Standards Australia has undertaken a review of AS 2124 and AS 4000, the two forms of general conditions of contract currently in use. The result of this review is the draft AS 11000 – General Conditions of Contract.
Both AS 2124 and AS 4000 are widely used, particularly in the construction, engineering, health, manufacturing and infrastructure industries. Therefore, the proposed replacement of these standards with AS 11000 will impact all parties engaged in these industries.
An invitation for public comment on the draft AS 11000 has been issued, with the last day for public comment being Friday, 27 March 2015.
We would be most happy to assist if you wish to draft and lodge any submissions to Standards Australia on the draft AS 11000.
Significant proposed changes
The Abrahamson Principles of risk allocation form the basis of AS 11000, just as they underlie both AS 2124 and AS 4000.A detailed overview of the differences between the draft AS 11000, on the one hand, and AS 2124 and AS 4000, on the other, may be found in the Statement issued by Standards Australia.
The more significant aspects of AS 11000 are as follows.
1. AS 11002 – companion subcontract
The Contractor must use AS 11002 subcontract conditions. Any subcontracts must contain no other amendments or additional clauses except those necessary to reflect the contract between the Principal and the Contractor. The Contractor's failure to subcontract in accordance with AS 11002 will constitute a substantial breach of the contract.
2. Good faith
A new general obligation is imposed on the parties to act reasonably in a spirit of mutual trust and cooperation and in good faith. Previously, the parties have not been expressly required to act in good faith.
It should be noted that the Superintendent is now only expressly required to act honestly. There is no longer an express requirement for the Superintendent to act in good faith, as it is required to do under AS 4000.
3. Bills to be priced
All items in bills of quantities, whether forming part of the contract or not, must be priced and extended before the Contractor can become entitled to payment.
4. Security of payment
To achieve consistency with the security of payment Acts in many jurisdictions:
- time is calculated under the contract according to business days; and
- the Superintendent is only required to issue one certificate for an amount payable to a party. This enables the certificate to constitute a payment schedule under the relevant security of payment Act.
Further, the Superintendent is given authority to act as the Principal's agent in receiving payment claims and issuing payment schedules.
This will facilitate the making of payment claims and provide additional protection to the Principal in projects where the Principal is heavily reliant on the Superintendent to ensure compliance with the relevant security of payment Act.
The interest rate under the contract, unless otherwise specified, will be 12%. This is lower than the 18% provided for in AS 2124 and AS 4000.
6. Principal's obligations in relation to the Superintendent
AS 11000 uses the regime in AS 2124 and clarifies the Principal's obligations in relation to the Superintendent.
Where the Superintendent is to:
- certify, assess, price, measure or value work, quantities or time; or
- otherwise act reasonably,
it must act impartially.
In all other circumstances, the Superintendent is to act as the Principal's agent.
7. Superintendent's power to accelerate
The Superintendent may direct that the work be accelerated in order to bring forward the date for practical completion. The Contractor must comply with such an acceleration direction if it can reasonably do so. Otherwise, the Contractor must provide written reasons for non-compliance.
8. Contractor's programming obligations
The Contractor must at its cost submit a program to the Superintendent after accepting tender. The program must:
- be activity-based and time-linked;
- show the dates by which, or times within which, the work is to be carried out;
- demonstrate how the Contractor will achieve practical completion on time; and
- otherwise comply with the requirements in a new Annexure Part E which the parties elect to adopt.
The program must be revised to account for actual progress and the Superintendent may request further information and explanation of the program at the Contractor's cost.
9. Contractor's obligation to rectify without direction
The Contractor has an express obligation to rectify work as soon as practicable upon becoming aware that such work does not comply with the contract. A direction from the Principal or the Superintendent is not required for this obligation to arise.
Further, the Contractor must at its cost provide minor items necessary for carrying out and completing the work.
If a party becomes aware of a possible cause of delay, it must promptly and in any event within 5 business days give the Superintendent and the other party written notice of that cause and the estimated delay.
