Introduction

Standards Australia has issued a new draft General Conditions of Contract, to be known as AS 11000.  Standards Australia is inviting public comment on the draft Standard by Friday 27 March 2015.

The publication of the new Standard will represent a significant change for the construction industry.  The new Standard will replace AS 2124-1992 and AS 4000-1997, both of which continue to be widely used in the  industry.  The two current suites of Contracts based on AS 2124 and AS 4000 will also be discontinued, and replaced with a new suite of companion Standards, to be numbered up to AS 11020. 

Along with changes of numbering, structure and style (including the end of the acronym ‘WUC’!), there are several substantial changes from the existing Standards. Industry participants have the opportunity to have input on these now, and we all need to become familiar with the changes in the lead up to the publication of the new Standard.

Key changes in the new Standard

Standards Australia has issued a helpful Statement which contains a summary of the proposed changes, and some explanatory notes.  This can be accessed via the link below. 

According to the Statement, the new Standard is intended to provide “a broadly balanced approach to risk allocation, in language which is focused on brevity and certainty.”1  The underlying principle of risk allocation remains the same as for the current Standards.  This is that “a Principal should not ask a Contractor to price an unquantifiable risk which is within the control of the Principal”.2 

The Statement advises that Standards Australia is “exploring product delivery in a form which is more appropriate for standard form contracts”, and it is anticipated that the standard will be available in a form which meets the contemporary needs of users on publication.  It is unclear exactly what Standards Australia have in mind, but it may involve a move to a product delivery method which prevents or limits the making of changes to the General Conditions (for example something like the interactive pdf which is currently available for AS 4122-2010). 

Some of the more significant changes in the draft Standard are set out below:

  • Good Faith - There is a new express ‘overriding obligation’ for the Principal and Contractor to act reasonably in a spirit of mutual trust and cooperation, and generally in good faith towards the other (clause 2.1).
     
  • Early warning - There is a new ‘early warning procedure’ which applies as soon as either the Principal or Contractor becomes aware of an event or circumstance which may impact upon the time, cost, scope or quality under the Contract (clauses 2.2 to 2.4).  The Superintendent can also initiate the early warning procedure. Significantly, by invoking the ‘early warning’ procedure a Principal may prevent the Contractor from relying on clauses 37.10 or 40.8 to say there was a deemed extension of time or a deemed progress certificate as a result of the Superintendent’s failure to respond to the claim in the required period.
     
  • Dispute resolution - In addition to the early warning procedure, there are other changes which aim to provide for more flexible dispute resolution procedures.  Two alternatives are offered – either conference and arbitration (Alternative 1), or conference, expert determination and litigation (Alternative 2).  In addition, the parties can choose to select either ‘Contract Facilitation’ or the ‘Dispute Resolution Board’ as dispute resolution methods.  Standards Australia intends to produce a separate Standard to set out the procedures for these additional methods (clause 45). 
     
  • SoP Act - The draft Standard has been updated with the aim of bringing it into line with legislative requirements, including the requirements of the Security of Payment legislation in the different States and Territories.  This includes specifying time requirements by reference to business days, and amendments to the payment regime in clause 40.  We note that the proposed timeframe of 10 business days for issuing a progress certificate (in clause 40.5) is a shorter period than the 15 business day periods allowed in South Australia for payment schedules and now allowed in Queensland for payment schedules in response to complex claims. 
     
  • Service by email - Service by email is now catered for, which will be a welcome change, given that businesses now tend to use email communication instead of fax communication (clause 10).
     
  • Subcontracts - It is proposed that the Contractor will be required to use the new AS subcontract conditions (not yet issued) for subcontracts, containing no other amendments or additions except those necessary to reflect the Contract between the Principal and Contractor.  The clause provides for this constraint to apply only where the subcontract sum equals or exceeds an amount to be set out by the parties in Annexure Part A.  Failure of the Contractor to comply with this requirement will be a substantial breach (clause 12).  This is much more controlling of the Contractor’s arrangements with its subcontractors than either AS 2124 or AS 4000 (which merely provide that the Principal’s approval to subcontract may be conditional upon a subcontract including certain provisions).  We anticipate that this proposal may be of concern to some Contractors, particularly those with generic downstream documents.
     
  • Role of Superintendent - The role of the Superintendent is clarified.  New clause 23 is explicit about when the Superintendent is required to act impartially (when certifying, assessing, pricing, measuring or valuing work, quantities or time) and when the Superintendent acts as agent of the Principal (at all other times).  Further, some clauses throughout the draft Standard have been amended to require that the Superintendent must act reasonably (and not as agent) in situations where the Superintendent might have otherwise have been expected to have an agent’s role.  In some cases, this appears inappropriate and may be of concern to Principals, for example in relation to directing Separable Portions (clause 7) and directing suspension of the work under the Contract (clause 36).
     
