The changing face of shopping centres in Western Australia Part 2 of 5 - Construction

Following on from our first instalment in this series of e-alerts on “The Rise of Leisure Precincts”, we are now addressing some of the key construction issues relating to shopping centres within Western Australia that are being refurbished or expanded.

When undertaking construction in a pre-existing precinct, shopping centre operators and contractors need to think about access to the site, work areas and laydown spaces. Contractors should also be aware to what extent they are required to co-ordinate their works with, or work alongside other contractors, existing tenants, suppliers, customers and employees.

Given the nature of shopping centre refurbishment works, it is unlikely that a contractor will have exclusive and uninterrupted access to undertake their works. We find these restrictions can often lead to delay and disruption claims. Therefore, as part of any tender or negotiation process, shopping centre operators and contractors should be thinking about:

  • What requirements need to be fulfilled or other works need to be completed prior to the contractor being able to undertake their contracted works?
  • If those requirements or works are late or handed over in a piecemeal fashion is the contractor entitled to time and / or cost?
  • Is the method of working based on a certain sequence?
  • How will each contractor's works be affected if the preferred sequence does not become a reality?

All contractors should carefully check the extension of time and any delay costs clauses in the contract and seek legal advice to understand the risks. Bear in mind also, that if a contractor is not able to commence when planned or the circumstances are a little different:

  • How does that impact sub-contractors and who is ultimately liable?
  • Are the contractual provisions between contractor and subcontractor sufficiently “back to back” to accommodate these potential issues?

All builders, contractors and shopping centre operators should also consider the extent to which they are liable for, or can recover, any consequential loss, such as loss of potential profits or opportunities due to any delay or incident on site. In the context of an operating shopping centre, these potential losses could be quite substantial.

Current focus area

In many new builds and refurbishments of centres within Australia currently, there is a real focus on improving the car parking facilities, including the introduction of parking guidance systems. Rather than fines and wheel clamping, the focus has shifted to providing incentives for people:

  • to use the car park for the purpose intended;
  • who attend the centre at off peak times; and
  • who can spend a certain dollar amount within the centre.

Side deeds

It is becoming more common for contractors to be required to enter into side deeds with the client/principal’s project financier prior to commencing construction. These deeds allow the financier to step into the role of the principal and finish the project, generally when the principal has defaulted under the building contract or finance agreement.

These deeds typically take priority over the terms of the building contract and therefore can significantly impact on the contractor’s rights and obligations. In particular, they may alter the payment process under the contract, for example:

  • by imposing on you the financier’s quantity surveyor’s assessment of your claims rather than the Superintendent under the building contract;
  • placing a limit on the Superintendent’s obligations in relation to variations and extensions of time (despite the Superintendent’s obligations to act as an independent certifier there may be a cap on variation amounts or extensions of time); and
  • affecting the insurance the contractor is required to take out and even the ability for the contractor to terminate the building contract (by imposing a separate and longer regime which allows the financier to step in).

Given the impact these deeds can have on a contractor’s rights under the building contract, it is strongly recommended that a party seek legal advice before entering into one of these deeds.

Innovation

Innovation and the ability to differentiate the centre from all others is the main driver to any new build or refurbishment. The recent redevelopment of Chadstone Shopping Centre included (a quote from Simon Gray of Probuild) a “gridstone construction – a leading-edge technology that is self-supporting and requires no additional frames or columns” 1

Tenancy fitouts

Contractors undertaking tenancy fit out works can be significantly impacted by the progress of the overall construction works. As one of the last contractors through, they can face significant time pressures. Contractors should carefully review any liquidated damages provisions and ensure the level of risk they are accepting is proportionate to the scope of works they are undertaking or can control and they are not left ‘holding the bag’ for all the parties that came before.

Proposed and current WA shopping centre expansions

> Garden City – an additional 55,000sqm for a total of 120,000sqm

> Karrinyup - an additional 49,393sqm for a total of 113,000sqm

> Mandurah Forum - an additional 26,000sqm for a total of 64,500sqm

> Westfield Carousel – an additional 47,108sqm for a total of 130,230sqm > Westfield Galleria – an additional 106,050sqm for a total of 168,365sqm

> Westfield Innaloo – an additional 62,750 sqm for a total of 99,000sqm

> Westfield Whitfords City - an additional 27,000sqm for a total of 77,500sqm

(Measurements approximate and in GLA. Non-retail elements are excluded)2.

Legislation

Don’t forget that the provisions of some legislation are there to assist contractors. The Construction Contracts Act 2004 (WA) will likely apply to your contract for such works. There cannot be provisions in the contract which delay payment until payment is made to parties further up the chain. Payment terms also cannot exceed 50 days. Further, the new Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth) will also render unfair provisions void in circumstances where one of the contracting parties is a small business.

Coming Soon - Part 3

Planning - Considerations for redevelopments