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Administer a
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CPCCBC4016A - Administer a Constrution Contract
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9 DEFECTS .......................................................................................................................... 75
9.1 Judgment of the Superintendent................................................................................ 75
9.2 Direction to Remedy....................................................................................................... 75
9.3 DEFECTS LIABILITY PERIOD........................................................................................ 78
10 Contract Administration and Notices ............................................................... 82
10.2 Contract progress monitoring .................................................................................... 82
10.3 Quality Control and Assurance ................................................................................... 82
10.4 Cost Control ....................................................................................................................... 83
10.5 Change Control ................................................................................................................. 83
10.6 Contract finalisation ....................................................................................................... 83
10.7 Assessing and submitting variations ....................................................................... 84
10.8 Link Between Variation Approach and Relationship Type .............................. 84
10.9 Payment Process ............................................................................................................. 85
10.10 Extensions of Time and other claims .................................................................. 86
11 Latent Conditions ....................................................................................................89
11.1 What are Latent Conditions ......................................................................................... 89
11.2 Who is Responsible for Latent Conditions ............................................................. 89
11.3 Case Study on Latent Conditions ................................................................................ 90
11.4 What happens when you find a latent condition? ............................................... 91
11.5 Managing the Risk of Latent Conditions.................................................................. 91
11.6 Excluding or limiting liability for latent conditions ........................................... 92
12 DISPUTES ....................................................................................................................93
12.1 Contract Clauses .............................................................................................................. 93
12.2 Methods of dispute resolution.................................................................................... 94
12.3 Conciliation........................................................................................................................ 95
12.4 Mediation ........................................................................................................................... 96
12.5 Appraisal ............................................................................................................................ 96
12.6 Mini-Trials ......................................................................................................................... 96
12.7 Senior Executive Appraisal .......................................................................................... 96
12.8 Arbitration ......................................................................................................................... 97
12.9 Choosing a dispute resolution method .................................................................... 99
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Acceptance occurs when the party answering the offer agrees to the offer by
way of a statement or an act. Acceptance must be unequivocal and
communicated to the person making the offer: the law will not deem a person to
have accepted an offer merely because they have not expressly rejected it.
1.1.2 Intention to create legal relations
A contract does not exist simply because there is an agreement between
people. The parties to the agreement must intend to enter into a legally binding
agreement. This will rarely be stated explicitly but will usually be able to be
inferred from the circumstances in which the agreement was made. For
example, offering a friend a ride in your car is not usually intended to create a
legally binding relation. You may, however, have agreed with your friend to
share the costs of travelling to work on a regular basis and agree that each
Friday your friend will pay you $20 for the running costs of the car. Here, the law
is more likely to recognise that a contract was entered into.
Commercially based agreements will be seen as including a rebuttable intention
to create a legally binding agreement. Both in common law and in civil law, a
rebuttable presumption (in Latin, praesumptio iuris tantum) is an assumption
made by a court, one that is taken to be true unless someone comes forward to
contest it and prove otherwise. For example, a defendant in a criminal case is
presumed innocent until proved guilty.
However, the law presumes that domestic or social agreements are not
intended to create legal relations. For example, an arrangement between
siblings will not be presumed to be a legally binding contract. A person who
wants to enforce a domestic or social agreement will need to prove that the
parties did intend to create a legally binding agreement.
1.1.3 Consideration
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contracts between people are made in this way, it is not discussed further in this
chapter.
1.1.4 Consent
mistake
false statements
duress
undue influence/unconscionability
1.1.5 Legal capacity
Only parties with the appropriate authority or capacity can make a contract
binding and enforceable
bankrupts
prisoners
1.1.6 Illegal and Void Contracts
The law will not enforce all contracts. There are some categories of contract to
be wary of.
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Where a contract is illegal, this may affect its enforceability. Contracts that are
illegal by statute will be regulated as to enforceability by the statute; thus the
statute will need to be read and interpreted.
Contracts absolutely prohibited by statute will be void, whether the parties know
of the illegality or not. However, where one party performs an otherwise legal
contract in a manner that breaches legislation, the other party, if having no
knowledge of the facts giving rise to the illegality, can still enforce the contract or
recover damages for breach of it. They may also recover money or other
property transferred under the contract.
Contracts made void by statute are treated differently; while they remain valid
contracts, the courts will not enforce them.
Again, the precise extent of the enforceability of, or the recovery of any money
paid under, a void contract will depend on the particular statute.
Certain types of contracts are illegal at common law, because they are contrary
to the public good. These include contracts:
which prejudice public safety, including good relations with other states or
countries
the innocent party retains all rights and remedies (provided they did not know
the contract was to be performed illegally)
Certain types of contracts are void at common law, being contrary to the
public good. These include contracts
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prohibitions against
Reflect back on your past work experiences and what you know of the term
‘consideration’.
3. Following the above give two examples of what would not be accepted as
fair consideration.
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National Code of Practice for the Construction Industry (Code) and the
Australian Government Implementation Guidelines for the National Code of
Practice for the Construction Industry, August 2009 (Guidelines)
GST Act
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1.
2.
3.
4.
5.
