Australian Standards in Contracting – What’s new?
Sean McCarthy, Senior Associate, Lovegrove Smith & Cotton
Standard form contracts in construction and engineering works have been around for some time. The great Australian Standard AS2124 General Conditions of Contract from 1991 is still favoured by many sectors, particularly some Government clients. AS 4000 came to be seen as the modernization of the standard, and again, even though it was drafted in 1997 it is still a popular and user friendly document.
AS2124 & AS4000
Clients will often ask the basic difference between AS2124 and AS4000, and without going into the many technical differences, it is pretty fair to say that AS2124 errs slightly in the favour of the Principal, while AS4000 (having had lots of industry input) tends to work more in favour of the Contractor. This can be seen in the operation of clauses such as Extensions of Time and Variations for example. I would also suggest that despite only a six year difference, the language of AS2124 is a little more archaic and unwieldy, and the general structure of the document is cumbersome. But it does look lovely when you see it in its quaint and original yellow cover!
The New AS11000 – An Evolution
It’s interesting to note that a new draft General Conditions of Contract in the form of AS11000 is said to be released in 2016, following being open to public comment for most of 2015. AS11000 is said to be a merger of AS2124 and AS4000, but more broadly is said to provide legal guidance for all forms of industry including construction, engineering, civil works and infrastructure. In that sense, it would appear to be broader than its two predecessors.
Notably, the draft contract seems to have a number of significant changes outlined in general terms below.
AS11000 (The Standards) now differentiate between “delay damages” as delays arising from defaults of the Principal, and “Delay Costs” which are delays arising from Variations. The Standards automatically allow for damages for delay to Practical Completion by a Principal’s act of prevention.
Arguably this clause leaves a bit to be desired, being very open and broad. Itproposes more dispute resolution mechanisms than before.
Early Warning procedure
The Standards differ quite a lot from the predecessors insofar as a party may initiate an early warning procedure for any issue under the contract to facilitate an early resolution.
This is a most intriguing, arguably welcome, addition to the contract. For those of you who have read my earlier bulletins, you will recall that I recently addressed whether good faith is implied into a commercial contract – well, here it is expressly! In the Standards each party must act in good faith towards the other. As the term is undefined we may still have cases like my recent matter where an opposing party thought good faith was “turning up”! But undoubtedly, the provision will be interpreted in line with previous case law.
Notification of Delay
Unlike the predecessors, there is now an obligation on either party to notify of a delay “promptly”, within 5 business days, by giving the Superintendent and the other party written notification of the cause and the estimated delay as well as whether there is an intention to claim an Extension of Time. This potentially adds another layer to the administrative process.
Quality and Rectification
As one of the Superintendents key responsibilities in previous versions, the new Standards says that when a Contractor becomes aware of work that does not comply with the contract, the Contractor will be obliged to rectify that work without necessarily getting a direction from the Superintendent.
Security of Payment (SoP)
I remember well my days working with the ACT Government Solicitors office in Canberra when we undertook serious amendments to AS2124 (via Special Conditions) to amend the contract to reflect the (then) new Security of Payment Legislation introduced in 2010. But now the Standards have been included in the agreement. The Standards seek to be consistent with the various Acts by referring to business days, and making “Payment Claims” and “Payment Certificates” issued under the contract are deemed to be claims and schedules consistent with SoP Acts. This will certainly make for an interesting test case in the future, as under all SoP Acts a complying claim and schedule must meet certain prescriptive compliance.
Ah, the great subcontractor challenge…and the Standards certainly seek to remove ambiguity! But how these work pragmatically remains to be seen. The Standards say that the Main Contractor will be required to use AS11002 subcontract conditions, containing no other amendments or changes unless they are necessary to reflect the contract between the Principal and the Contractor. A failure to comply is said to be a substantial breach.
The transition to a new standard will be an interesting one, giving rise to the usual lead time and test cases that may need to lead the way in interpreting some of the new provisions. It may also be, just like was the case with AS2124, that the transition to the new standard is slow given that a great may parties are now extremely familiar with AS4000. Only time will tell. The new draft Standard has not been without its critics, but, like the old saying, “The only thing that’s certain is change”.