If the Contractor provides the above notice, it must also state whether it anticipates claiming an EOT for that cause of delay.
11. Causes of delay
The causes of delay for which the Contractor will be entitled to EOTs are expressly set out as follows:
- events beyond the Contractor's reasonable control, including but not limited to inclement weather or industrial conditions;
- a variation directed by the Superintendent other than a variation for the Contractor's convenience; or
- an act of prevention, which is defined as any default, act or omission (other than a variation) of the Superintendent, the Principal or its consultants, agents or other contractors.
12. Overlapping delays
If there are two or more causes of delay which overlap and some but not all of those causes of delay would entitle the Contractor to an EOT, then for the period of such overlap the Contractor will be entitled to an EOT but not delay damages (even where the cause of delay entitling the EOT is an act of prevention). Unlike AS 4000, the Superintendent is not required to apportion overlapping delays.
13. Extensions of time
Within 20 business days after receiving an EOT claim, the Superintendent must either:
- assess and direct the EOT; or
- request additional information reasonably necessary to assess the EOT claim which the Contractor must provide within 20 business days at its cost.If the Contractor provides the additional information in time, the Superintendent must assess and direct the EOT within 20 business days after receiving the additional information.
If the Superintendent does not assess and direct an EOT within the specified time periods, then the Contractor will be entitled to the EOT claimed, unless the Superintendent or a party has issued an early warning notice (see 18 below) in respect of that EOT claim.
Extensions of time are measured in working days, which is defined. It should be noted that time in relation to the giving of notices is calculated in business days, which is also defined.
14. Delay damages and delay costs
The contract differentiates between delay damages and delay costs as follows:
- delay damages will only be available for delays caused by an act of prevention; and
- delay costs will only be payable for delays caused by a variation.
There is no provision for delay damages or delay costs in any other circumstance.
15. Pricing variations
The pricing of variations is to include allowances for overheads and profit unless otherwise stated.
16. Prospective variations
If the Contractor considers that a direction by the Superintendent constitutes a variation, the Contractor must promptly and in any event within 5 business days after receiving the direction notify the Superintendent in writing that the direction constitutes a variation and provide reasons.
The Superintendent must respond within 5 business days after receiving the Contractor's notice. If the Superintendent does not agree that the direction is a variation, then the early warning procedure (see 18 below) applies.
The Principal may agree to place a cap on the liquidated damages to which it would be entitled. Similarly, the Contractor may agree to cap any early completion bonus to which it would be entitled.
18. Early warning of disputes
As soon as a party becomes aware that an event or circumstance may impact on time, cost, scope or quality and may give rise to an issue under the contract, it must immediately give written notice to the other party and the Superintendent. The Superintendent must then direct the parties to confer in order to identify and attempt to resolve the issue. If the parties cannot resolve the issue, then the notifying party may make a claim, give notice of a dispute or cease pursuing the issue.
19. Alternative dispute resolution options
Two alternative dispute resolution procedures are provided for. The parties may choose to resolve disputes either by:
- conference followed by arbitration; or
- conference followed by expert determination and possibly followed by litigation.
Other forms of alternative dispute resolution, such as contract facilitation and a dispute resolution board, are also provided for. If these alternatives are utilised, then the anticipated AS 11001 will apply.
20. Alternatives for payment for unfixed items
Two alternatives are provided for payment for items of plant or materials which are to be incorporated in the works as follows:
a. the Contractor is not entitled to payment for any such item whilst the item is not incorporated in the works (i.e. no pre-payment); or
b. the Contractor is entitled to pre-payment if:
i) the Contractor establishes to the Superintendent's reasonable satisfaction that:
- the Contractor has given adequate prior written notice to the Superintendent of the Contractor's intention to claim such pre-payment;
- the item has reasonably but not prematurely been delivered to the site;
- ownership of the item will pass to the Principal free of any security interest upon the making of the pre-payment claimed; and
- the item is properly stored, labelled the Principal's property and adequately protected; and
ii) the Contractor provides additional security equal to the pre-payment claimed.