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Last Updated: 7 December 2009
Standard form construction contracts in Australia: Are our reinvented wheels carrying us forward?
Matthew Bell*
This article reviews the range of standard form construction contracts which are currently in common use in Australia, including their history and key features (with a particular focus upon the recently-released ABIC MW-2008 form) and recent treatment in the courts. In doing so, it seeks to reflect upon the purpose and utility of standard forms, as well as what their role may be in a future which promises ever-increasing complexity in the law, commerce and practice of the industry.
INTRODUCTION
We live in an age where it is virtually impossible for most of us to understand the inner workings of the things we work and interact with every day. Who is able to fully explain, for example, how an architect can be on a building site in Shanghai and able to a hold a coherent discussion with her colleagues in Melbourne?
A generation ago, we might have taken the devices that rule our lives apart to find out what made them tick. Nowadays, as anyone who has ever tinkered with a modern car engine or an iPod will tell you, such a venture is pure folly. Instead, we have become used to relying upon things to work as they promised they would – and, when they do not, we bring them to experts to fix or put them out in the next hard rubbish collection.
In the construction industry, professionals work with a vast range of tools in bringing a project from conception to completion. Engineers, architects and other project personnel rightly expect that they should be able to rely upon these tools doing what they are supposed to do.
There is one tool in the site shed, however – perhaps, buried in a bottom drawer – which, without malfunctioning, can act in ways completely different from those its users anticipate. This tool is the project’s construction contract.
STANDARD FORMS PAST AND PRESENT
Standard forms of contract have been a feature of the construction law landscape for a very long time. A noted early example is the section dealing with construction procurement included in the so-called “Code of Hammurabi”, dating from Babylon in about 1760 BCE. Those provisions include the following, straightforward (yet, somewhat onerous!) stipulations as to the consequences of poor workmanship which pre-date the modern law stemming from Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613 by nearly 4,000 years:1
229 If a builder build a house for some one, and does not construct it properly, and the house which he built fall in and kill its owner, then that builder shall be put to death.
233 If a builder build a house for some one, even though he has not yet completed it; if then the walls seem toppling, the builder must then make the walls solid from his own means.
The range of forms which we have available to us today has its origins in the forms promulgated by professional bodies in the late 19th and early 20th centuries in the United Kingdom and then
* Melbourne Law School, University of Melbourne. This article is based upon an address entitled Standard Form Construction Contracts – Under the Microscope given by the author at the Discussion Night of the Building Dispute Practitioners’ Society (19 November 20080, subsequently published as “Standard Form Construction Contracts in Australia – Where Do We Go From Here?” (2008) 33 BDPS News 5.
1 See, generally, Bruner PB, “The Historical Emergence of Construction Law” (2007) 34 William Mitchell Law Review 1 at 2.
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Australia.2 The Secretary-General of the Joint Contracts Tribunal in England (which has been producing forms of contract since 1931) characterises the process of evolution as one where “we keep reinventing the wheel, albeit not exactly the same wheel”.3 A consensus is forged among various industry interest groups and reflected in a standard form, that standard form becomes increasingly the subject of amendments, and then the interest groups sit down once again in an endeavour to document a revised common approach.4
The Australian experience as the first decade of the millennium draws to a close provides a snapshot of this ongoing cycle. On the one hand, there is a range of commercially-available forms in common use for building works. It is these forms which are the focus of this article. On the other hand, much of the contracting undertaken in the industry continues to be by way of bespoke forms, suites of forms promulgated by particular organisations (whether peak bodies,5 procurers,6 contractors, or consultants) or – perhaps most commonly – hybrid contracts based upon standard forms but heavily amended to reflect the applicable delivery method or risk profile.