Answers:
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special conditions
the drawings
the specification
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CONTENTS
1. CONSTRUCTION OF CONTRACT
2. INTERPRETATION
3. NATURE OF CONTRACT
4. BILL OF QUANTITIES
5. SECURITY, RETENTION MONEYS AND PERFORMANCE
UNDERTAKINGS
6. EVIDENCE OF CONTRACT
7. SERVICE OF NOTICES
8. CONTRACT DOCUMENTS
9. ASSIGNMENT AND SUBCONTRACTING
10. SELECTED AND NOMINATED SUBCONTRACTORS
11. PROVISIONAL SUMS
12. LATENT CONDITIONS
13. PATENTS, COPYRIGHT AND OTHER INTELLECTUAL PROPERTY RIGH
14. STATUTORY REQUIREMENTS
15. PROTECTION OF PEOPLE AND PROPERTY
16. CARE OF THE WORK AND REINSTATEMENT OF DAMAGE
17. DAMAGE TO PERSONS AND PROPERTY OTHER THAN THE WORKS
18. INSURANCE OF THE WORKS
19. PUBLIC LIABILITY INSURANCE
20. INSURANCE OF EMPLOYEES
21. INSPECTION AND PROVISIONS OF INSURANCE POLICIES
22. CLERK OF WORKS AND INSPECTORS
23. SUPERINTENDENT
24. SUPERINTENDENT’S REPRESENTATIVE
25. CONTRACTOR’S REPRESENTATIVE
26. CONTROL OF CONTRACTOR’S EMPLOYEES AND
SUBCONTRACTORS
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27. SITE
28. SETTING OUT THE WORKS
29. MATERIALS, LABOUR AND CONSTRUCTIONAL PLANT
30. MATERIALS AND WORK
31. EXAMINATION AND TESTING
32. WORKING HOURS
33. PROGRESS AND PROGRAMMING OF THE WORKS
34. SUSPENSION OF THE WORKS
35. TIMES FOR COMMENCEMENT AND PRACTICAL COMPLETION
36. DELAY AND DISRUPTION COSTS
37. DEFECTS LIABILITY
38. CLEANING UP
39. URGENT PROTECTION
40. VARIATIONS
41. DAYWORK
42. CERTIFICATES AND PAYMENTS
43. PAYMENT OF WORKERS AND SUBCONTRACTORS
44. DEFAULT OR INSOLVENCY
45. TERMINATION BY FRUSTRATION
46. TIEM FOR NOTIFICATION FOR CLAIMS
47. DISPUTE RESOLUTION
48. WAIVER OF CONDITIONS
ANNEXURE PART A
APPROVED FORM OF UNCONDITIONAL UNDERTAKING
ANNEXURE PART B
INDEX TO GENERAL CONDITIONS OF CONTRACT
AS 2125AUSTRALIAN STANDARD GENERAL CONDITIONS OF TENDERING
AND FORM OF TENDER
AS 2127AUSTRALIAN STANDARD FORM OF FORMAL INSTRUMENT OF
AGREEMENT
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CONTENTS
1. CONSTRUCTION OF CONTRACT
2. INTERPRETATION
3. NATURE OF CONTRACT
4. BILL OF QUANTITIES
5. SECURITY, RETENTION MONEYS AND PERFORMANCE
UNDERTAKINGS
6. EVIDENCE OF CONTRACT
7. SERVICE OF NOTICES
8. CONTRACT DOCUMENTS
9. ASSIGNMENT AND SUBCONTRACTING
10. SELECTED AND NOMINATED SUBCONTRACTORS
11. PROVISIONAL SUMS
12. LATENT CONDITIONS
13. PATENTS, COPYRIGHT AND OTHER INTELLECTUAL PROPERTY
RIGHTS
14. STATUTORY REQUIREMENTS
15. PROTECTION OF PEOPLE AND PROPERTY
16. CARE OF THE WORK AND REINSTATEMENT OF DAMAGE
17. DAMAGE TO PERSONS AND PROPERTY OTHER THAN THE
WORKS
18. INSURANCE OF THE WORKS
19. PUBLIC LIABILITY INSURANCE
20. INSURANCE OF EMPLOYEES
21. INSPECTION AND PROVISIONS OF INSURANCE POLICIES
22. CLERK OF WORKS AND INSPECTORS
23. SUPERINTENDENT
24. SUPERINTENDENT’S REPRESENTATIVE
25. CONTRACTOR’S REPRESENTATIVE
26. CONTROL OF CONTRACTOR’S EMPLOYEES AND
SUBCONTRACTORS
27. SITE
28. SETTING OUT THE WORKS
29. MATERIALS, LABOUR AND CONSTRUCTIONAL PLANT
30. MATERIALS AND WORK
31. EXAMINATION AND TESTING
32. WORKING HOURS
33. PROGRESS AND PROGRAMMING OF THE WORKS
34. SUSPENSION OF THE WORKS
35. TIMES FOR COMMENCEMENT AND PRACTICAL COMPLETION
36. DELAY AND DISRUPTION COSTS
37. DEFECTS LIABILITY
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38. CLEANING UP
39. URGENT PROTECTION
40. VARIATIONS
41. DAYWORK
42. CERTIFICATES AND PAYMENTS
43. PAYMENT OF WORKERS AND SUBCONTRACTORS
44. DEFAULT OR INSOLVENCY
45. TERMINATION BY FRUSTRATION
46. TIEM FOR NOTIFICATION FOR CLAIMS
47. DISPUTE RESOLUTION
48. WAIVER OF CONDITIONS
ANNEXURE PART A
APPROVED FORM OF UNCONDITIONAL UNDERTAKING
ANNEXURE PART B
IDEX TO GENERAL CONDITIONS OF CONTRACT
AS 2125AUSTRALIAN STANDARD GENERAL CONDITIONS OF
TENDERING AND FORM OF TENDER
AS 2127AUSTRALIAN STANDARD FORM OF FORMAL INSTRUMENT
OF AGREEMENT
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Goods specifications use plain clear language. They either specify the method
or the result of the finished work.
A specification is a detailed description of the work to be performed, showing
matters which do not appear from the drawings. The specification begins with a
section on General Conditions and then deals with technical matters trade by
trade. The specification may be, but is not ordinarily, contained in the bills of
quantities.
Some humorous examples from actual specifications (definitely not to be
emulated):
1. The Contractor shall submit his claim to the Engineer and his decision shall
be final (etc).
2. The Contractor shall be paid for not more than a trench the width of which
shall be less than the diameter of pipe plus 18 inches and more than the
diameter of the pipe plus 12 inches.
3. If the engineer deems any employee of the Contractor to be inefficient or
dishonest he shall be dismissed forthwith.
4. The Contractor shall leave the site in the same condition when the work is
finished as it was before operations were begun, and shall be cleaned of all
rubbish to the satisfaction of the engineer.
5. The material for the embankment shall be obtained as far as possible from
the road.
6. When completed, the Contractor shall leave the job in a neat and orderly
fashion.
7. After the pipe is laid the trench shall be backfilled with bulldozers.
8. The Contractor shall make monthly claims for extra work with invoices
attached to the engineer.
9. The ready-mix subcontractor shall be in position at the forms 20 minutes
before the concrete placement begins and shall remain in position until 20
minutes after the concreting is finished.
10. All the water for the concrete in the marine structure shall be passed by the
engineer.
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Prime cost (pc) items are items which are known to be in the work but for which
no detailed cost has been established. For such items the owner may
nominate a certain amount of money (an allowance) in the schedule, to be
adopted by all contractors. The contract sum is later adjusted when the real
cost of the items are known.
Provisional quantities and amounts in the schedule of quantities are estimates of
quantities and costs of labour and materials to cover parts of the work which
cannot be realistically priced at the tender stage. Unknown work such as rock
excavation, connection of services etc. fit this category. After the work is done
the cost is adjusted in line with the actual cost.
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AUSTRALIAN STANDARD
FORM OF FORMAL INSTRUMENT OF AGREEMENT
BETWEEN……………………………………………………… …………………
AND………………………………………………………… …………………………
TITLE MARK
Tender dated……………………………………………………………………………………
Specification……………………………………………………………..……………
……………………………………………………………………………………………
Drawing No.s
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
Other Documents
……………………………………………………………………………………………
……………………………………………………………………………………………
shall together comprise the contract between the parties AND if the
Contractor or the Principal is two or more persons then they shall be bound jointly and severally.
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1.6.6 Services
The Contractor should obtain all services at or in the vicinity of the site which are
necessary for the performance of the Construction Works and the ongoing
operation of the facility.
