Proposed Changes to General Conditions of Contract Released
Standards Australia (SA) recently announced they are revising the suite of Standards related to General Conditions of Contract, AS 4000:1997 (AS 4000) and AS 2124:1992 (AS 2124).
Under the proposed revision, the two existing Standards are to be merged into a new suite of Standards, AS 11000:2015 (AS 11000). The proposed AS 11000 is meant to supersede AS 4000 and AS 2124.
The draft AS 11000 was prepared by a drafting team comprising representatives from the Society of Construction Law, the Australian Procurement and Construction Council, Austroads, Australian Institute of Architects, Construction Industry Engineering Services Group and Civil Contractors Federation of Australia.
The drafting team reflects the fact that the objective of AS 11000 is to provide general guidance for legal contracts in all sectors of industry, specifically including construction, engineering, health, manufacturing and infrastructure.
The proposed changes provide a broadly balanced approach to risk allocation in language which is focused on brevity and certainty. The changes will have important implications for Principals and Contractors alike.
The key proposed changes can be summarised as follows:
1. Good Faith
A new obligation is imposed on the parties to act in good faith. In AS 4000, it is the Superintendent that is required, under clause 20, to fulfil his role and functions “reasonably and in good faith”. AS 2124 is silent on this issue. The express obligation of the Superintendent to fulfil his role and functions “reasonably and in good faith” has been dropped in AS 11000. Under clause 23 of the Draft AS 11000 the Superintendent is merely required to act “honestly”. This good faith obligation follows repeated and increasing judicial consideration as to whether or not there is an implied obligation to act in good faith, regardless of the position under any contract. It brings certainty for both parties to a construction contract.
Most construction projects these days are prepared as critical path programs using proprietary software applications. Consistent with this approach, clause 35.5 of the draft AS 11000 now refers to a program as “an activity-based critical path program in a time-linked bar chart format”, (known more commonly as a Gant Chart within the industry), rather than a “written statement”, as was referred to in AS 4000 (clause 32) or a “statement” as referred to in AS 2124 (clause 33.2). Under the draft AS 11000, the Contractor is required to provide a program that shows the dates by which, or the time by which, the work under the Contract (WUC) is to be carried out.
3. Notification of delay
Notice of delays (NOD) must be given to the Superintendent and the other party promptly and in any event within 5 business days. The Contractor must also state in its NOD if it anticipates claiming an extension of time (EOT) for the delay.
4. Causes of delay
The Contractor will be entitled to an EOT for delay events beyond the reasonable control of the Contractor which occur before the date for practical completion.
5. Assessment of an EOT
The Superintendent must either assess an EOT within 20 business days or request more information to undertake the assessment. Failure by the Superintendent to do so within the 20 business days will entitle the Contractor to an EOT as claimed.
6. Overlapping delays
Where multiple delays occur but only one of the delays entitled the Contractor to an EOT, the Contractor will be entitled to claim an EOT, but not delay damages, even if another overlapping cause of delay is an act of prevention by the Principal.
7. Delay damages and delay costs
The draft AS 11000 seeks to distinguish delay damages and delay costs under the proposed clauses 37.22 and 37.23, with delay damages proposed to be those relating to delay to practical completion caused by a Principal’s act of prevention, and delay costs proposed to be those amounts relating to delays to practical completion due to variation.
Delay damages are assessed and certified by the Superintendent under clause 44.5 for every working day which is the subject of an EOT, and a prescribed notice under clause 44. Delay costs are assessed by the Superintendent under clause 39.14 and include overheads but not profit.
8. Quality and rectification
The Contractor will be under a specific obligation upon becoming aware of work that does not comply with the contract to rectify such work without the Superintendent needing to give a direction to do so. This should overcome common disputes between the parties as to the contractor's entitlement to payment for such work.
9. Acceleration of WUC
The Superintendent has a power to direct acceleration of the WUC.
The Contractor must notify the Superintendent if it considers a direction is a Variation within 5 business days of receipt of the direction. The Superintendent must respond within 5 business days.
11. Pricing variations
Rates and prices generally are to include allowance for overheads and profit unless otherwise stated.
The Principal may agree to place a cap on the liquidated damages to which it would be entitled. Similarly, the Contractor may agree to cap any early completion bonus to which it would be entitled. This reflects common practice currently.
Under clause 12, the Contractor will be required to use AS 11002:2015 subcontract conditions as its subcontract conditions. Failure to do so is proposed to be treated as a substantial breach of the contract. This is a significant reform under the AS suite of documents.
14. Security of Payments Act
Provisions have been included to enable compliance with the “Security of Payment” (SOP) legislation in each State. If the relevant SOP legislation applies, the Superintendent has the authority to act as the Principal’s agent in receiving payment claims and issue payment schedules under the relevant SOP legislation.
15. Early warning procedure
A party must notify the other as soon as it becomes aware of an event or circumstance, which may become an issue under the Contract. The early notification is intended to attempt prompt resolution of the issue.
16. Dispute Resolution
More flexible dispute resolution procedures are included. There is an option for the parties to choose to resolve disputes either by a conference followed by arbitration, or by a conference followed by expert determination. A separate Standard is proposed to enable the parties to utilise other forms of dispute resolution procedures.
17. Service of Notices
Clause 10 of the draft AS 11000 provides that notices and all other documents can be served by email. This also includes claims.
18. Interest Rate
The interest rate under the contract, unless otherwise specified, will be 12%. This is lower than the 18% provided for in AS 4000 and AS 2124.Principals or contractors are encouraged to contact one of our experienced construction lawyers to discuss any concerns you may have with these changes. We recommend a review of subcontract documents used by contractors when dealing with subcontractors on projects where the new AS 11000 will be used, to ensure no substantial breach of contract occurs.