Whilst industry-wide data is not readily available as to the use of standard forms,7 it appears that the most commonly used standard forms for commercial building work continue to be the Australian Standard (AS) forms, AS 2124-1992 and AS 4000-1997, along with their respective design and construction variants (AS 4300-1995 and AS 4902-2000). AS 4000 and 4902 are the flagship forms amongst a new fleet of construction contracts launched progressively by Standards Australia Ltd8 between 1997 and 2003. The suite includes not only building contracts, but also forms for ancillary services such as equipment supply and installation and asset maintenance/facilities management.9
The other major, commercially-available suite is the series of Australian Building Industry Contract (ABIC) forms.10 These are promulgated jointly by Master Builders Australia11 and the Australian Institute of Architects (AIA).12 The ABIC suite is intended to replace the Joint Contracts Committee (JCC) forms. Having said that, and illustrating the reality that industry participants will continue to use “tried and tested” forms despite their no longer being endorsed by the relevant bodies,
2 For insights into the history of development of standard forms in various countries, see, eg, Pilley J and Coombes H, “Standard Conditions of Contract” (2000) 16 BCL 412 at 412-417; Jones D, “Where are Standard Forms Going?” [1996] AUConstrLawNlr 21; (1997) 47 Australian Construction Law Newsletter 15 at 15-16; Hibberd P, The Place of Standard Forms of Building Contract in the 21st Century, Paper based upon a presentation at the Society of Construction Law Conference (Wakefield, 11 March 2004) pp 1-2; Uff J QC, “Origin and Development of Construction Contracts” in Uff J and Capper P (eds), Construction Contract Policy: Improved Procedures and Practice (King’s College, London, 1989) pp 6-7; Bruner, n 1 at 5-6.
3 Hibberd, n 2, p 2.
4 Hibberd, n 2, p 2.
5 These include the forms published by the Property Council of Australia: PC-1 1998 and its associated subcontract, PSC-1 1998 (see, generally, Capelli S, “The Property Council of Australia Standard Form of Contract – A User’s Guide” [1999] AUConstrLawNlr 31; (1999) 66 Australian Construction Law Newsletter 16; Solling G, “Project Contract (PC-1) Commentary” (1999) 15 BCL 240) and the forms for residential building produced by the Housing Industry Association in Victoria and similar organisations in other States and Territories.
6 Perhaps the most prominent
example of these is the suite of construction and asset
maintenance contracts
used by the
Australian Department of
Defence, http://www.defence.gov.au/im viewed 17 March 2009.
7 One of the few extensive studies of construction contract use was undertaken by Engineers Australia and the Chamber of Commerce and Industry of Western Australia; its findings were published as Effective Risk Allocation in Major Projects: Rhetoric or Reality (2001).
8 Standards Australia Ltd, http://www.standards.org.au viewed 17 March 2009.
9 See, generally, Pilley J, “Asset Maintenance and Services Contracts: The Standards Suite is now Complete” (2005) 21 BCL 6.
10 See, generally, Booth R, “The ABIC Suite – Development and Particular Features” [2002] AUConstrLawNlr 55; (2002) 85 Australian Construction Law Newsletter 10; Hider J “Australian Building Industry Contract – Major Works: Short Critique” (2004) 20 BCL 26.
11 Master Builders Australia, http://www.masterbuilders.com.au viewed 17 March 2009.
12 Australian Institute of Architects (AIA), http://www.architecture.com.au viewed 17 March 2009.
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it appears from anecdotal evidence that JCC has continued to be used for many years after the introduction of ABIC.13 Certainly, there is at least one example of a JCC contract, entered into well after ABIC’s issue, coming before the courts.14
ABIC MW-2008
Key features remain intact
In October 2008, a new version of the ABIC Major Works form, ABIC MW-2008, was released to supersede ABIC MW-1 2003.15 The major features and risk allocation of the 2003 version remain largely intact – for example, there have been no changes to the causes of delay entitling the contractor to claim an extension of time with or without costs.16
The lack of substantial change to the risk allocation is consistent with ABIC having been promoted on the basis of reflecting a regime aligned with the “Abrahamson Principles” as translated via No Dispute.17 That is not to say, however, that there are no aspects of the form’s risk allocation which may be regarded as unfair or, at the very least, unusual – for example, owner parties need to be aware that the contractor is entitled to be compensated as though “the owner had wrongfully repudiated the contract” where the contractor validly terminates following the owner failing to pay or meet any other substantial obligation, or becoming insolvent. In other words, the owner (or its administrators) face the risk that failing to remedy a breach of a substantial obligation – whether the relevant term would otherwise be classified as essential, inessential or intermediate,18 or becoming insolvent, can lead to the contractor being entitled to recover compensation which includes its anticipated profit on the remainder of the project.19
Another feature which has been carried through from the earlier versions is the form’s distinctive clause numbering, combining letters and numbers (A1, A2, B1, etc). Having said that, the use of bullet points to denote paragraphs within clauses has been abandoned in favour of the more conventional (a), (b), (c) etc style.