1.6.7 Operation and Maintenance Manual
The Contractor should prepare and submit for the approval of the Principal’s
Representative an Operation and Maintenance Manual, including a process for
the following components:
a) the engagement and training of appropriately qualified operations and
maintenance personnel to provide services for the operation and
maintenance of the Facility
b) the operation and maintenance of the Facility in an environmentally and
aesthetically acceptable manner
c) all relevant instructions manuals and special directions from the relevant
manufacturers of any equipment and provision of such written instructions
which are not available from such manufacturers
d) establishment of an inspection and maintenance system
e) any reports to be provided by the Contractor
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3. Review the list of Contractor’s obligations in section 1.6. Are there any
additional responsibilities in this instance? List them:
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that purchased Equipment, the Facility and all related documentation meet
the requirements of the Contract;
that the quality of the Facility not be degraded during receiving, storing,
transporting, handling, erection, installation, inspection and testing; and
that systems, namely Equipment and structures are fabricated, installed and
erected in strict compliance with all applicable instructions.
1.8.7 Substantial Completion
The Contractor is required to bring the Works to Commercial Acceptance by the
Date for Commercial Acceptance.
1.8.8 Operational Commissioning
Upon Practical/Substantial Completion, the Contractor should be required to
carry out Operational Commissioning Tests described in the Contract.
1.8.9 Manufacturer’s warranties
The Contractor should obtain for the Principal, from the respective
manufacturers, the best available and legally enforceable warranties for the
Equipment extending to at least the end of the Defects Liability Period, requiring
the respective manufacturers at their expense to remove and replace Equipment
which are defective.
1.8.10 Completion guarantee
The Contractor will be required to guarantee that it will achieve Commercial
Operation of the Facility by the Date for Commercial Operation.
1.8.11 Delay Liquidated Damages
Where the Contractor fails to attain Commercial Operation of the Facility by the
Date for Commercial Operation, the Contractor will be required to pay to the
Principal - Delay Liquidated Damages.
1.8.12 Defects Liability Period
The Contractor guarantees that the Facility or any part is free from defects in
design and engineering, the Furniture and Fittings, the Equipment and the
Construction Works.
If, during the Defects Liability Period, any defect is found in the design and
engineering, the Equipment or the Construction Works, the Contractor should,
at such times as the Principal reasonably requires and in a manner which
causes as little disruption to the operation of the Facility as reasonably possible,
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promptly and at its cost repair, replace or otherwise make good (as the
Contractor may at its discretion determine) such defect as well as any damage
to the Facility caused by such defect.
1.8.13 Transfer of ownership and risk
The Contract will usually provide that the ownership of the Equipment transfers
to the Principal:
1. when the relevant Equipment is identified as being intended solely for
incorporation, use or consumption in the Construction Works; or
2. where such Equipment cannot reasonably be so identified, at the time when
it is incorporated, used or consumed in the Construction Works; or
3. in any event no later than payment of the relevant progress claim the value
of which includes the Equipment.
1.8.14 Care of Construction Works
The Contractor is always made responsible for the care and custody of the
Construction Works until the Date of Commercial Operation and is required to
make good at its own cost any loss or damage that may occur to the
Construction Works from any cause whatsoever prior to that date.
1.8.15 Insurance
The Contract should provide that the Contractor is to arrange from the
Commencement Date, for the relevant periods, and amounts:
1. construction all risks insurance policy;
2. public liability policy covering legal liability to third parties for personal injury
or property damage;
3. professional indemnity;
4. workers' compensation;
5. other insurances (eg motor vehicle, marine, etc);
under policies containing terms , exclusions and excesses, approved by the
Principal.
1.8.16 Other Terms
The DBO Contract will include terms (similar in most respects to construction
contracts) in relation to:
Site conditions
Unforeseen conditions
Force majeure
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Delay costs
Termination
Termination for the Principal’s convenience
EXERCISE 7 – KEY COMMERCIAL ISSUES
Refer back to a project you worked on as a contractor on a construction project.
If you have not yet done any construction contract work, select a project that you
would like to work on as a contractor.
Many key commercial issues are associated with construction contract work.
List three key commercial issues that you have encountered before, or think that
you may encounter.
Give a description of these issues and how they were/can be resolved.
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One party does something that makes it impossible for the other party to
perform the duties under the contract
One party makes it clear that he or she does not intend to perform the
contract duties
1.10.2 Damages Award
When one party has breached the contract, the party who has performed is
entitled to various remedies for the breach. One of the more common remedies
for a breach of contract is a damages award. This is monetary compensation
that must be made by the breaching party to compensate the other party for
losses and other expenses connected with the breach. A damages award may
include:
Consequential damages - This requires the breaching party to pay the non-
breaching party an amount that puts the non-breaching party in the same
position they would have been in if the contract was performed
Punitive damages - Courts can force the breaching party to make a payment
as a punishment for the breach of contract
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Liquidated damages - The parties agree, at the time they make the contract,
that if one party breaches the contract, the breaching party should pay a
specified sum. Thus, this is an amount written in the contract
Rescission - A court can pretend like the contract never existed. Here,
neither party would be required to perform the obligations under the contract.
If there has been performance by one party, the court does its best to put
that party in the same position he or she was in before the contract was
formed.
1.10.4 The Time Limit for Filing a Breach of Contract Lawsuit
Every state has a certain time limit, called a statute of limitations, in which a
lawsuit must be filed after a breach of contract. If a party wants a remedy for a
breach, and they do not file within this time limit, that party cannot file a lawsuit.
The amount of time for filing a breach of contract lawsuit varies by state.
2. What are the liquidated damages applicable to a failure to meet the target
completion date?
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2 CONTRACT DOCUMENTATION
political considerations
financing considerations
On major public sector projects the use of standard form fixed-price
contracts would be more prevalent than on similar scale private sector
projects.
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the Managing Contractor may perform all or part of the design services for
the Principal
the Managing Contractor will arrange the trade packages, tender and enter
into the trade contracts on behalf of the Principal and potentially itself
perform some of the trade contract works
the Managing Contractor will perform the usual supervision and reporting
activities required on the project to keep the Principal informed of the
progress of the works.
The attraction of the Managing Contractor type of contract is its flexibility and
the skills which the Managing Contractor may be able to bring to the project
to assist the Principal.
2.3.7 Warranted Maximum Price Contract
A Warranted Maximum Price Contract is in substance a cost-plus contract
between the Principal and the Contractor which in turn is subject to an upper
limit (the Warranted Maximum Price). Above this price will be subject to certain
conditions and the Contractor will bear the risk as to the costs.
Under a Warranted Maximum Price contract, the Contractor is to be paid on a
cost-plus basis up to a certain limit. Over and above that limit, the Contractor is
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not entitled to any further payment. That limit, however, as in the case of the
Contract Sum under a Fixed Price Contract, is subject to adjustment in certain
circumstances. For example, this would occur where the Principal varies the
works or where the Principal causes delay and/or additional cost to the
Contractor.
The benefit of the Warranted Maximum Price contract is in giving some upper
limit degree of comfort as to the total cost of works, provided those works are
adequately described as to scope, yet allow the parties to enter into the
contract on a cost-plus basis where that is an appropriate vehicle for them.
