Smith Stuart; Clark DavidSTUART SMITH (National—Kaikōura): Thank you Madam Chair and thank you Minister—you're giving a good go at these questions anyway. But I want to go a little bit further on the contract and the $250000 because I think it's a really important point. So I want you to imagine for a moment that there are contingencies in a contract and the contract is less than $250000 and the contingencies actually take it over $250000 at a later date. What happens then? Similarly what happens if there are penalties in a contract? We all know there are significant penalties in contracts when certain clauses in the contract are not met and that happens particularly in the building industry lots of our other industries as well and they could easily imagine the contract blowing out over the $250000. I appreciate there'll have to be an arbitrary number but I go back to the point that was made earlier when I first arose in this debate that actually a lot of business is carried out with very large transaction costs but very low actual margins and while $250000 might sound like a lot of money it could be a very small margin.I'm not sure how this number was arrived at and I'm not sure there is a really good number. I don't have a suggestion although I think $250000 is too low but it wouldn't matter what the number is you're always going to have the possibility—well not you Madam Chair but we all can imagine a scenario where a contract with contingencies or with penalties blows out over the $250000 after a claim has been made. I think particularly if it's something in dispute in the building industry that is most likely to occur. So I would like to know what has been—what evidence did the officials look at to deal with this? What advice did the Minister get on this particular subject—both the penalties and contingencies can be quite different—so I really look forward to hearing your response.Hon Dr DAVID CLARK (Minister of Commerce and Consumer Affairs): The contract value threshold is based on an expected annual value at the outset of the contract and I expect—the member when he described contingencies said you know build in contingencies because you expect them to go over. In that case you'd expect that to be the number that's used so there'd be reasonable case law around this.I guess the other thing is if there's some debate about whether it's going to go over or under companies might consider not putting unfair terms in just to avoid the benefit of doubt.STUART SMITH (National—Kaikōura): Well actually Minister that's not correct because the contract could be worth $180000 and the penalties could be blown out over $250000 if the supplier didn't meet certain criteria. If the building fell over for example—if it is a building—I don't know what the scenario would be. But it's quite a common thing for these sorts of things to happen. I'm not talking about the cost blowing out; I'm talking about a penalty clause coming in to action because of some unforeseen thing which may not have anything to do with the disputed payment in the first place or the dispute over payment in the first place. I think these are really important things that happen all the time in business and it sounds very much like this has not been thought through. This will be I would wager the first major case that will come up when something like this occurs and the front-page headline will be how the business that could and should have been able to get redress through the courts can't because the penalty clause has come in and it's blown it out over $250000 and the whole thing falls over. So I respect you had a good go at it Minister but it wasn't quite good enough so I'll give you another chance.Hon Dr DAVID CLARK (Minister of Commerce and Consumer Affairs): I appreciate the member's faint praise. Look to be clear and if he's talking about penalties per se rather than contingencies penalties will not count towards the threshold as they are not to be expected.STUART SMITH (National—Kaikōura): So I'll have another go. So if we imagine building a house and there's a subcontractor that has done the substructures and the builder who's building the structure above the substructure has a dispute on a contract and then the substructure collapses and you get a third party. The penalty clause goes into the builder it takes the builder over $250000 and then they are not able to claim under this law. So have another go Minister because I think you've missed the point and it seems like this is why we need a much more fulsome process to get these things through because clearly this hasn't been teased out in the select committee process. So I think there's a lot more thought needs to go into this because this will turn into a shoddy bit of law and we'll end up with people being significantly disadvantaged from it. Exactly the people this bill seeks to serve will be the ones that are served very badly by it. So I think a lot more thought needs to go into this.Hon Dr DAVID CLARK (Minister of Commerce and Consumer Affairs): Thank you Madam Chair. I clearly have a great deal more respect for the member's colleagues than he does given that the National Party held the balance of power on the committee that dealt with this bill over the normal period that one would expect to deal with a bill and a departmental report was produced and considered by members and I consider that the advice that they passed through to be quite good. Now I'll leave that for the member to discuss with his own colleagues if he thinks they've done a shoddy job in that select committee process such as it was. I actually think the outcome and the advice that's come through from officials to be pretty sound and I can spell it out again for the member that penalties will not count towards the threshold as they would not have been expected.STUART SMITH (National—Kaikōura): It didn't get to this stage so I think that speaks for itself.