It should also be noted, as a continuing feature of the form, that ABIC MW-2008 is the only commercially available major works form which deals expressly with the requirements of domestic building legislation20 and GST. Reflecting even more recent legislative developments, the 2008 version has been augmented to provide for appointment of the contractor as “principal contractor” for
13 This tendency has been acknowledged by John Pilley and Harley Coombes (who had a lead role in developing the AS 4000 suite) in the context of the AS contracts: Pilley and Coombes, n 2 at 415.
14 Pindan Pty Ltd v Property Nominees Pty Ltd [2006] WASC 91 at [7] (which notes that the project’s contract, based upon JCC-D, was entered into on 3 April 2003).
15 It also was intended to replace the interim form, MW-2007. See, generally, AIA, Newsletter (October 2008) p 1.
16 See, respectively, cll L1.1 and L2.1 of ABIC MW-2008.
17 NPWC/NBCC Joint Working Party, No Dispute: Strategies for Improvement in the Australian Building and Construction Industry (NPWC, Dickson, 1990). For a detailed analysis of the means by which ABIC sought to adopt the No Dispute risk allocation philosophy, see Booth, n 10 at 18-19.
18 In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115, the High Court confirmed that “innominate” or “intermediate” terms may, in circumstances where the consequences of the breach are substantial, justify termination.
19 Whilst lost profit may not always be available where the contract has been repudiated, cases from Carr v Berriman [1953] HCA 31; (1953) 89 CLR 327 to Wallace-Smith v Thiess Infraco [2005] FCAFC 49; (2005) 218 ALR 1 illustrate, in the infrastructure project context, the dramatic effect upon damages recovery of being able to establish that the contract has been brought to an end by repudiation.
20 This is done via separate forms (designated “H” and then the relevant jurisdiction (eg “H VIC”)) applying to each State and Territory. Dealing with such diverse and often contradictory pieces of legislation must have been a massive undertaking from a drafting point of view – Pilley and Coombes noted that it was regarded as “virtually impossible” to produce an AS contract complying with all of these requirements (Pilley and Coombes, n 2 at 412).
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the works.21 Another feature unique to ABIC amongst these forms is its incorporation of the practice – by no means unproblematic – of allowing contractual notices to be served by email.22
Significant changes from the 2003 version
There have been several changes to the form, of varying degrees of significance. Whilst many of these are outlined in the AIA’s Practice Note AN15.60.111, some of the more significant (or at any rate, their substantial legal ramifications)23 are not identified.24
In summary, some of the more significant changes in the 2008 version include:
1. Express provision that the owner is only to issue instructions to the contractor through the architect (cl A4.1(f)).
security are the “only” circumstances in which such a call may be made (cl C5.1; cl C15 provides similarly in respect of security provided by the owner).25
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Standard form construction contracts in Australia: Are our reinvented wheels carrying us forward?
carve-outs of fraud, latent defects and arithmetical and other errors which are set out in AS 2124-1992 and AS 4000-1997.27
Conflict with security of payment legislation?
The amendment in cl N9.2 requires some further comment. It is not unusual for Australian standard forms to provide an express right to payment of the full amount where a certificate is not issued.28 ABIC MW-2008 goes further, however, by adding the notice procedure; – effectively, this seems to postpone the claimant’s right to full payment.
Section 14(4) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (NSW Act) provides that a respondent to a payment claim (in this case, the owner) “becomes liable to pay the claimed amount to the claimant on the due date for the progress payment”.29 In other words, the legislation contemplates that the right to payment arises immediately.
