The objective is to provide certainty for the parties when the unexpected occurs. Key features of effective construction contracts and their management are discussed below.
An effective construction contract will clearly document the appropriate share of risk between the parties and the right to payment for work performed.
Each party aims to minimise its exposure to the risk of additional time and cost whilst ensuring a right payment for conforming work completed, consistent with the agreed scope and building standards.
Construction contracts that fail to properly apportion risk and unduly limit contractor’s rights to payment lead to poor project outcomes.
Poorly apportioned risk occurs where contractors are burdened by risks they are not positioned to manage.
Denying contractors entitlement to time and cost for restrictions to site access and co-ordination of work beyond their control is an example.
Contract terms should demonstrate a risk profile that encourages contractors to mitigate and provides incentive to mitigate by granting an entitlement to time and cost. Particularly for matters beyond the control of the contractor, including restrictions to site access, latent conditions, excepted risks, variations and the like.
Careful drafting of contract terms to adopt a preferred balance of risk is for the benefit of both parties and the project.
Constructions contracts also commonly describe the role of the Superintendent or Principal’s Representative with functions as an agent of the Principal and as an independent assessor.
How that role is described by the contract and its intersection with the general law is critical to the management of risk and a contractor’s ability to mitigate.
Once the construction contract is entered into, diligent project management and contract administration is critical to ensure project objectives are met.
This requires a full understanding of the contract terms with timely submission of contractual notices, claims and project reporting.
This together with an appreciation and understanding of the intersection of relevant legislation (eg. BIF Act and QBCC Act) and key contract terms is required to ensure effective contract administration and project management.
Any construction contract is limited in its effect to how its terms are managed in a given situation.
Obtaining early legal advice on the interpretation of key clauses and steps required for proper contract administration ensures protection of contractual rights and the operation of the contract as it was intended.
Having a clear and concise dispute clause is a critical contractual risk mitigation step.
Disputes on construction projects are inevitable.
Adopting senior management meetings or mediation at first instance provides an early opportunity for key decision makers to negotiate a resolution cost-effectively.
Beyond that, expert determination is a further option for complex or technical issues to be fleshed out and resolved, without the formality of Court proceedings.
Not all disputes are suitable for expert determination (particularly those involving contractual or legislative interpretation). Pathways to other forms of dispute resolution such as litigation or arbitration are other options should early attempts at resolution fail.
Using unamended dispute resolution clauses in Australian Standard Contracts (eg. AS 4000, AS 4902, AS 2124 etc) is problematic.
These unamended dispute clauses, despite being widely used in the construction industry in Australia, have been found by the Courts to be void for uncertainty.
Amendment to the dispute clause is required to provide certainty to the parties.
No party to a construction contract benefits from uncertainty, particularly when the parties are already in dispute.
Payment mechanisms in construction contracts allow parties to manage and maintain cash flow.
Providing a simple, clear and concise payment mechanisms is the objective.
These mechanisms are the subject of specialist security of payment legislation across Australia, and the interplay between legislation and the payment clause should co-ordinate to ensure the certainty of payment rights for the parties.
Drafting payment clauses to align with BIF Act or SOP Act rights and QBCC Act rights is a simple fundamental step to provide certainty for the parties.
Obtaining early legal advice on the interpretation of payment clauses and steps required for claiming or responding to payment claims under the contract is a useful step to ensure your contractual rights are preserved moving forward on the project.