2.3.8 Build Own Operate Transfer (BOOT) / PPP
Recently in Australia there have been a substantial number of major
construction projects which have been performed using the BOOT, or BOT
vehicle. This type of project is now more usually called a PPP or Public/Private
participation project.
The basic structure of a BOOT project is that the Contractor agrees with the
Principal not only to build the project but to arrange finance for the project and
then using that finance to build the project, to own the project for a limited
period, to operate the project throughout that period, and then, at the end of that
period, to transfer the project to the Principal.
Typically, this style of structure is employed on public infrastructure projects
where, but for the intervention of private sector financing, the project might not
proceed.
EXERCISE 9 – TYPES OF CONTRACTS
Complete the following table by giving an example of a construction project that
would be suitable for the following types of contracts.
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Project Management
Agreement
Warranted Maximum
Price Contract
EXERCISE 10 – Research
1. Complete some research of your own. Identify three (3) projects completed
in Australia (list the name and state) under a Build Own Transfer (BOT) or
Build Own Operate Transfer (BOOT) model. List two reasons why you think
that model was selected for these projects and not a more traditional delivery
method (like Design and Construct, or Construction Management).
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the Warranted Maximum Price is subject to the scope of the Works being
adequately described
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Wherever this project structure has been successful, however, the Principal has
been protected from the possibility of unlimited cost overruns by incorporating all
of the work (say, 85% of the work) in fixed price trade contracts. The Principal
enters into a cost-plus contract with the prime contractor, the work is then
contracted out by the prime contractor on a fixed price basis. The prime
contractor will be entitled to cost-plus reimbursement by the Principal for those
trade contract prices. Effectively, the Principal has the benefit of fixed price
contracting.
2.7 Features of the Trade Contracts
The Contractor would be required to perform the works within a number of trade
contracts.
There are a number of contractual protections (for the Principal) which should
be incorporated into those trade contracts to ensure the time/cost targets are
ultimately met on the project:
a) the trade contracts should be fixed price
b) the terms of the trade contracts generally should be agreed between the
Principal and the Contractor
c) the trade contracts should be put out to open tender
d) there should be an approval process whereby the Principal may review the
proposed tender process and shall have final approval of any particular
trade contract (subject to, if necessary, such trade contracts having a value
above a minimum trade contract value)
e) the trade contracts should provide adequate security for the performance
of the contract and provisions for liquidated damages
Subject to these protections, the Principal would have effective contractual
remedies in respect of the works should there be a failure to perform in
accordance with the targets ultimately developed between the Principal and the
Contractor.
EXERCISE 11 – INTERVIEW A PROJECT MANAGER
1. Interview an experienced project manager. Identify the circumstances where
a client might chose a fixed price contract. Similarly, identify the type of
project where a cost plus contracting arrangement is used. Discuss and
record the differences between the two.
2. Consider the construction of a major hospital building. List the major trade
contracts you would expect to have in place and consider the difficulties that
may result from having different contracts in place (consider issues that may
arise when a drainage contractor may wish to work at the same time as an
electrical contractor).
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claims for delay costs arising out of extensions of time which were the fault
of the Proprietor
claims for variations which arose out of the Proprietor's failure to give
access to the site, or additional work caused by faulty design documentation
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claims for negligence (for example, for additional works caused by negligent
preparation of the design drawings specifications)
claims for misleading and deceptive conduct under the Trade Practices Act
(Cth) and/or the state Fair Trading Acts
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Failing any dispute arising in relation to the Progress Certificate, the Principal
then becomes contractually obliged to make the Progress Payment to the
Contractor, in accordance with that Progress Certificate, within the number of
days as set out in the Contract.
For example, clause 42.1 of AS2124-1992 provides:
“Subject to the provisions of the Contract, within 28 days after receipt by
the Superintendent of a claim for payment or within 14 days of issue by the
Superintendent of the Superintendent's payment certificate, whichever is
the earlier, the Principal shall pay to the Contractor or the Contractor shall
pay to the Principal, as the case may be, an amount not less than the
amount shown in the Certificate as due to the Contractor or to the Principal
as the case may be.”
Progress certificates, and progress payments, do not constitute evidence that
the works are properly performed, or that they have been accepted. Progress
certificates, and progress payments, merely constitute interim assessments, and
interim payments on account.
The Principal’s obligation to pay on the Progress Certificate is critical. The
failure to pay on a certificate has caused serious contractual problems to
principals, wrongly believing that this obligation could be avoided because of
some other factor (for example, defects, lateness, etc, not, for some reason
addressed in the progress certificate.)
Within your organisation, identify a project manager who can help you to locate
a copy of a project claim and related progress certificate from a recent project.
Review these documents against each other and identify whether there were
any differences between the two. If there were, discuss why the amount shown
on the payment certificate was different to the amount claimed. Was this
difference substantiated (ie was it explained – and linked to the contract?).
If there was no difference, review the contract and list the clauses that outline
the requirements of the payment claim and confirm whether or not the claim you
see meets the requirements of the contract.
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The Superintendent, in issuing the Progress Certificate, will calculate the cash
retention, if any which is to be taken into account in making any progress
payment.
The convention, historically, was for the Contractor to provide security for the
performance of his obligations to the Principal, by the Principal deducting cash
retention from progress payments, usually of the order of 5% of the value of
work completed to any point, up to the Date of Practical Completion.
The purpose of allowing the deduction of cash retention from the value of works
completed, up to the point of Practical Completion, was to enable the Principal,
should the need arise, to use those funds to pay others (if necessary) to rectify
and/or complete the Contract Works in part or in total as the case required.
In recent times, in fact, cash retention security has been substantially replaced
by bank guarantee security.
From the time of commencing the work up until practical completion, therefore,
when issuing Progress Certificates, the Superintendent will usually note the
amount of cash retention to be deducted, or not, from such Progress Payments.
The Contract will usually provide that such cash retention or security is to be
returned, in part (usually 50%) at Practical Completion.
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Unless either party, either before the Final Certificate has been issued or not later
than 15 days after the issue thereof, serves a notice of dispute under Clause 47,
the Final Certificate shall be evidence in any proceedings of whatsoever nature
and whether under the Contract or otherwise between the parties arising out of
the Contract, that the Works have been completed in accordance with the terms
of the Contract and that any necessary effect has been given to all the terms of
the Contract which require additions or deductions to be made to the Contract
Sum, except in the case of -
(a) fraud, dishonesty or fraudulent concealment relating to the Works or any
part thereof or to any matter dealt with in the said Certificate;
(b) any defect (including omission) in the Works or any part thereof which was
not apparent at the end of the Defects Liability Period, or which would not
have been disclosed upon reasonable inspection at the time of the issue of
the Final Certificate; or
(c) any accidental or erroneous inclusion or exclusion of any work, plant,
materials or figures in any computation or any arithmetical error in any
computation.
EXERCISE 13 – CONTRACTS DETAILS
Refer again to the contract used in previous exercises, and answer the following
questions:
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The Contractor shall execute and complete the work under the Contract.