By reason of its postponement of the right, cl N9.2 might therefore be regarded, under s 34(2) of the NSW Act, as a “provision of [an] agreement ... that has the effect of ... modifying or restricting ... the operation of this Act”.30 Such a clause is rendered void by that provision.
In the absence of comprehensive judicial consideration of the ambit of this provision, Marcus Jacobs QC has noted that “the question of how section 34 will in future be applied can still be said to be an open question”.31 Nonetheless, considering the wide terms in which s 34 is framed, there seems a significant risk, at least on the eastern seaboard,32 that, as currently drafted, cl N9.2 may fall foul of the legislation.
Other changes in the 2008 version
There are various changes the impact of which may be expected to be primarily in the administration of the contract. These include:
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27 See AS 2124-1992, cl
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28 See, eg AS 2124-1992, cl 42.1
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29 The Queensland and Victorian
legislation is identical in this respect – Building and
Construction Industry Payments Act 2004
(Qld), s 18(5);
Building and Construction Industry Security of Payment Act 2002
(Vic), s 15(4).
30 Section 48(2) of the Victorian Act is in identical terms, and s 99(2) of the Queensland Act is substantially identical.
31 Jacobs M QC, Security of Payment in the Australian Building and Construction Industry (2nd ed, Lawbook Co, 2007) p 294. Jacobs notes the New South Wales Supreme Court’s consideration of the issue in Minister for Commerce v Contrax Plumbing Pty Ltd [2004] NSWSC 823 (and, on appeal, [2005] NSWCA 142).
32 The Northern Territory and Western Australian legislation (respectively, the Construction Contracts (Security of Payments) Act 2004 (NT) and Construction Contracts Act 2004 (WA)) seems less likely to be offended by cl N9.2. These Acts imply terms relating to payment into contracts only where the contracts do not already make relevant provision (which ABIC MW-2008 does) – see s 20 of the NT Act and s 17 of the WA Act. Moreover, the provision rendering contract clauses as being of “no effect” (s 10(1) of the NT Act and s 53(1) of the WA Act) contemplate only that the agreement “purports” to modify, as opposed to the wider “has the effect of” in the east-coast legislation.
33 Respectively, s J and cll M2-M3 of ABIC MW-2008.
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In addition, there are a number of improvements to the workability of the document and certain issues from previous versions have been remedied. These include:
Schedules have been inserted before the contract conditions, which likewise ought to decrease the risk of inadvertently missing an item for insertion.34
but many of the instances where it was used have been replaced with a new definition of “necessary work”, which seems to refer to activities.36
Having said that, there are a number of issues inherited from the previous editions which remain unresolved and ought to be borne in mind by parties considering using the form. These include:
• Clauses P4-P6 continue to refer to certain Rules of the Institute of Arbitrators and Mediators Australia which have been superseded.37
– “promptly” (which is used throughout the form) is defined as being “as soon as practicable”
whereas the primary Macquarie Dictionary definition requires action to be taken “at once or without delay”;39
– the concept of the works being (or not being) “near” practical completion underpins the sequence leading to the achievement of that most crucial of stages (under cll M4-M6), yet there is no guidance as to what constitutes “nearness” in this context; and
– the reference to the form of performance security applicable under the contract as “unconditional guarantees” would not have found favour with Chief Justice Barwick. In Wood Hall v The Pipeline Authority [1979] HCA 21; (1979) 141 CLR 443, his Honour criticised the use of the term “guarantee” in relation to an unconditional undertaking, characterising it as “a
complete misnomer” as such an instrument “does not ... involve either the Bank or the owner in any of the obligations or rights of suretyship”.40
34 Silent Vector Pty Ltd t/as Sizer Builders v Squarcini (2009) 25 BCL 58, discussed below, provides a salutary reminder of the risks entailed in completion of the contract documentation.
35 See, eg AS 2124-1992, cl 42.4; AS 4000-1997, cl 37.3; PC-1 1998, cl 12.10.
36 Some apparent anomalies remain, however – such as cl A2.1(a) which speaks of “begin[ning] the Works” and the references in cll G11-G13 to suspending and recommencing the works. Presumably, given the incompatibility of such matters with the works being “completed”, these references should be to the “Necessary Works”.
