Analysis of Australian Building Contracts

The MW-1 2003 Contract was developed and published by the Royal Australian Institute of Architects (RAIA) and the Master Builders Association (MBA). This contract is the revised edition of the original ABIC MW-1 2001 contract

AS 4000 1997 General Conditions of Contract

The AS 4000 contract was developed through the joint Standards Australia & Standards New Zealand Committee OB/3. The contract was developed as a result of a consensus to push for the contract to become an Australian Standard. Organizations that were approached in the development of the contract were:

* The Royal Australian Institute of Architects

* Australian Chamber of Commerce

* Australian Procurement and Construction Council

* AUSTROADS

* Master Builders of Australia

* Electricity Supply Association

* Association of Consulting Engineers, Australia

GC21 (Edition 1) General Conditions of Contract

The GC21 Construction Contract was developed and prepared in conjunction with many organizations. They are:

* Department of Commerce

* Department of Housing

* Roads and Traffic Authority

* State Rail Authority

* Sydney Water

Legal advice provided during the development of the GC21 Contract was provided by Baker & McKenzie Pty Ltd.

Major differences in general approach/philosophies.

ABIC MW-1 2003

* The MW-1 contract was developed to create clear understanding across all parties and implement efficient administration with clearly defined procedures.

* ;Encourages resolution of claims and dispute matters at the time of arousal through, through cooperative administration and communication

* The contract is considered be pro architects, as it has been developed to reduce liabilities to the architects.

* Parties are encouraged to clearly understand their roles, responsibilities and expectations.

* Sets out to develop a clear logical systematically structure that reflects the construction tasks & processors.

* Encourages the allocation of all project risks equally among the parties (subcontract, principal…) to eliminate uncertainty and disputes

AS 4000 1997 General Conditions of Contract

* AS4000 General Conditions of Contract: comprises general conditions of contract suitable for a wide variety of construction and building contracts including civil, mechanical, electrical and other types of engineering contracts. AS4000 runs concurrently with the earlier AS2124.

* The AS 4000 Contract is an improvement to the earlier AS 2124 contract. Its foundation was based on improving the readability of the contract, with lighter terms and the removing of much of verbiage to make it easily understood by all.

* The contract is also aimed at improving risk allocation and clarifying responsibilities in Construction projects.

GC21 (Edition 1) General Conditions of Contract

* The GC21 contract is generally concerned with contracting between contractors and the NSW Government, in particular Design & Construct projects.

* The contract emphasizes the importance of effective communication across all parties to the contract. The contract includes features and improvements from the previous C21 contract which was seen to be highly effective in encouraging co-operative contracting and enhanced communications.

* Communication is further emphasized through regular meetings for performance evaluation and priorities. The contract provides Performance Evaluation and Performance Evaluation Record forms. Although these forms do not form part of the contract, they provide a basis for effective communications and are highly encouraged.

* Description of roles and responsibilities of each party is emphasized in the contract.

* Heavily encourages communications and hopes it will lead to greater efficiency in design, time management and site conditions

Types of projects suitable to each contract.

ABIC MW-1 2003

* Recommended use for major projects of high complexity valued from $250, 000 to $25 million.

* Suitable for Commercial and Industrial Projects, where it does not require any amendment

AS 4000 1997 General Conditions of Contract

* Construct only projects

* Any project greater than $1 million in value

* Has the ability to be amended to become a Design & Construct contract.

* Generall any type of construction project

* Commercial

* Residential development

* Industrial

GC21 (Edition 1) General Conditions of Contract

* Government Capital works

* Hospitals

* Railways

* Roads

* Healthcare

* Bridges

* Sewer treatment

* Genera design & Construct works

SECTION ABIC MW-1 2003 AS 4000 – 1997 GC21 Ed. 1

Superintendent The contract appoints the Architect as the Superintendent, and is pro architects

The Superintendent is appointed in writing by the Principal and notified in writing to the Contractor.

This contract makes no reference to a superintendent, implying that the Principal will be administering the contract

Insurances The contract allows either the contractor or the owner to insure. Provision is also made for one party to take out and maintain the insurance where the nominated party fails to do so or fails to provide acceptable evidence that the insurance in is place

Public liability extends from site possession until final completion.

Where the works involve separable parts, insurance requirements apply independently to each part

The contract requires that both parties must advise the insurer of the extent of their respective entitlement within 20 working days of the date of the contract.

The contract seeks to protect and ensure that both parties have equal risks, however protects the architect more by allocating the architect no risk at all.

Clause 15 of AS 4000 applies to both property of Works under the Contract (WUC) and works other than WUC.

The contract outlines the requirement of indemnity from both the contractor and the principal.

The contract has a much greater focus on identifying the specific items needed to be covered in the Contractor’s Insurance Policy.

The contract identifies the responsibilities of both the Contractor and the Principal, without placing unnecessary risk on either party.

Under Clause 14.2, the Contractor is responsible for rectifying works in the case of damage or loss to WUC, however in the case of the damage being a result of an excepted risk, the Contractor will rectify under direction of the superintendent. There is a requirement for the contractor to obtain an effect Works Public Liability, Asbestos liability and Marine Liability policies within 7 days of the contract.