The Principal shall pay the Contractor -
(a) for work for which the Principal accepted a lump sum, the lump sum
(b) for work for which the Principal accepted rates, the sum ascertained
by multiplying the measured quantity of each section or item of work
actually carried out under the Contract by the rate accepted by the
Principal for the section or item
The Principal will usually decide as to whether the Contract Sum is to be a
fixed price, or alternatively, on a Schedule of Rates basis (for example,
where the rough quantities are known, but for flexibility and/or difficulty of
calculation reasons, the exact final quantities are not known and the
Principal prefers to compare the tenderers on the basis of their unit rates
rather than a total fixed price.”
5.3 Fixed Price
The tenderers will all bid a single price to be the Contract Sum. The price
(subject to variations and other such matters expressly provided for in the
Contract) will not vary, irrespective of the quantities ultimately encountered on
the Contract.
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The Contract should always expressly provide for, at the minimum, the following
where payment is to be made for offsite goods:
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Inclement weather
Strikes
Delay in contractor supplied materials
Interface or interference problems – other contractors
Acceleration
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sub-contractors
suppliers
equipment
labour
This type of claim requires no more than detailed record collection and collation
of each item.
6.3.2. Job-Related Overheads
This type of claim relates to overheads specifically related to this project. It
excludes items in the above claim. It requires the pro-rata allocation, in whole or
in part (usually in part), of overhead items relating to this particular claim. It will
include, for example, the fair share of the following items, able to be allocated to
this particular claim:
supervisor salaries
site security
crane usage
This type of claim should require no more than detailed record collection and
collation of each item.
6.3.3 Non-Job Related Overheads
This type of claim relates to the fair share of organisation-wide overheads which
should be allocated to each claim on a particular project. Items under this type
would include the fair share of the following (attributable to this claim):
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Losses of productivity can arise from a number of areas including, for example:
Increased labour or additional crews arising from acceleration or increased
work scope.
Trade Stacking.
Overtime.
Adverse weather.
Out of sequence work.
Disruption or remobilisation to alternate work-faces due to holds placed on
the works.
Contract changes.
Restricted access.
The usual method of calculating such claims is to compare the actual time
for completion of the work with the tendered time for completion of that work.
Again, this requires certain hypothetical assumptions:
1. that the real rate of work would have accorded with the rate of work
presumed for the purpose of preparing the tender
2. that there were no intervening reasons why this activity would have been
able to occur more quickly or more slowly
3. that the tender was properly estimated
Again, the method of calculation is hypothetical. It requires the contractor to
determine, and potentially prove if the claim is not settled, theoretical activity
times (whether at the time of tender, or in preparing the claim), for
comparison with the actual activity time.
The calculation of construction cost claims, therefore, is, in part, mere record
collection and collation of recordable data.
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SECTION 14 – VARIATIONS
6 VARIATIONS
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It is a contractual term, therefore, between the parties, decided upon at the time
of entering into the contract, that the Superintendent is to have the last word on
the valuation of variations.
EXERCISE 15 – AS 2124
Consider the excerpt from the Australia Standard (AS 2124) relating to
Variations (clause 40) above.
“(d) in determining the deduction to be made for work which is taken out of
the Contract, the deduction shall include a reasonable amount for profit
and overheads;”
In what circumstances do you think the clause above would be used? Describe
what it would mean on a contract, in plain English.
EXERCISE 16 – VARIATION SCENARIO ONE
The Client, DevelopUs, issued a notice for a change to the carpet covering.
Exner had provided a selection of samples for the client to choose from at the
commencement of the project, and the carpet had been chosen at that point.
Exner had proposal to use the same carpet DevelopUs chosen, for the two other
apartment blocks they were constructing (due to the cheaper rates for a larger
quantity).
Comment on whether Exner have a Variation Claim, for the change in carpet if:
Exner had engaged a Fire Services Subcontractor to complete the fire services
installation, for the entire building. Due to a design review, post-contract award,
the Client, DevelopUs decided they could reduce the fire services scope by
50%.
Comment on whether Exner have a Variation Claim, for the change in fire
services scope:
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The Client, DevelopUs, issued a notice for a change to the carpet covering.
Exner had provided a selection of samples for the client to choose from at the
commencement of the project, and the carpet had been chosen at that point.
Exner had proposal to use the same carpet DevelopUs chosen, for the two other
apartment blocks they were constructing (due to the cheaper rates for a larger
quantity).
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7 EXTENSION OF TIME
7.1 Delays
The Contractor’s obligation is to bring the Works to practical completion by the
Date for Practical Completion.
A failure to bring the Works to practical completion by that date will usually
expose the Contractor to a claim for damages (usually “liquidated damages”) by
the Principal.
The requirement to bring the Works to practical completion are generally to be
found in this form in such major standard form contracts as AS2124, JCC,
NPWC3 and others.
For example, clause 35.2 of AS2124-1992 provides:
“Time for Practical Completion
The Contractor shall execute the work under the Contract to Practical
Completion by the Date for Practical Completion. Upon the Date of
Practical Completion the Contractor shall give possession of the Site and
the Works to the Principal.”
Delays enabling the Contractor to claim an extension of time under the Contract
could usually be characterised as follows:
7.1.1 Delays caused by the Principal
Certain delays under a construction contract are caused by the Principal. Such
delays might include, for example:
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In brief, where the Principal prevents the Contractor from performing his
contractual obligations, and the Contract provides no mechanism to extend the
time under the Contract. The Principal is unable to enforce his contractual
remedies against the Contractor in respect of the Contractor’s failure to perform
the works by the time under the Contract.
Alternatively time is said to be “set at large” (meaning no more than that, in the
absence of a contractual mechanism to extend time, the Date for Practical
Completion has no contractual effect). This does not have the result that the
Contract has no completion date, rather the Contractor is required to complete
the work under the Contract within a reasonable time.
In practice, modern construction contracts always expressly provide an
entitlement for the Contractor to both an extension of time (and to delay costs),
where delays are caused by the Principal to the Contractor in the performance
of the Works.
7.1.2 Delays caused by the Contractor
Certain delays are caused by the Contractor. Such delays might include, for
example:
where the Contractor performs the Works at too slow a rate to complete the
Works by the Date for Practical Completion (or has allowed insufficient time
in his tender)
where the Contractor perform the Works in a defective manner, and the work
has to be rectified
In such circumstances, the Contract should not (and rarely does) provide that
the Contractor is entitled to an extension of time and/or additional payment in
respect of those delays.
These are all matters for which the Contractor is contractually responsible.
7.1.3 Neutral delays/force majeure
Certain delays which occur on major engineering contracts are not caused
through the fault of either party but are referred to from time to time as “force
majeure” delays or events. Such delays might include, for example:
inclement weather
industrial stoppages
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Such issues will need to be resolved in each case depending on the particular
provisions of the Contract. The likelihood is, however, that a Court would prefer
to find in favour of a Contractor where a delay is caused by the Principal (albeit
to a non-critical activity) where such an interpretation is available to it.