37 See, generally, Bailey I and Bell M, Understanding Australian Construction Contracts (Lawbook Co, 2008) pp 229-231. 38 See, eg AS 2124-1992, cl 44.1; AS 4000-1997, cl 39.1; PC-1 1998, cl 14.1.
39 David Standen identified the, at best, redundant nature of this definition as early as 2002: Standen D, “The New Plain English Contracts” [2002] AUConstrLawNlr 56; (2002) 85 Australian Construction Law Newsletter 21 at 21.
40 Wood Hall v The Pipeline Authority [1979] HCA 21; (1979) 141 CLR 443 at 445. In the most significant recent Australian decision on access to performance security, Clough Engineering Ltd v Oil and Natural Gas Corp Ltd (2008) 249 ALR 458, the Full Court of the Federal Court of Australia refers to the relevant instruments as “guarantees” throughout the judgment. This does not necessarily indicate, however, that Barwick CJ’s semantic crusade is a lost cause – as is made clear in one of the earlier judgments in the
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Standard form construction contracts in Australia: Are our reinvented wheels carrying us forward?
BROADENING OF DELIVERY METHODS COVERED BY STANDARD FORMS
Whilst – ABIC aside – the past decade has been a relatively quiet period so far as the production of new standard forms has been concerned, there has been a significant broadening of the delivery methods which are covered by the standard forms. In 1995, the OB/3 drafting committee of Standards Australia took the significant step of issuing a design and construct variant of AS 2124-1992, being AS 4300-1995. Since then, the suite based upon AS 4000 has grown to encompass 16 forms, including those dealing with equipment supply, construction management and asset maintenance.41
Other suites have seen a similar expansion. For example, the “rainbow” of FIDIC forms42 which were revised in 1999 by introduction of new edition “red” (construction designed by the employer), “yellow” (plant and design-build), “green” (short form) and “silver” forms (EPC/turnkey) has had its spectrum augmented in recent years by introduction of a form for dredging (2006), a variant on the “red” book to incorporate the requirements of multilateral development banks (2006) and, most recently, a “gold” book for design build operate delivery (September 2008).43
Whilst the suites’ coverage has expanded significantly in recent years (and certain other suites include still more “exotic” applications, such as the Conditions of Contract for Archaeological Investigation published by the Institution of Civil Engineers in 2004), there remain many commonly entered delivery methods for which there is no readily available standard form.44 These include relationship forms such as alliancing and partnering,45 and the contract documentation for public private partnership projects.46
In addition to the expanded coverage of delivery methods, there has been an increased emphasis on the benefits of providing contract administration manuals to accompany the forms. As Pilley and Coombes have noted, by shifting many of the purely procedural aspects of contract administration into these manuals, the contracts themselves are able to “concentrate on what the parties have to do rather than how they are to do it”.47 There may be a further benefit to the production of such materials through their tendency to promote the contracts as a codified, “private system of law”.48 In other
Clough series (Clough Engineering Ltd v Oil and Natural Gas Corporation Ltd [No 2] (2008) 24 BCL 35 at [3]), the security was in fact framed as a “guarantee”. Moreover, the Full Court recognises Wood Hall as the “seminal judgment” in this area (at [75]), albeit without referring to Barwick CJ’s dictum.
41 See, generally, Pilley, n 9.
42 Published by the International Federation of Consulting Engineers – see http://www.fidic.org viewed 17 March 2009.
43 As to the FIDIC forms generally
and their reception in Australia, see Hoyle J, “The Rainbow Down
Under: Part
I” (2001) 18
International Construction Law
Review 5; Hoyle J, “The Rainbow Down Under: Part II” (2002)
19 International Construction Law Review 4; as to the Gold Book, see
Landsberry S, “FIDIC Design Build Operate: Glitter or Gold?” (2008)
25 International Construction Law Review 156; Wade C, “FIDIC
Introduces the DBO Form of Contract – The New Gold Book for Design,
Build and Operate Projects” (2008) 25 International Construction
Law Review 14; Reynolds T, “The FIDIC Gold Book – Some
Preliminary Comments” (2009) 4(1) Construction Law International
9.