These policies must cover the Contractor, the Principal, the Principal’s Authorized person, subcontractors and suppliers.

Sub-clause 13: “…significant damage or destruction under the Works policy of insurance…all settlement amounts must be paid by the insurer directly to the Principal…..Principal may decide to have the works reinstated or decide not to proceed with the works…Contractor may only make a claim for payment for reinstatement of the Works..”

This contract seems to place more pressure on the Contractor, and seeks to provide protection to the Principal against project risks.

Extensions of Time The contract establishes that a contractor is required to notify the architect if it intends to make a claim within 20 working days

The architect will assess the claim and if required, can request additional information.

The contract also requires the architect to issue a response to the claim within 20 working days

Under the contract, the architect and contractor is encouraged to agree on appropriate times for claim submissions.

The contractor must notify the architect when delays are occurring and when delays end

The contractor must nominate a provisional period of delay for disruptive weather that will affect the works.

The contract specifies that a Notice of Delay must be given, by either party, if that party becomes aware of anything that will probably cause delay to WUC. This notice must be given to the Superintendent.

The Contractor will be entitled to an EOT only if the EOT falls under the “qualifying cause of delay” category.

The Contractor may claim an EOT through a written letter outlining the evidence for the delay and facts.

The contract gives the contractor the right to an EOT regardless of whether the Contractor has the ability to accelerate or whether Practical Completion can be reached without an EOT. This reduces the risk to a Contractor. (Clause 34.4: Assessment).

The Contractor must notify within 28 days of becoming aware of the delay. There seems to be no requirement for the Contractor to prove that the delay has affected the critical path.

The Principal cant assess extensions of time relating to variations. As described in the Variations Clause, this is the responsibility of the Valuer.

The Principal will assess the number of days the Contractor is entitled to for an EOT

Clause 6: “The Principal may in it’s absolute discretion for the benefit of the Principal extend the time for completion at any time and for any reason, weather or not the Contractor has claimed an extension of time. The Contractor is not entitled to an extension of time…”. This clause ensures that the Contractor cannot rely on this clause for an extension of time, and is simple for the direct benefit to the Principal.

The contractor must notify within 14 days. Clause 25: Time Management states that the contractor must prove that the delay has affected activities on the critical path. This means that the contract implies that the Contract Programme must be used and updated regularly.

AREA MW-1 2003 AS 4000 – 1997 GC21 (Edition 1)

Variations A variation entitles the architect to issue an instruction for a variation, including a request for relevant information about the time and cost implications

Requires the contractor to review the instruction regarding its time or cost implications, & warns the contractor not to proceed with a variation that requires adjustment to contract.

If the instruction from the architect does not result in any change to the contract price or practical completion, the contractor must confirm in writing to notify the architect of this.

If an authorized person other than the architect issues an order to the contractor for extra work or a variation, the contractor must notify the architect.

Under this contract the architect has the power to negotiate with the authorized person on whether the extra work is necessary. The Superintendent has the right to direct the Contractor to vary WUC before the date of Practical Completion.

The Superintendent may give written notice to the Contractor for a variation, and when this notice is received the Contractor must notify the Superintendent of the implications of the variation on the programme and costs.

Contractor is able to make a variation for it’s own convenience, however this must be requested in written format and may be subject to conditions.

There seems to be no provision for the event of a dispute between the two parties over a variation.

The GC21 contract has a provision for an external Valuer who can be engaged to value the variation.

The valuer can also be approached if the parties cannot agree on the value of the variation.

If the parties do not agree, the claim will be dealt with under the dispute resolution clause of the contract.

Liquidated Damages Liquidated damages will only apply if works are not completed by the adjusted date for practical completion, whereby the owner will make the decision for the architect to apply them.

If the rate for liquidated damages was not applied when the contract was sighed, it will have no effect. There is no default rate in the contract. This ensures that the onus is on the owner to decide on a rate beforehand, to which the contractor may or may not agree to.

The Superintendent shall certify liquidated damages due and payable to the principal for every day after the date for Practical Completion.

If an EOT is directed after the Contractor has paid or the Principal has set off the liquidated damages, the Principal must repay to the Contractor liquidated damages relevant to the EOT.

Liquidated damages are treated as a debt owed to the Principal, and not a contingent debt. This means that the Principal can deduct amounts from the contractor progressively, rather than at completion to determine whether there was any debt at all.

The only protection to the contractor in the clause is that the clause states the Principal must act reasonably in assessing liquidated damages, however this is contradicted by clause 55, where the contractor has limitations to claim delay costs in the event of occupation be the Principal.

My opinion of which contract is suited for use of Head Contract

In my opinion, a modified version of the AS 4000 would be the preferred contract for Head Contractors in the construction and building industry. The AS 4000 does not set out to favour one party over the other and it clearly defines each parties responsibilities and liabilities in its simplest terms. The AS4000 contract also provides a relationship between the Principal, Contractor and Superintendent. The Superintendent in this case is not the client or the designer of the works and their sole purpose is to administer the contract, making it a much ‘equal’ contract for all participants involved.