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Charging costs back to the contractor, when it holds and when it doesn’t

A back charge needs a route through the contract, a clause that actually says what you need it to say and a number that survives being attacked. Most don’t.

Written by
Tim Christie
Published
26 September 2026
Applies to
NZS 3910:2013 and NZS 3910:2023
Reading time
6 minutes

Every so often the Principal wants money back from the contractor. Rework someone else had to do. A supplier's invoice the contractor should have caught. Damage to something the Principal supplied. Someone says “back charge it” as if that settles it. It doesn’t. A back charge is a deduction from money the contractor is otherwise entitled to. Under NZS 3910 that needs a route through the contract. If you can’t name the route, you don’t have a back charge, you have a grievance.

Find the route first

There are only a few ways money legitimately comes off a payment schedule. Work the Principal had done by others after the contractor was notified and failed to act. Liquidated damages. Amounts the contract says the contractor pays for, like a Principal supplied item it damaged or a test it failed. Something the Engineer has assessed as the contractor’s cost through a variation that runs the other way. Each of those has a clause, a procedure and usually a notice that has to come first.

So the first question is never how much. It is which clause and whether the procedure was followed. If the notice that starts the process was never given, the amount is beside the point.

Read the verb

This is where most back charges fall over and it is worth slowing down on. Someone finds a clause that looks like it makes the contractor responsible and builds a deduction on it. Then you read the clause properly and it doesn’t say what they need it to say.

I had one where the case for a deduction rested on a clause saying the contractor’s programme “shall make due allowance” for a review cycle before ordering materials. The argument was that the contractor ordered early, the design changed and the wasted order was the contractor’s cost. It read well until you read the verb. The clause tells the contractor how to build its programme. It does not prohibit placing an order. And the only consequence the clause attaches to getting it wrong is a programme consequence. There is no money in it. A deduction that had been drafted on that clause was reversed the same day. The sum was not small.

3 questions before any clause is allowed to reduce money. Does it impose the duty you are relying on, or does it only describe how something is to be programmed, documented or submitted. What consequence does the clause itself attach to a breach. Is it a cost consequence or something else. And what did the contractor actually know at the time it made the decision, as against what became obvious once the invoice arrived. A decision that looks wrong now may have been reasonable on the day.

Name the but for cause

Then ask what actually caused the loss. If the chain runs back to a clash, an omission or an error in the Principal’s own drawings, the contractor’s later handling of it rarely breaks that chain. It might have handled it better. That is a different point to it having caused the loss. Say so plainly rather than hunting for a clause to close the gap, because the contractor will find the gap and it costs more to lose later than to concede now.

Test your own position as hard as the claim

A deduction has to survive the same attack you would run on a contractor’s claim. So run it. Take the strongest point against the deduction, not the weakest. Write the answer down. If there isn’t one, the deduction doesn’t go in. And a missing invoice is not a reason to disallow. Proof of cost is a condition of payment, not a ground for refusing entitlement. If the claim is otherwise good, allow it and make certification conditional on the document.

Don’t open points nobody has raised

While you are in the record you will find things. Quantities the contractor could have claimed and didn’t. Costs the Principal could argue and hasn’t. Record them so the file shows they were seen, mark them not adopted and leave them alone. Raising a point the other side hasn’t made is not fairness, it is starting an argument.

Keep it out of the payment schedule until it is ready

A back charge that isn’t ready gets stated, not deducted. The payment schedule says the Principal is assessing an amount under a named clause and reserves it. It doesn’t quietly net it off. Under the Construction Contracts Act every difference in a schedule needs a reason. “Back charge” without a clause and a calculation is not a reason.

How I approach it

I write the deduction up the same way as a variation assessment. The clause quoted, not summarised. What the record shows, dated. What the contractor knew and when. The strongest point against the deduction and the answer to it. Then a number the Engineer can put in a schedule and defend. If I can’t get to that, I say the position isn’t established on the documents held and what would settle it. That is a more useful answer than a deduction that gets overturned.

Got a back charge to test

Send me the clause someone is relying on, the record and the number. You get back whether it holds, in writing, before it goes in a schedule. Claim assessment →

Common questions

About back charges

Can the Principal deduct rework costs from a payment claim under NZS 3910?

Only through a route the contract provides, usually after a notice has been given and the contractor has failed to act within the time allowed. A deduction without that procedure behind it is open to challenge under the Construction Contracts Act, because the payment schedule has to give a reason for every difference.

The contractor ordered materials early and the design changed. Is the wasted order their cost?

Usually not, unless a clause actually prohibits ordering before a stated point and attaches a cost consequence to it. Clauses about how the programme should allow for review cycles are programme obligations. Read the verb and find the consequence before deducting anything.

What if the contractor has not provided an invoice to prove its cost?

Proof of cost is a payment condition, not a ground for refusing entitlement. If the claim is otherwise good, allow it and make certification conditional on the invoice arriving.

What is a but for cause?

The event without which the loss would not have happened. If the loss traces back to an error in the Principal’s own documents, the contractor’s later handling of that error rarely breaks the chain, however untidy it was.

Should I raise a point in the contractor’s favour that it has not claimed?

Record it so the file shows it was seen and mark it not adopted. Do not raise it. The same applies the other way. The Engineer assesses what has been claimed and deducts what the contract allows, not everything either side could have argued.