The standard form of contracts used in construction work are to change in significant ways in the near future. All contractors operating in this arena are likely to be affected.
The body which sets the standard terms and conditions, Standards Australia (SA), recently released a draft AS 11000: General Conditions of Contract (AS 11000) and sought public comment on the proposed changes. It has released a draft AS 11000 as the first contract in a proposed suite of contract conditions intended to replace AS 2124-1992 and AS 4000-1997.
There are 23 contractual issues identified by SA as being addressed in the Draft AS 11000. This article highlights some of those issues.
Requirement to use standard form for subcontracts
It seems one of the objectives SA is trying to achieve with the new standard contracts is a change in industry culture by contractually obliging contractors to use standard subcontracts where threshold contract values are exceeded.
How successful this will be is hard to tell but the draft AS 11000 provides that if a contractor fails to incorporate the AS: 11002 subcontract conditions (except for changes necessary to comply with the head contract) it will be in breach of the head contract. In other words, if AS 11000 is used for the head contract and you are issued with a builder’s or principal’s “special” subcontract (historically full of conditions extremely detrimental to the subcontractor), the builder or principal will themselves be in breach of their head contract. The last Queensland State Government made noises that it was moving in that direction for government funded jobs. It will be interesting to see if the new Labor Government follows that lead and the lead now being shown by Australian Standards.
Construction program changes
Another important change relates to the construction program. Critical path programs using proprietary software applications are standard fare these days and the proposed new contract reflects this. Clause 35.5 of the draft AS 11000 contract refers to a program as “an activity-based critical path program in a time- linked bar (or Gantt) chart format”. This is a change from the previous reference to a “written statement” as is in AS 4000 (clause 32) or a “statement” as is in AS 2124 (clause 33.2). What has to be included in a program is more clearly set out and it includes a requirement to revise the program at agreed stages to take into account actual progress on the job. Programs which are completely behind the reality of the job on site, especially where projects are running late, have been a significant contributor to disputes in the industry in recent years. The proposed changes may go some distance to help overcome this.
Delay and extension of time
EOT’s and damages relating to overlapping delays have also been addressed. Under AS 4000 the superintendent is required to apportion the resulting delay according to the respective causes’ contribution. In contrast, under the proposed new AS 11000 a contractor will be entitled to an extension of time for the period of an overlapping delay (even if any of the delays are caused by the contractor), but the contractor will not be entitled to any delay damages. This could work out to be a significant benefit for parties seeking certainty with respect to EOT claims.
The draft AS 11000 distinguishes between delay damages and delay costs.
Delay damages (being delay caused by the Principal’s act of prevention) are claimed under clause 37.22 and to be assessed and certified by the superintendent under clause 44.5 for each working day involved.
Delay costs (being the cost incurred due to delay to practical completion caused by a variation) are claimed under clause 37.23 for each working day involved and priced by the Superintendent under clause 39.14. The Superintendent is entitled to include overheads but no amount for profit.
The draft contract also recognises the prevalence of the Payment Claim system by providing that the superintendent can receive and issue documents on behalf of the principal under the relevant Security of Payment Act. This is fair enough as commonly under the standard contracts now being used contractors are required to serve the actual principal under the Act but to serve the superintendent under the contract. This has often led to confusion and to some principals not realising the significance of being served with a payment claim. The result has been seen as ‘unfair’ by principals in that position and they have sometimes been justified in feeling aggrieved where they had a legitimate reason for not paying up.
Risk allocation and other changes
The new contracts are meant to observe the same risk allocation principles found in AS 2124-1992 and AS 4000-1997. The changes, including to the EOT provisions, variations, subcontracts, dispute resolution, good faith and other provisions are considered to provide a better and more realistic balance of risk issues which hopefully will provide a more fair outcome for parties lower in the contracting chain.