ATTACHMENT – Extension of Time for Practical Completion
EXERCISE 18 – E.O.T’S
Review the contract you have used in previous exercises and answer the
following questions:
1. If there has been a successful claim regarding latent conditions on your
project, is there a direct entitlement to an extension of time? Include details
of the clauses that support your view.
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8 LIQUIDATED DAMAGES
The contractual obligation on the Contractor, in respect of time under the
Contract, is to bring the Works to practical completion by the Date for Practical
Completion.
Where the Contractor breaches the Contract by failing to bring the Works to
practical completion by the Date for Practical Completion, the Principal would, in
the absence of any other provision, have a contractual entitlement to sue for
general damages.
The convention has evolved, for the common convenience of the parties, that
such damages are pre-agreed at the time of entering into the Contract. For
these purposes, such damages are usually referred to as “liquidated damages”
(in this context, the use of the word “liquidated” means, a specific amount, rather
than an amount to be determined by the Courts).
The requirements to bring the Works to practical completion are generally to be
found in this form in such major standard form contracts as AS2124, JCC,
NPWC3 and others.
For example, clause 35.6 of AS2124-1992 provides:
“Liquidated Damages for Delay in Reaching Practical Completion
If the Contractor fails to reach Practical Completion by the Date for
Practical Completion, the Contractor shall be indebted to the Principal for
liquidated damages at the rate stated in the Annexure for every day after
the Date for Practical Completion to and including the Date of Practical
Completion or the date that the Contract is terminated
If after the Contractor has paid or the Principal has deducted liquidated
damages, the time for Practical Completion is extended, the Principal shall
forthwith repay to the Contractor any liquidated damages paid or deducted
in respect of the period up to and including the new Date for Practical
Completion.”
In fact, though such liquidated damages are to be paid by the Contractor to the
Principal (usually, in fact, they are deducted by the Principal from monies due to
the Contractor, where the Principal decides to deduct such liquidated damages
at all), the liquidated damages provision is in fact, primarily for the benefit of the
Contractor. The operation of a liquidated damages clause effectively limits the
potential exposure of the Contractor to damages for late completion.
There are a number of issues which arise in respect of liquidated damages as
follows:
1. The Courts have generally declined to enforce “penalty” clauses (see
below). For this reason, it is usual to make the liquidated damages a
genuine pre-estimate of the damages likely to be suffered by the Principal
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in the event of late completion (albeit that this pre-estimate is made at the
time of entering into the Contract rather than when the delay occurs, at the
end of the construction period). It may suffice to say, however, that a daily
estimate of damages is rarely (if ever) treated as a penalty clause by the
Courts. Penalty clauses usually take the nature of an amount unrelated to
the actual damage suffered, and which penalty only comes into effect on a
particular date.
2. The quantum of liquidated damages is usually estimated by the parties at
the time of entering into the Contract, based on the damages likely to be
suffered by the Principal if in fact the Contractor is late in completing the
Works. Accordingly, as a matter of contractual negotiation, the amount of
damages is typically a “genuine pre-estimate” of those damages. In the
absence, however, of agreement on that amount, the parties are open to
leave out the liquidated damages clause altogether. In such
circumstances, the Principal could sue the Contractor for general damages
if the Contractor was late in completing the Works. (The usual reason why
the Contractor will insist on a liquidated damages clause is for the reason
set out above, namely to limit his potential exposure in such
circumstances.)
3. From time to time, parties (usually by mistake, but this could sometimes be
the commercial agreement) insert the word “Nil” in the item for liquidated
damages. Courts have interpreted this to mean what it says, namely that
the Contractor, if late, pays zero damages to the Principal in respect of that
lateness. (If the parties, in fact, intended to delete the liquidated damages
clause, and rely on general damages for any lateness, they should delete
the entire liquidated damages provision, rather than write “Nil”).
4. There is no requirement on the Principal to establish that it has, in fact,
suffered loss (the whole purpose of pre-agreeing liquidated damages is to
avoid the potential upside/downside on losses).
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Answers:
In construction, the most typical clauses for LD’s relate to late achievement of
practical completion. PC The typical calculation mechanism is a formula
prescribing an agreed dollar amount for each day from the date of PC to the
actual date of PC. The LD clause does not have to stipulate a particular dollar
amount, which can create significant problems for the parties.
Damages are unliquidated when they are not specified in a contract, therefore
leaving it up to a court to assess the amount. When parties agree a mechanism
for calculating damages, they are called liquidated – which is more specific than
a general right.
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It will be held to be a penalty if the breach consists only in not paying a sum
of money, and the sum stipulated is a sum greater than the sum which ought
to have been paid.
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9 DEFECTS
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The Superintendent may direct the times within which the Contractor must
commence and complete the removal, demolition, replacement or
correction.
If the Contractor fails to comply with a direction issued by the
Superintendent pursuant to Clause 30.3 within the time specified by the
Superintendent in the direction and provided the Superintendent has given
the Contractor notice in writing that after the expiry of 7 days from the date
on which the Contractor receives the notice the Principal intends to have
the work carried out by other persons, the Principal may have the work of
removal, demolition, replacement or correction carried out by other
persons and the cost incurred by the Principal in having the work so
carried out shall be a debt due from the Contractor to the Principal.
The effect of that notice is to require the contractor to rectify those works within
a reasonable time. Failing this, the Superintendent may choose to give a further
notice threatening to take those works out of the contractor’s hands and rectified
by others at the contractor’s expense.
The notice requiring that rectification should be clear and should expressly refer
to the clause pursuant to which the notice is being made. In particular, the
Superintendent should be careful to ensure that the direction is clear that the
works are required because the contractor has failed to comply with the
contract.
There is a common dispute where the Superintendent gives such a direction.
The contractor will usually assert that the work is either not defective, or that he
will carry out the necessary rectification at a more convenient time, that
necessary rectification being minor and more conveniently performed as a final
clean up. Further, in some cases, the notice, if not clearly given, might be
construed (usually wrongly) as a direction to perform additional works as a
variation.
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………………………………………..
Superintendent
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It is the privilege of the Contractor to be entitled to return to the site and rectify
defects as they appear during the Defects Liability Period. The alternative
would be for the Principal to have the defects rectified by others, at the
Contractor’s expense, and to deduct the costs of that rectification from the
security money still being withheld by the Principal throughout the Defects
Liability Period. It would be substantially cheaper, as a rule, for the Contractor
to attend the site and rectify the Works himself.
In addition, it is also the obligation of the Contractor to return to the site within
the period specified under the Contract (or where such a period is not specified,
within a reasonable period) to rectify those defects. In this respect, the
provisions constitute an obligation on the Contractor to attend and rectify.
9.3.2 Failure to Rectify/Rectification by Principal
In the same manner that the Contract usually provides that, where the
Contractor fails to rectify defects, the Principal may take those works out of the
hands of the Contractor and perform those Works at the Contractor’s expense,
similar provisions apply to a failure by the Contractor to rectify defects
throughout the Defects Liability Period.
