In brief - Contracts should be clear on standards and responsibilities

Disputes involving standards and specifications are common in the construction industry. A major area of uncertainty and, therefore, dispute is the applicability of standards, particularly when determining whether a professional duty has been discharged negligently or in breach of contract.  

Consider the following examples of the obligations imposed on construction and engineering professionals at law.

Builder should have been aware of timber structures standard

WB Jones Staircase and Handrail Pty Ltd v Richardson [2014] NSWCA 127 concerned a balustrade which failed due to non-compliance with AS 1720.1- Timber Structures Code. The building company tried to argue that it was a "general builder" and as such had an overall knowledge of building requirements, but not the requirements of specialist sub-trades.  

The court accepted that some types of builders might not be expected to be aware of every standard applicable to the construction of a home (e.g. the standard applicable to a specialist trade such as that of an electrician), but considered that AS 1720.1 was an important standard that it should have been aware of. Accordingly, the builder was held to be liable.

Engineer should not have complied with international standard under critical review

BHP Coal Pty Ltd and Ors v O and K Orenstein and Koppel AG and Ors [2008] QSC 141 concerned the collapse of a mining excavator following repair works designed by an engineer. The engineer tried to argue that he had complied with a relevant international standard.  

The court held that this was not reasonable in circumstances where the international standard had been at the relevant time the subject of a critical review by the issuing authority. Accordingly, the engineer was held to be liable.

Obligation to comply with applicable Australian Standards implied in contract

Industrial Conveying (Aust) Pty Ltd v SKM Recycling Pty Ltd [2012] VSC 278 concerned the design and construction of a waste recycling plant. A key question was whether there was an implied contractual obligation to comply with applicable Australian Standards.  

The court held that where there was a statutory obligation to comply with Australian Standards, a corresponding contractual term would ordinarily be implied.

Steps to avoiding commercial disputes around standards

In contract, it is common for there to be uncertainty about whether standards provide the baseline for measuring performance. For example, standards do not necessarily have application without statutory or contractually sourced obligation.  

In residential projects, standards are often incorporated by statute. But in a commercial context, there can be great uncertainty about whether a standard applies and who is responsible for achieving it. Particular problems arise when standards are superseded.

Many such disputes can be avoided by taking these four simple steps.

  1. Clarity: Make sure the contract specifications clearly set out all requirements in respect of voluntary standards and codes. If you are a downstream party, like a contractor, subcontractor, engineer, architect, supplier or other consultant, this may require you to issue clarifications, deviations or qualifications, or to otherwise amend the contract prior to entry.

If you are the upstream party, like a government agency, principal or financier, you should use a risk and opportunity matrix to check that the specifications (and balance of contract) match your expectations and requirements. It is useful to get a qualified independent person to perform a final sanity check.

  1. Discrepancies: Make sure that there is a way of resolving inconsistencies, ambiguities and other issues between parts of the specification or between the specification and other contractual or extra-contractual documents. For example, if there are two applicable standards and one requires a higher level of performance, check that the contract prescribes which one needs to be complied with.
  2. Changes: Make sure that the contract clearly states the obligations of and consequences for all parties where standards, codes or other relevant guidelines are created, amended or discontinued. Check not only that the contract specifies the correct versions of standards or codes but also how the contract caters for changes occurring before, during or after the performance of works. In some contracts, this can be achieved by defining voluntary specifications and codes as legislative requirements.
  3. Maintain currency: Implement a system of ensuring that you are up to date with the current standards. The specification of an obsolete standard, or pricing on an obsolete standard is a common error in the construction and engineering industry. Avoid being caught by this expensive error.

Always analyse and review contract documents

These are just a few methods to reduce the risk of uncertainty emerging from a loose definition of applicable standards in specification. There is no substitute, however, for diligent analysis and review of contract documents.