Risk Has a New Rulebook.

The End of 'Last Man Standing': How Proportionate Liability Will Reshape NZ Construction

MBIE has provided a crucial update on the shift to proportionate liability and self-certification in NZ construction. Learn how these reforms will impact risk and insurance.

Team ConInnova

Jul 1, 2026

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Introduction

For years, the New Zealand construction sector has operated under a legal framework that many in the industry view as fundamentally unfair: joint and several liability. Under this system, if a building defect occurs and multiple parties are at fault, a plaintiff can pursue any single party for the entire cost of the damage, often targeting the 'last man standing' with the deepest pockets or the best insurance cover.

This is about to change.

In a recent sector update, the Ministry of Business, Innovation and Employment (MBIE) confirmed that legislation to introduce a proportionate liability framework is advanced and awaiting introduction to Parliament. Described by MBIE as 'the biggest piece of reform we are currently working on,' this shift will fundamentally alter how risk is allocated, priced, and managed across the construction supply chain.

Government policy is set to shape the next phase of New Zealand's infrastructure sector. (Source: PASAI)

What is Proportionate Liability?

Under a proportionate liability regime, a party is only liable for the portion of the damage they actually caused. If a contractor is found to be 20% responsible for a defect, they only pay 20% of the damages, regardless of whether the other at-fault parties (such as designers, engineers, or the council) are insolvent or uninsured. This represents a massive shift from the current system, where a contractor found 20% at fault could be forced to pay 100% of the damages if the other parties cannot pay.

The Timeline for Change

While the legislation is drafted, MBIE has indicated that the government must still find time to introduce the bill into Parliament and navigate the select committee process to meet its 2026 commitment. Crucially, MBIE noted that the legislation will likely come into force a year after it receives royal assent. This delay is designed to provide sufficient lead time for the market, particularly insurers and warranty providers, to adjust to the new settings.

Accompanying Reforms: Self-Certification and Home Warranties

The shift to proportionate liability is part of a broader suite of reforms. MBIE is finalizing a self-certification regime for residential builders, following the recent royal assent of similar legislation for plumbers and drainlayers. Builders will need to pass a means test to qualify, ensuring they have the financial capacity or insurance to back their work.

To protect consumers under the new framework, mandatory home warranties for standard residential housing are also being introduced. MBIE confirmed that non-restricted building work will not require a home warranty even if it costs more than NZ$100,000, and that warranty providers are unlikely to cover builders known for creating phoenix companies.

1. Changes to Insurance Settings

The move away from joint and several liability should, in theory, reduce the risk exposure for contractors and consultants. This could lead to a stabilization or even a reduction in Professional Indemnity (PI) and Public Liability (PL) insurance premiums over time, as insurers will no longer have to price in the risk of their client carrying the can for other parties' mistakes.

2. Increased Scrutiny on Subcontractors

Under proportionate liability, principal contractors can no longer rely on the fact that they (or their insurers) will simply cover the cost of a subcontractor's failure. There will be a heightened focus on ensuring that every subcontractor in the supply chain is financially robust, adequately insured, and capable of standing behind their work. Pre-qualification processes will become more rigorous.

3. The Importance of Record Keeping

When liability is apportioned based on fault, the party with the best records wins. The ability to prove exactly what you did, when you did it, and who instructed you to do it will be critical in defending claims. Project teams must treat contract administration and contemporaneous record-keeping as a core commercial discipline, not an administrative afterthought.

Preparing for the New Era

The end of joint and several liability is a welcome development for a sector that has long carried a disproportionate share of risk. However, it requires a shift in mindset. Contractors must begin reviewing their commercial frameworks, subcontract agreements, and quality assurance processes now. When the music stops under a proportionate liability regime, you need to be absolutely certain of what you are, and aren't, responsible for.

At ConInnova, we help contractors build the robust commercial systems and accurate estimating frameworks required to navigate these regulatory shifts with confidence.

References

Wotton + Kearney. (2026, June 17). MBIE updates the construction sector on proportionate liability, earthquake-prone buildings, self-certification and more. wottonkearney.com