  • Program - The draft Standard greatly increases the requirements for the construction program to be submitted by the Contractor to the Principal, and provides for the parties to select additional requirements for the program in Annexure Part E (clause 35.5(c)).
     
  • Delay - There are several changes to the requirements for giving notice of delay.  For example:
    • there is now a 5 business day time requirement for the initial notice of delay to be given by the Contractor (clause 37.2); 
    • the timing of a claim for an extension of time is now within 20 business days “after the delay occurs” – this is reverting to the terminology used in AS 2124, and creates uncertainty as to when the time period starts running (when the delay begins or when it finishes?); 
    • there is a requirement for giving notice if ‘further delay’ results from the same cause of delay (clause 37.5).  The drafting would benefit from some clarification (for example, it is not clear whether it refers to a continuation of a delay notified in an earlier claim for an extension of time, or a separate delay arising from the same cause?);
    • there is a procedure set out for the assessment of claims for extensions of time by the Superintendent.  This appears to be aimed at encouraging claims to be resolved promptly and not left until after the project is completed. This includes a bar on a claim for an extension of time which is only triggered where the Contractor fails to comply with a direction to provide additional information (clause 37.12); and
    • the AS4000 deemed EOT if the Superintendent fails to make a decision on an EOT claim within the specified period is repeated in the new Standard, but the deeming is subject to the ‘early warning procedure’ in clause 2.2 being invoked by either party.  
       
  • Extensions of time - The causes of delay which may entitle the Contractor to an extension of time are new.  For the period up to the date for practical completion, the events are defined broadly as those beyond the reasonable control of the Contractor, including inclement weather or industrial conditions (This is similar to AS 2124).  This may be of concern to some Principals, who may prefer a list of specific events which will entitle the Contractor to an extension of time during this period.  The drafting is a little unclear but it appears it is intended that in the period after the date for practical completion (It actually refers to the period ‘before the date of practical completion’) the Contractor will only be entitled to an extension of time for variations and acts of prevention (clause 37.4).  This is a significant move away from both AS 2124 and AS 4000.
     
  • LDs - The ability to specify a cap on liquidated damages in Annexure Part A has been reinstated (This was present in AS 2124 but not in AS 4000) (clause 37.19). 
     
  • Overlapping delays - Clause 37.6 provides for a different way of dealing with overlapping delays.  The Contractor will be entitled to a full extension of time for the overlap, but no delay damages.  This is different to both AS 4000 (which provides for apportionment of the overlapping period) and AS 2124 (which provides that the Contractor would not be entitled to an extension of time for the overlapping period).
     
  • Delay damages - Clause 37.22 now differentiates two different types of payment by the Principal for delay – delay damages in respect of acts of prevention, and delay costs in respect of variations.  The drafting of this clause does not easily allow the parties to select additional events for which the Contractor will be entitled to delay costs or delay damages (AS 2124 and 4000 both provide for any such events to be set out in Annexure Part A). 
     
  • Due expedition - There is an obligation on the Contractor to proceed with the work under the Contract with due expedition and without delay.  Failure to do so is a substantial breach of the Contract, in addition to being a substantial departure from a program without reasonable cause (clause 42.3).  In theory therefore, it would be possible for a Contractor to be compliant with the program, but still in substantial breach of the Contract (if the program allows for ample time).  We suggest that the drafting in this respect in AS 4000 is to be preferred, in that a failure to proceed with due expedition and without delay is only a substantial breach, where there is no construction program. 
     
  • Insurance excess - There are new provisions requiring that the Contractor will bear the cost of any excess payable under contract works insurance (regardless of whether the Contractor or the Principal is responsible for the insurance), unless the loss or damage has been caused by a Principal’s risk (clauses 19.7 and 19.10).
     
  • Principal’s risks - “Excepted risks” have been re-named as “Principal’s risks” and have been expanded to cover acts of terrorism and “sudden or accidental chemical or biological pollution” not caused by the Contractor or its subcontractors, employees or agents (clause 17.3).  Some types of (pre-existing) accidental pollution might also meet the criteria for a latent condition, which will be important to keep in mind for those seeking to transfer responsibility for latent conditions risk.
     
  • Unfixed plant and materials - The draft Standard now provides for the Contractor either to be not entitled to payment for any item of unfixed plant and materials, or (subject to the satisfaction of certain requirements) to be entitled to payment for all items of unfixed plant and materials (clauses 40.10 to 40.13).  By contrast AS 4000 allowed the parties to specify in Annexure Part A particulars of the unfixed items for which the Contractor would be entitled to claim payment. 

There is further information about the changes in the Statement linked below.

If you would like to make a submission to Standards Australia, use the link below.

Links for further information

Click on this link to access Standards Australia’s Statement: Standards Australia Statement.

Click on this link to download a copy of AS 11000 or to make a comment: Standards open for comment

Mark Waddell acknowledges the contribution of Kylie Lightman, Knowledge lawyer, in the preparation of this article.