP is a resource that nature-conscious parties may use as inspiration and/or a starting point for ways to incorporate NPI and other environmental principles into their contracts. Parties will, however, need to ensure that these clauses are adapted to suit (1) their desired environmental outcomes; (2) the relevant project; and (3) the contract into which they are being incorporated.

Overseas

Another way parties to construction and infrastructure contracts may account for nature is through the IS Rating Scheme (version 2.1). This is a rating system for evaluating economic, social and environmental performance of infrastructure across its lifespan introduced by the Infrastructure Sustainability Council (ISC).

In Australia, infrastructure projects are often required to be certified under the IS Rating Scheme when over a certain CAPEX threshold. For example, the Queensland Government and Main Roads Western Australia have directed that infrastructure projects over AUD $100 million value must undertake a sustainability assessment with the ISC.

These projects often also specify a requirement to meet the criteria for a credit called Eco-1: Ecological Protection and Enhancement, which aims to reward maintenance or enhancement of ecological value [1]. There are multiple levels of Eco-1. Level 1 requires that there is no quantifiable loss (post-development) to the ecological values of the site, while Level 2 goes further and requires quantifiable net ecological gain when compared to its predevelopment state. Offsets under specific conditions are permitted but must demonstrate that they are like-for-like in terms of ecological features and value, and demonstrate that they achieve conservation in perpetuity.

The IS Rating Scheme is also being considered by New Zealand infrastructure providers. NZ Transport Agency Waka Kotahi’s Sustainability Rating Scheme Policy currently requires [2]:

• all projects over $15 million to consider the merits of ISC certification; and 
• all projects over $100 million to complete ISC certification, except in circumstances specified by the policy.

Legal challenges with contracting for nature

Defining and measuring compliance

Parties should take care, when seeking to incorporate NPI objectives into contracts, to define and measure them in a tangible way so that compliance or breach can be determined, and any benefit or loss can be quantifiable and legally enforceable. Taking, for example, New Zealand’s Ministry for the Environment’s definition of “nature-positive” as ‘activities that lead to nature being restored and regenerated instead of declining’ [3]. If parties chose to incorporate this definition into a contract, they must then determine what “restoration” and “regeneration” of nature would actually look like on a project, and from there develop the right clauses (and scope) to match. This would then set what a contractor or designer would need to achieve.

To assist with the challenges of measuring compliance, parties should seek to have specific, pre-determined environmental outcomes for the project established at the tender stage. Contracting parties may wish to work together through tendering and contractual negotiations to explore project-specific nature-positive requirements and the ways to assess and measure compliance with them, prior to incorporating such requirements into a contract. This will also help set achievable requirements, both in terms of technical feasibility, time and cost.

Enforcing non-compliance

Some parties may want to include nature-positive objectives in their contract as aspirational, at least when starting down the path of introducing these concepts into new projects. However, those wanting binding obligations and consequences for breach of any nature-positive obligations will need to establish a loss to have a legal right to recover.

Accordingly, parties must also give careful thought to connect a failure to meet a certain nature-positive objective to a tangible loss the principal will suffer for a breach (e.g. if the principal has obligations to a funder or insurer and will suffer rate penalties upstream, or if tenants of the principal have agreed to pay more for nature-positive elements of a leased office space). To ensure any such objectives have teeth for breach, this is an important link to establish.

If a party cannot establish actual loss, any bespoke remedies in the contract may be deemed an unenforceable penalty. A clause will be deemed an unenforceable penalty if the consequences for a breach are “out of all proportion to the innocent party’s legitimate interests in performance of the primary bargain” [4]. To use TCLP’s Edgar’s clause as an example, it would be challenging to argue that a failure by a landscape architect to maintain a biodiversity gain for at least 30 years is not a penalty, unless the principal can establish a clear link between breach and loss.

One potential approach could be to incorporate a cash incentive for compliance, rather than a penalty for non-compliance (e.g. a bonus that is released on practical completion if certain environmental objectives are met). Alternatively, meeting an environmental outcome (i.e. biodiversity net gain) could be a pre-condition for practical completion. We recommend that parties carefully consider potential enforcement options with the assistance of their legal advisors.

Key takeaways for contracting parties

In the context of increasing global demand for construction and infrastructure projects to account for nature positivity and other environmental principles, contractors, designers and principals in New Zealand may want to consider ways to incorporate these concepts into their contractual frameworks. While there are challenges and teething problems with designing new regimes within contracts, these can be overcome by engaging with contracting parties and appropriate advisors at the early stages.

Footnotes

[1] Ecological value is the worth placed on ecological features (e.g. species, habitats, processes, ecosystems, community composition), determined in terms of their rarity, vulnerability and role in ecosystem functioning. EIANZ (2015). 
[2] https://www.nzta.govt.nz/roads-and-rail/highways-information-portal/technical-disciplines/environment-and-sustainability-in-our-operations/environmental-technical-areas/sustainability-rating-scheme/. 
[3] Ministry for the Environment. 2023. Helping nature and people thrive: Exploring a biodiversity credit system for Aotearoa New Zealand – Discussion document. Wellington: Ministry for the Environment, p.8
[4] 127 Hobson Street Ltd v Honey Bees Preschool Ltd [2020] 1 NZLR 179, [2020] NZSC 53 at [82] – [89]. 


This article was co-authored by Alice Logan, a Senior Solicitor in our Construction and Infrastructure team.