44 For a survey of the range of delivery systems currently in use (albeit with a United Kingdom emphasis), see Grove JB, An Overview and Summary Evaluation of Typical Project Delivery Systems, Paper prepared for the Society of Construction Law International Construction Law Conference (2008).
45 The New Engineering Contract does, however, provide a “partnering option” (designated X12) which is available to download at http://www.neccontract.com viewed 17 March 2009. There is also PPC2000, a partnering form published by the Association of Consultant Architects in the United Kingdom and available (in UK domestic and international versions) at http://www.ppc2000.co.uk viewed 17 March 2009, and the JCT Constructing Excellence form – see Lupton S, “JCT Standard Forms of Building Contract, 2005-2007 Editions: Part 2 – Constructing Excellence” (2007) 24 International Construction Law Review 466.
46 Guidance as to the way in which PPP contracts are to be drafted has been extant for many years – eg Partnerships Victoria Risk Allocation and Contractual Issues (2001). In the United Kingdom, Private Finance Initiative projects have for many years been transacted on the basis of model terms and conditions. The most recent iteration of these is available at http://www.ogc.gov.uk viewed 17 March 2009.
47 Pilley and Coombes, n 2 at 417. The AS 4000 manual is designated HB 140-2000. There are also administration manuals available for the ABIC (see AIA, Newsletter, October 2008) and PC-1 forms (see Capelli, n 5 at 28).
48 Uff J QC, The Interplay of Contract Terms and Common Law, Paper presented at the Society of Construction Law (London, 5 November 1991) p 2.
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words, if the parties accept the manual’s procedures and interpretations as binding (at least, in terms of their day-to-day interactions), reference to external forms of dispute resolution may be reduced.
STANDARD FORMS IN THE EYES OF THE LAW
There is one thing which all validly formed construction contract documents have in common. Regardless of whether they sit idly in a bottom drawer or are the subject of daily progress evaluation meetings, whether they are written on the back of a purchase order or fill a room with lever-arch files, they are the documents which delineate the frontier between the law and practice of the project. Nearly a quarter of a century ago, John Dorter noted the trend in the construction industry that “all parties involved are becoming very contract conscious”;49 today, the contract remains the first port of call for legal resolution of disputes arising on a project.
The legal importance of contractual documents saying what it is that the parties actually intend – and, conversely, that the parties actually intend what the contractual documents say – is simple to state, yet very difficult to reconcile with the practical realities of the way many construction contracts are entered into. “Simple” (or, at least, short) contracts are often presented for signing with little time for reflection or understanding; at the other end of the scale, documents which have been negotiated over weeks or months and run to hundreds of pages are unlikely to be fully understood even by those closest to the deal or the drafting.
Sign in haste, repent at leisure
It is, therefore, worth reminding ourselves of how the law regards the enforceability of commercial contracts – and, in particular, its attitude towards those who might seek to escape their liabilities and obligations on the basis that they did not fully comprehend what they were signing up to.
In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, an agent of the pharmaceutical company signed a standard form “application for credit” to have Finemores (now Toll) distribute its Fluvirin vaccines. He did not notice the limitation of liability clause on the back of the form. Finemores failed to keep its trucks at the correct temperature and the vaccines spoiled.
Toll admitted negligence but sought to rely upon the limitation clause to exclude its liability. Ultimately, the High Court found in its favour. In doing so, the court took the opportunity to restate the relevant rule as follows:
[W]here there is no suggested vitiating element, and no claim for equitable or statutory relief, a person who signs a document which is known by that person to contain contractual terms, and to affect legal relations, is bound by those terms, and it is immaterial that the person has not read the document.50
Applying this principle to the construction sphere, Byrne J has recently observed that, by the time a dispute stemming from inappropriate conditions reaches the court,
[t]he law is very much powerless ... to set things aright. It accepts, as it must, that, subject to limited exceptions, a contract freely entered into between competent parties must be given effect to. The seeds of the financial disaster for all the parties ... had been sown months before.51
In a commercial context,52 therefore, in the absence of recognised vitiating factors in the formation of a contract, a standard form contract should be assumed to be binding in accordance with its terms as objectively interpreted, and the onus is on the person or company signing it to understand those terms. In turn, we cannot assume that a contract presented to us for signing will include – or not
49 Dorter J, “Editorial” (1985) 1 BCL 307 at 307.
50 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 185 (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).