Where the Contractor fails to attend within a reasonable time throughout the
Defects Liability Period and rectify such defects, the Principal becomes entitled
to have those works rectified by others, and to deduct the cost of that
rectification from the monies presently held by the Principal as security for that
purpose.
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2. If there are defects repaired during the defects liability period, does this
impact upon the defects liability period? (On some projects, a repair to an
item will trigger an extension to the defect liability period, or the creation of a
separate defects liability period for that particular item!)
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Cost control
Change control
Contract finalisation
Good contract administration generally means that there are few, if any,
surprises relating to the execution of contractual requirements either before,
during or after completion.
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• an upper dollar limit in the contract for variations to prevent a contract being
agreed and approved for a small task and then being changed drastically to
address a totally different need
• a standard contract variation form that provides for changes in the price,
quantity, timeframe and appropriate authorisations;
• authority levels to match variation levels, eg. contract managers can approve
up to 10% of the contract price in variations. All other variations to be
approved by executive management
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what checking will be undertaken before invoices will be paid - Will the
contract manager be solely responsible for checking the contract, SLA,
and/or the PMS in order to be satisfied the goods or services have been
delivered satisfactorily
Traditional contracts will generally rely on detailed checking of invoices and
performance information in line with their control and compliance focus.
Provider checking of invoices is becoming the norm in partnering and
alliance contracts where trust levels are higher and the relationship is based
on a sharing of risks and a cooperative approach. The effort to check every
part of the contract in the invoice period can be non-productive in this
environment. The information to be included in invoices and the level of
checking required should be based on a comprehensive risk assessment
that includes identification and management of risks associated with all
contract processes
Industrial disputes
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Inclement weather
In general, a contract will provide for a specific timeframe within which an
extension of time must be requested.
The Full Court of the Supreme Court of South Australia handed down a decision
in January 2007 relating to the payment for building work performed in the
absence of a contract. The case W Cook Builders Pty Ltd (in liq) v Lumbers &
Orrs (30 Jan 2007, unreported)
M. Lumbers and W. Lumbers had agreed with W Cook & Sons Pty Ltd to design
and construct a house. The company was selected due to their reputation for
complex developments and an additional personal relationship between W.
Lumbers and a manager of the W.Cook and Sons Pty Ltd. There was no written
contract signed.
Without advising their client, W.Cook and Sons arranged for a subsidiary
company to complete the work. This subsidiary was not a licensed builder and it
went into liquidation prior to the payment of the final amount owing on the
construction.
The arrangements regarding payment were informal due to a high degree of
trust between parties – and accordingly no written invoices were issued. A total
of $420,000 was paid prior to the builder going into liquidation, with the liquidator
identifying later that there was an amount of $261,715 still owing.
Consequently, the Lumbers were sued for the balance of the costs. At trial, W.
Lumbers claimed that he would not have agreed to the assignment of the
building contract from W. Cook and Sons (and hence did not feel obliged to
make the payment).
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In the absence of a contract, the builder claimed that it should be paid for the
work completed on a quantum meruit basis as it would be unconscionable for
the Lumbers to benefit from having a home they didn’t pay for in full.
The counter argument reflected that due to the lack of the required registration
under the Builders Licensing Act 1986 (SA), which requires a person to be
licensed before they are entitled to any payment (unless the person’s failure to
be licensed resulted from “inadvertence”).
The court upheld that the Builders Licensing Act only prevented an unlicensed
builder from suing for a contract sum and not from making a quantum meruit
claim. In their finding the Court held the Lumbers were obliged to make a
payment to the builder on the principles of unjust enrichment and quantum
meruit. This was largely due to the fact that the builder incurred actual
expenses from which the Lumbers benefited and that the Lumbers knew the
services were not being provided for free.
There was little significance placed on the claim by W. Lumber that he would not
have accepted the “benefit” (the house) if he had know it was being provided by
a subsidiary company – as there was no indication that this resulted in any
difference in quality of the final construction.
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11 Latent Conditions
whether there are any investigations into the site (including the brief to the
entity who investigated the site and the outcome of the investigations)
the level of expertise of the person who carried out the investigation.
A good approach to allocating risk from a principal's perspective is to provide the
contractor with as much information as possible without providing a warranty as
to accuracy. Where this occurs it is necessary to determine in what manner, if at
all, any geotechnical data provided to potential contractors should be or is
qualified, noting in particular any limited scope of the reports which are provided.
When deciding who can best shoulder the risk of latent site conditions, it is
useful to ask:
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who is best equipped (i.e. has the most information or the better expertise) to
bear the risk
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how the parties will decide what action to take to address the latent
condition
• provide the person responsible for the latent conditions with the opportunity
to inspect the site and perform their own investigations (subject to any time
limits)
• provide a mechanism for the person responsible for latent conditions to have
input into the design process to allow for conditions which their investigations
uncover
• decide who will conduct testing of the site, who will pay for testing, what tests
will be conducted and how the results will be interpreted and distributed
• provide for historical searches about how the site and any adjoining land has
been used
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an indemnity from the contractor that they will pay for the cost of any work
which needs to be performed because the contractor tried to rely on the
information provided by the principal
This is often the case where the project is the subject of a tender or where the
principal has substantial bargaining power - but principals need to be careful
that any exclusion clauses are properly drafted.
For a principal to be able to rely on the transfer of risk for latent conditions to the
contractor:
it must be possible to say that it is reasonable for the principal to transfer that
risk
provision should be made for the contractor to have the time and opportunity
to either fully inform themselves about the conditions on the site or otherwise
deal with the risk before committing to the contract
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SECTION 20 – DISPUTES(Part 1)
12 DISPUTES
It is almost inevitable that disputes and conflicts will arise in any project. The
source of the disputes may be to do with personalities – different people have
different values and desires.
It is almost inevitable that disputes and conflicts will arise in any project. The
source of the disputes may be to do with personalities – different people have
different values, desires, needs and habits. The source may be from the
interpretation and performance of the contract.
The notes are structures in two sections:
Contract Clauses
“ARBITRATION
If either party is dissatisfied with the decision of the Superintendent or the
Superintendent fails to make a decision within 28 days or the party
required by Clause 46.1(a) to furnish to the Superintendent reasons for
rejecting the other party’s claim fails to provide the reasons within 28
days after a request by the other party to do so, the dispute may be
referred to arbitration.”
Unless the parties agree upon an arbitrator, either party may request the person
specified in the Annexure to nominate a single arbitrator. If a person is not
specified in the Annexure, the person to nominate an arbitrator shall be the
chairperson of the Chapter of the Institute of Arbitrators Australia in the State or
Territory referred to in Clause 1. The request shall indicate that the nominee
shall not be an employee of the Principal or the Contractor, a person who has
been connected with the work under the Contract nor a person in respect of
whom there has been a failure to agree by the Principal and the Contractor.
