There are many standard form General Conditions of Contract available for use on construction projects in Australia. In this article we explore the most common types and the key issues to consider...
AS2124-1992 is the widely-used Standards Association of Australia produced General Conditions of Contract for construction projects. AS2124-1992 is the genesis of several versions of General Conditions of Contract,
- AS2124-1992 Construction Works
- AS2545-1987 Sub-Contract
- AS2987-1987 Equipment Supply and Installation
- AS3556-1987 Supply
- AS4300-1995 Design & Construct
- AS4305-1996 Minor Works
The above contract document are substantially amended with the help and input by legal professionals by private sector Principals prior to use on major projects. AS4000-1997 is the current version of the Standards Association of Australia General Conditions of Contract for Construction. AS4000- 1997 has (theoretically) superseded AS2124-1992 as the Standards Association of Australia produced General Conditions of Contract for construction projects.
AS4000-1997 has helped establish versions as:
- AS4000-1997 Construction Works
- AS4902-2000 Design & Construct
- AS4905-1996 Minor Works (Principal administered)
- AS4906-1996 Minor Works (Superintended administered)
Key Issues in Standard Conditions of Contract
Standard Conditions of Contract have issues arising from the express terms of each of the forms of contract. It is important to remember that, in the event of a dispute, creative lawyers are almost invariably able to mount a range of arguments, whether within the contract or outside it, designed to overcome difficulties which the express terms of the contract may present in particular circumstances.
The objectives of the key points below is to make aware of such potential difficulties so that the reader may consider them and hopefully avoid them altogether rather than discover them when it is too late. Each of the standard forms also requires that notice be given once a discrepancy is identified and that the contract administrator then directs the contractor as to the resolution of the discrepancy. However, the standard forms differ in a number of respects:
Entitlement to Additional Costs
Each of the AS forms of contract makes provision for additional costs arising as a result of a discrepancy to be valued as a variation provided that the additional costs were beyond the reasonable anticipation of the contractor. However, since AS4300 and AS4902 are D&C contracts, provision is only made for such claims in respect of a discrepancy if it arises within the Principal's Project Requirements and not if it arises within the Design Documents or between the Design Documents and the Principal's Project Requirements. Further, AS4902 provides that in those circumstances, the additional costs will be "assessed" rather than being valued as a variation. Nor is it an express pre- condition that the additional costs were beyond the reasonable anticipation of the contractor.
The position generally at law is to the effect that the contractor is entitled to enter into subcontracts but that the right may be limited or negated if the circumstances are such that the Court considers the principal entitled to expect the contractor to undertake the work personally. Whether or not this is the case will depend on the circumstances. Each of the standard forms of contract allows for subcontracting. AS forms of contract do so by implication in that they impose express limits on the right to subcontract, which presuppose the existence of the right. Each of the standard forms of contract requires that the liabilities, obligations etc. of the contractor will be preserved notwithstanding any subcontracts. AS forms of contract allow for the subcontracting of identified parts of the works to be conditional upon the consent of the principle, which consent is not to be unreasonably withheld. Under these contracts, those parts of the works need to be specifically identified. Each of the standard forms requires as a minimum that the subcontract include terms by which the subcontractor may be novated in the event that the head contract is terminated.
AS4000, AS4300 and AS4902 prevent the contractor from allowing a subcontractor to enter into a further subcontract without the consent of the principal. AS4300 and AS4902 also deal more specifically with the termination of the head contract, the novation of subcontractors and the requirements for consultants to carry professional indemnity insurance. They also include a power of attorney by which a novation may be implemented.
Project Program Schedule
Construction programs are now a universal management tool in the construction industry. As useful as they are, they can give rise to unexpected difficulties under the contract. For example: • What is the effect of the principal failing to comply with an obligation included in a construction program? Will this give rise to an entitlement to delay and/or disruption costs on the part of the contractor? • What is the effect of an instruction that the construction program be varied? Will this amount to an instruction giving rise to an entitlement on the part of the contractor to acceleration costs? • How does the construction program relate to the time for practical completion under the contract? AS2124 and AS4300 provide that a construction program may be volunteered, directed or included in the contract. It is to be complied with unless there is reasonable cause. The superintendent may direct changes to the program, the costs of which will be valued as a variation unless they were necessitated by a fault of the contractor. The construction program will not effect the obligation of the principal as to the time for the provision of information etc. AS4000 and AS4902 provide that the superintendent may direct the provision of a construction program. It is deemed to be a contract document. Any costs arising by reason of a directed change are to be "assessed". The costs are not specifically required to be valued as a variation. There is no specific provision to the effect that the construction program will not effect the obligation of the principal as to the time for the provision of information etc. However, the necessity for such an express provision is not so marked in this form of contract since the obligation as to the timing for the provision of information etc. is here included within the same clause.
Limits on Scope: AS forms of contract include an express provision in different changes to the effect that a variation must be within the general scope of the contract and must be contemplated by, and capable of being performed under, the contract. The general law is to the effect that there will be no power to order a variation unless the contract includes an express power to vary and further that any such power will be subject to a limit imposed by the law. In Writing: AS2124 and AS4300 provide that the variation instruction may be directed or approved in writing. A direction need not be in writing. AS4000 and AS4902 provide that the variation must be directed in writing. Broadly speaking, a requirement of writing will be effective but is not insurmountable given the creativity of construction litigators and such tools as the Trade Practices Act, estoppel and separate contracts. Timeframes for Assessment: AS4000 and AS4902 provide that the variation must be assessed as soon as possible. The other forms of contract do not address the time within which the value of the variation must be assessed.
Extensions of Time
The single biggest issue in respect of extensions of time is what is known as the Prevention Principle. The Prevention Principle is to the effect that the principal should not be entitled to the benefit of liquidated damages if it is the principal that has caused the delay. This is reasonable enough. However, real difficulties arise where the contractor could have claimed an extension of time under the contract but did not, or did not do so within time. This is the explanation for the inclusion in each of the standard forms of contract of a power that may be exercised unilaterally by the contract administrator to extend time under the contract. If the contract does not include a unilateral power to extend time and the contractor has been delayed by the principal but is not entitled to an extension of time, the contractor's argument is that liquidated damages should be set aside and completion should be allowed within a reasonable time.
It is said that otherwise the imposition of liquidated damages offends against the Prevention Principle because the principal has prevented the contractor from completing within time but has an entitlement to liquidated damages. The inclusion in the contract of a unilateral power to extend time enables the principal to argue that the contractor is not entirely without relief so that time under the contract and liquidated damages need not be set aside. There has recently been considerable debate and judicial consideration of whether such a unilateral power to extend time under the contract is a power which must, or should, be exercised in favour of the contractor or whether instead its inclusion is only to protect the principal from the effects of the prevention principle, whether or not the unilateral power has been exercised.
The following critical issues under any construction contract all turn upon the date for practical completion:
- liquidated damages;
- any bonus for early completion;
- the contractor's demobilisation from site;
- release of security;
- defects liability period;
- the power to order variations; and
- the principal's right to occupy the works.
Each of the standard forms of contract defines practical completion in broadly similar terms, that is that the works must be substantially complete, tested and authorised, but that there may be minor works left which are not practicable to be completed immediately. Each of the standard forms of contract makes provision for practical completion to be achieved in parts, stages or separable portions. However, the contracts each deal differently with the principal's entitlement to occupy parts of the works before all of the works have reached practical completion. Each of the AS forms of contract allows for the direction of a separable portion during the course of the contract, although AS2124 and AS4300 appear only to allow this where the part of the works in question has reached practical completion. None of the Australian standard forms of contract addresses the occupation of the works before practical completion.