51 Preface to Bailey and Bell, n 37, p viii.
52 The special principles applying to the enforceability of consumer contracts (which may apply, depending upon the value of the contract and the terms of applicable legislation, to contracts for residential building work), is beyond the scope of this article. For commentary on the legislation applying to unconscionable dealing in relation to the formation of contracts with consumers (primarily, s 51AB of the Trade Practices Act 1974 (Cth)), see, eg Seddon NC and Ellinghaus MP, Cheshire and Fifoot’s Law of Contract (9th Australian ed, LexisNexis, 2008) pp 765-771.
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Standard form construction contracts in Australia: Are our reinvented wheels carrying us forward?
include – provisions dealing with any particular matter, nor that, if a provision appearing to deal with such a matter is included, it will have the effect we anticipate.
Seen in this legal light, any contract form becomes a document requiring detailed scrutiny. There is, however, an innate tension between this approach and that of the expectation in the industry that “standard” documents are able to be relied upon. This tension becomes especially acute in the context of the suite of standard form contracts, referred to above, which is promulgated by Standards Australia.
How “standard” are Standards?
To laypeople, it seems entirely reasonable to expect an Australian Standard to look after our interests appropriately: we should not have to be concerned that traffic lights have been correctly configured,53 or that our children can ride safely on a bike path.54 An Australian Standard construction contract, however, cannot purport to deal in such absolutes of assurance. Rather, it is – like all contract forms – a pre-set charter of risk allocation and project management, in this case drafted by a committee representing diverse interest groups.55
Instances abound of the need to exercise caution in making assumptions about the effect of standard forms, whether Australian Standards or otherwise. By way of example, it is worthwhile pausing to consider the definition of “qualifying cause of delay” in cl 1 of AS 4000, a definition which underpins the contractor’s entitlement to claim an extension of time. It reads as follows:
Means:
(a) any act, default or omission of the Superintendent, the Principal or its consultants, agents or other contractors (not being employed by the Contractor); or
(b) other than:
- (i) a breach or omission by the Contractor;
(ii) industrial conditions or inclement weather occurring after the date for practical completion; and
(iii) stated in Item 23;
Let us take, by way of exercise, the question of whether the contractor is entitled, via this definition and the relevant provision (cl 34.3), to claim an extension of time for inclement weather occurring before the date for practical completion.
Those without a knowledge of the form (or, perhaps, with a knowledge of the relevant provision of its predecessor, AS 2124-1992),56 naturally would expect that the contractor could claim for such a cause of delay. Those who actually turn to the definition of “qualifying cause of delay” as set out above may then have cause to doubt their preconception. At first glance, the definition seems to only cover (via para (b)(ii)) such causes if they occur after the date for practical completion. The penny drops, however, when it is realised that, whilst the drafting of (a) is inclusive, the causes listed in (b) are, effectively, excluded from the ambit of the definition by dint of the use of “other than”. Thus, it appears to be the intent that inclement weather before the date for practical completion does, in fact (and assuming that it is not mentioned in Item 23 of the Annexure), allow the contractor to claim.
This example illustrates one of the major hurdles (or, perhaps, walls) which drafters of standard forms face. It is doubtless the case that the drafters of AS 4000 had good reasons for drafting the definition as they did – perhaps including the ability to reduce the number of words (compared to AS 2124-1992) by using a formulation which states what are not qualifying events compared to the traditional “shopping list” approach of listing all events which do qualify. The fact is, however, that
53 AS 2144-2002 (traffic signal lanterns).
54 Applicable Standards include AS 2063-1996 (pedal cycle helmets); AS 1927-1998 (pedal bicycles – safety requirements); AS 2142-1978 (reflectors for pedal bicycles); and AS 2008-1997 (residual bitumen for pavements).