Notwithstanding Clause 42.9, the Arbitrator may award whatever interest the
Arbitrator considers reasonable.
If one party has overpaid the other, whether pursuant to a Superintendent’s
certificate or not and whether under a mistake of law or fact, the Arbitrator may
order repayment together with interest.
conciliation
mediation
appraisal
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mini trial
12.3 Conciliation
The term ‘conciliation’ is sometimes used in a general sense to mean any ADR
process whereby a third party assists the parties with the resolution of a dispute.
Such assistance may include mediation or appraisal.
The term ‘conciliation’ may also be used in the more limited context of bringing
the parties together for the purposes of dispute settlement. In this more limited
context, the Conciliator’s role is to assist the parties establish a process by
which they will attempt to resolve their dispute. The Conciliator provides the
facilities for settlement negotiation, such as premises and support services.
The Conciliator is not involved in the substantive issues of the dispute.
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SECTION 21 – DISPUTES(Part 2)
12.4 Mediation
Mediation is a flexible process designed to assist the parties resolve a dispute
by agreement. The essential feature of mediation is achieving agreement
between the parties.
The Mediator appointed by the parties is far more actively involved than a
Conciliator in the substantive issues of a dispute. The Mediator is a neutral
expert who helps the parties to negotiate; a catalyst who facilitates an
agreement between the parties. The Mediator has no authority to impose a
settlement but creates a positive attitude in the parties toward settlement. The
Mediator must be impartial, a good listener and must establish credibility and
trust with the parties.
12.5 Appraisal
Appraisal involves an independent person acceptable to the parties formulating
an opinion on the matters in dispute. An Appraiser takes an active, inquisitorial
role to identify and understand the matters in dispute. The purpose of the
opinion is to facilitate a subsequent negotiated settlement between the parties.
12.6 Mini-Trials
The term ‘mini-trial’ is a misnomer, as it is, in fact, not a trial but a structured
information exchange attended by representatives of the parties authorised to
settle the dispute. In the Australian context it may be more acceptable to refer
to the process as a ‘settlement conference’, or similar expression, to avoid any
misunderstanding as to the legal status of the process.
The persons attending a mini-trial comprise an advocate and an authorised
decision maker from each party and, usually, a neutral adviser selected by the
parties.
The role of the neutral adviser is not essential to the conduct of a mini-trial and
some mini-trials have been successfully concluded without such an adviser.
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12.8 Arbitration
Arbitrations have been described by the Institute of Arbitrators Australia as:
“… a method of settling disputes and differences between two or more parties
by which such disputes are referred to one or more persons, chosen or
nominated for the purpose, for determination after a hearing in a quasi-judicial
manner either instead of having recourse to an action at law or by order of a
Court after such an action has been commenced.”
Arbitration in Australia has its roots in English arbitration. Today all States of
Australia have arbitration Acts which with the introduction of the 1990-1991
amendments are reasonably uniform across the country. The sometimes
termed “Uniform Acts” have their dates of assent from 1984, following work of
the Standing Committee of Attorneys-General.
This, of course, refers to commercial arbitration as opposed to industrial
arbitration. The latter looks after matters of wages, conditions of employment
etc.
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A new approach to resolving contract disputes before they escalate has been
suggested for Australia following its success in the US. The story below
(Engineers Australia, 20 September 1991, pp 27-35) describes how this
approach involving dispute review boards operates.
Contract disputes are often costly and stressful affairs and principal s and
contractors are always seeking new ways to avoid disputes or to minimise their
adverse effects.
Although contract disputes have declined recently as a result of the recession
there is a general view that during the 1980s there was a large increase in the
incidence of contractual claims and disputes in the building and construction
industry.
It was because of concern about the increasing cost burdens of disputes that a
special research group made up of representatives from the Australian
Federation of Construction Contractors (AFCC), the Australian Institute of
Quantity Surveyors and Federal and State Government construction authorities
was set up in 1988 to look at “Strategies for the reduction of claims and disputes
in the construction industry”. It visited a number of countries in Europe, North
America, Asia and the Pacific and published its findings as the end of that year.
A joint working party drawn from senior people in all sectors of the industry was
set up in 1989 and its report, “No Dispute”, was published by the National Public
Works Conference in conjunction with the National Building and Construction
Council in May last year.
“No Dispute” was intended to encourage discussion and debate and to
contribute to the implementation of practices that would improve performance
and result in fewer disputes.
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particularly suited to large projects like tunnels and dams where the project is of
long duration and where many unknowns are involved.
On smaller projects, he believes, the site superintendent (who is often an
engineer) should be chosen and have his / her salary paid by both parties. He
said the traditional role of Superintendents where they act as agents of the
owners and as certifiers of work carried out by the contractors is not working
because contractors regard them as having a conflict of interest.
“So regardless of their personal integrity and professionalism, the commercial
reality is that Superintendents are not seen by most contractors as being truly
independent.”
Jones said it is of utmost importance when a dispute arises, that it be taken
away from the site and that the parties involved consider alternative dispute
resolution (ADR) strategies.
ADRs can take a number of forms ranging form conciliation (introducing a
neutral third party to get the parties in dispute to agree on a mutually satisfactory
solution) which is nonbinding to an independent expert determination which may
or may not be binding.
Jones pointed out that in the case of a nonbinding expert determination the
parties are free to accept, reject or amend the determination. But where a
binding determination is agreed on there is no right of appeal. Also, unless the
parties agree otherwise, an expert does not have to include reasons for his / her
determination.
“In view of this, it is essential that the expert selected be acceptable and
respected by both parties as they will have to live with his or her decision,” he
said.
However, he warned that mechanisms adopted to deal with disputes arising
from construction contracts can end up exacerbating the problems.
“Indeed, dispute resolution systems designed to produce faster and easier
solutions than the courts have often become even more ossified and
expensive.”
“Arbitration has developed an undeservedly poor reputation because of lawyers’
mimicking traditional court procedures.”
Accordingly to James Ferry, a civil engineer and lawyer with the Melbourne
office of the law firm Sly & Weigall, the appointment of an engineer-adjudicator
concurrent with the framing of a contract could be well worthwhile. He said the
New Engineering Contract (NEC) for engineering and construction work recently
published by the British Institution of Civil Engineers (ICE) includes provisions
for adjudicating contract disputes.
The NEC defines the traditional components of the engineer’s role, but breaks
them up into four categories of project manager, designer, and supervisor of
a need for both parties to make a good estimate of both the external and
internal costs of arbitration or litigation, so they can make clearheaded
judgments about simplifying procedures and reducing these costs
What are your views to having a dedicated third party (or dispute review board)
for each contract? The third party would maintain interest in the progress of the
project and would make nonbinding decisions on claims as they arise. Work on
the project continues meanwhile with the parties having the option of, say, later
arbitration on any decision with which they disagreed.
READING
EXERCISE
ADR has some popularity in Australia but does not appear to be as popular as
many reports state the case to be in North America. Why do you think there
are differences between the Australian and U.S. experiences?