Key Points:
If adopted, the draft contract AS 11000:2015 will have important implications for owners/principals and contractors alike.
Participants in both private and public works construction projects will be familiar with the Australian standard forms of contract AS 2124:1992 and AS 4000:1997. Standards Australia has recently released a draft version of AS 11000, which is intended to provide a broadly balanced approach to risk allocation and replace the above two standards.
According to a statement issued by Standards Australia, the draft AS 11000 is intended to provide general guidance for contracts for the construction, engineering, health, manufacturing and infrastructure sectors. It's also proposing to develop a suite of companion standards to AS 11000.
The draft AS 11000 was prepared by a 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 changes proposed will have important implications for owners/principals and contractors alike. Some of the key changes proposed are set out below.
Submissions on the changes proposed in the draft standard close on 27 March 2015.
Overriding obligations of good faith and early warning
Clause 2 of the draft AS 11000 introduces two overriding obligations on the parties.
Firstly, an obligation on the parties to act in good faith towards the other. 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 does not contain provisions on good faith.
It is worth mentioning here that the express obligation, under AS 4000, for the superintendent to act in good faith has been dropped in the draft AS 11000. Under clause 23 of the draft AS 11000, the superintendent is required to act "honestly". Unless provided otherwise under clause 23.2, the superintendent acts as agent for the principal. In the case of AS 2124 (clause 23), a superintendent is required to act "honestly and fairly".
Secondly, the parties are required to follow the "early warning procedures" which are aimed at resolving issues as soon as practicable. Under the early warning procedures, either party is to notify the other of any event or circumstance which may impact upon time, cost, scope or quality. Conferences are then to be held to resolve the issue. If the issue remains unresolved, the party is entitled to notify its claims, or that a dispute exists, or that it does not intend to pursue the issue.
Programming obligations
Most construction programs these days are prepared as critical path programs using proprietary software applications. Consistent with that 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 (or Gantt) chart format", 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).
Further, clause 35 lists other requirements that the contractor must include in a program, and includes a requirement to revise the program at agreed stages to account for actual progress. The parties have the option of agreeing to additional programming requirements that are set out in Annexure Part E. A few examples of the options that are available include:
- Part E identifies categories of activities that may be agreed to be incorporated into a program;
- whether the program is to be a resourced program; or
- whether program updates are to incorporate claims for extensions of time and directed variations.
Delay and extension of time
The draft AS 11000 proposes to replace the "qualifying cause of delay" definition used in AS 4000 with the "causes of delay" provisions in clause 37.4. The causes of delay are events beyond the reasonable control of the contractor (including weather or industrial conditions, but subject to the agreed carve-out provisions in clause 37.7), variation directed by the superintendent or act of prevention (both terms defined in the draft AS 11000).
Clause 37.2 proposes that the contractor notifies delay promptly and, in any event, within five business days. The contractor is required to state whether it anticipates it will be claiming an extension of time.
As to extension of time, clause 37.9 proposes a regime whereby the superintendent is required to either asses and direct an extension of time within 20 business days of receiving the claim for extension of time, or direct the contractor to provide such additional information that the superintendent reasonably requires. Upon receipt of such additional information, the superintendent has a further 20 business days to assess the extension of time. Failure to do so by the superintendent will automatically entitle the contractor to an extension of time claimed, unless the early warning procedure (in clause 2) has been invoked.
In relation to "overlapping delays", the draft AS 11000 proposes a method for the assessment of an extension of time that is different to that set out in AS 4000.
Clause 34.4 of AS 4000 requires that, in relation to delays that overlap, that the superintendent "apportion the resulting delay to WUC according to the respective causes' contribution", whereas clause 37.6 of the draft AS 11000 proposes that the contractor be entitled to an extension of time, but not delay damages.
Clause 37.19 reinstates the cap on liquidated damages that is contained in AS 2124 (but not in AS 4000). An agreed cap on early completion bonus is also proposed in clause 37.21.
Delay damages vs 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 with delay costs proposed to be those amounts relating to delays to practical completion due to variations.
Delay damages are assessed and certified by the superintendent under clause 44.5 for every working day which is the subject of an extension of time, and a prescribed notice under clause 44. Delay costs are assessed by the superintendent under clause 39.14 and include overheads but not profit.
Prospective variations
Clause 39 of the draft AS 1100 includes provisions for "prospective variations", whereby the contractor is required to notify within 5 business days of a direction by the superintendent, if it considers the direction constitutes a variation. Under clause 39.4, the superintendent is then required to respond within five business days, otherwise the early warning procedure in clause 2 will apply.
Subcontracting
Under clause 12 of the draft AS 1100, the contractor is 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.
Defects
AS 11000 refers to "non-compliant work", rather than "defective work". Under clause 32.1, the contractor is required to rectify any work of which it becomes aware, which does not comply with the contract. In other words, it is not necessary to wait for the superintendent to issue such directions.
Security of Payment legislation (SOP)
AS 11000 contains a number of provisions which, presumably, are intended to better align the contract with the provisions in Security of Payment legislations. For example, the definition of business day adopts the definition in the relevant Security of Payment legislation.
It should also be noted that the payment provisions in clause 40 give the superintendent the power to receive payment claims and issue progress certificates on behalf of the principal.
Service of Notices
Clause 10 of AS 11000 proposes that service of notices can be made by email. This is in addition to the other methods of service, which include by delivery, fax or mail.
Dispute
The dispute resolution procedures in clause 45 of the draft AS 11000 are substantially expanded, when compared with AS 4000 and AS 2124. The new dispute clause provides for alternative options including conference, mediation, arbitration, expert determination, litigation, and an optional contract facilitation or dispute resolution board.
The proposed options include:
- an option for the parties to meet and resolve the dispute, if appropriate by mediation, and if it remains unresolved, by arbitration; alternatively
- an option for the parties to meet and resolve the dispute, if appropriate by mediation, and if it remains unresolved, by expert determination. However, if the expert determination does not require the payment of moneys or the amount determined exceeds the limit agreed between the parties, then either party may commence litigation; alternatively
- an option for the parties to resolve the disputes by way of contract facilitation, or dispute resolution board, in accordance with procedures that have not yet been published by Standards Australia.
Interest rate
Interest rates have dropped since AS 2124 and AS 4000 were adopted. The draft AS 11000 also proposes to drop the prescribed interest rate.
The applicable interest rate on overdue payments under clause 42.9 of AS 2124, and item 30 in Part A of AS 4000 has been 18%. That is now proposed to be dropped to 12% (item 31 in Part A of AS 11000).
Call for submissions
Submissions on the changes proposed are due by 27 March 2015, and can be made via Standard Australia's website.
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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.