55 The interests represented on the relevant drafting committee (OB/3) from time to time are noted at the front of AS contracts.
56 AS 2124-1992, cl 35.5.
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the traditional approach has such a strong influence on what we expect to see in contracts that such an alternative approach becomes counter-intuitive and therefore runs – at the very least – the risk of raising confusion in contract administration.
A further risk with unorthodox drafting approaches lies where a party claims that its confusion led it to misapprehend the way in which the contract was to be put together. For example, in relation to the definition referred to above, a contractor might claim to have tendered on the basis that it would receive an extension for inclement weather before the date for practical completion and, erroneously, insisted upon that cause being included in Item 23 of the Annexure (effectively meaning that inclement weather was unable to be claimed for). It may be expected that the drafting of such a clause would then be put under heavy interpretive scrutiny.57
Whilst an assumption about what a particular clause does can lead to such confusion or ambiguity, it is also risky to make assumptions about what is included in the contract as a whole. By way of example, AS 2124-1992 includes an express provision for a cap on the liquidated damages which are payable for late completion.58 It may, therefore, fairly be expected that this cap would be carried through into the new iteration of AS 2124, being AS 4000. However, there is no such cap in AS 4000.
RECENT CASES ON THE STANDARD FORMS
Whilst, as the previous discussion illustrates, the potential exists for ambiguity in all forms, there is also the opportunity for ambiguity being cured – or, at least, resolved – through judicial pronouncements upon particular provisions of those forms. The cost and inefficiency of this process makes it inherently undesirable – for example, it took a trial and appeal hearing to establish the apparently straightforward proposition that the time when a delay “occurs” for the purpose of the notification provisions in cl 35.5 of AS 2124-1992 is at its commencement.59 Nonetheless, the end result of such a process is to provide greater certainty as to the legal outcomes of the drafting.
This process continues by way of the cases on AS 2124-1992 and ABIC MW-1 reviewed in the following section. Whilst by no means are these the only court cases on these forms,60 they do provide a representative sample of the iterative manner in which the law relating to standard forms continues to evolve.
57 In the context of interpretation, drafters must always bear in mind the exceptional – yet dire – possibility that their drafting may be found void for uncertainty. Courts will bend over backwards, using every interpretive tool available to them, to avoid this result – see, eg, the exhaustive attempt by South Australian Chief Justice Bray to give some sensible meaning to a variations provision which his Honour characterised as being “like tipping an entirely gratuitous truck load of manure into [an] already sufficiently muddied stream”, in In re an Arbitration between Taylor Woodrow International Ltd and the Minister for Health
(1978) 19 SASR 1 at 9. Nonetheless, examples of irredeemable ambiguity rendering a contract void do exist (for commentary, see, eg, Seddon and Ellinghaus, n 52, pp 253-259) and need to be uppermost in drafters’ minds.
58 AS 2124-1992, cl 35.7 (optional clause).
59 Re an Application by Multiplex Constructions Pty Ltd (1998) 14 BCL 162, appealed successfully in Queensland v Multiplex Constructions Pty Ltd (1998) 14 BCL 329 – see Davenport P, Goldstein D and Gallagher J, “Case notes” [1998] AUConstrLawNlr 77; (1998) 61 Australian Construction Law Newsletter 52.
60 Further, it should be acknowledged that there are many rulinnnnnnnngs made on the forms by adjudicators and arbitrators. Unless upheld in court, however, such rulings have little precedential value, and, in any case, are often confidential to the parties.
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Standard form construction contracts in Australia: Are our reinvented wheels carrying us forward?
AS 2124-1992
Unilateral extension of time – Hervey Bay
The so-called “Peninsula Balmain principle” has been the subject of a great deal of attention in recent years.61 Essentially, the interpretation upheld in that case linked together cl 23 of AS 2124 with cl 35.5 to hold that the principal is in breach if it fails to ensure that the superintendent acts honestly and fairly in exercising the power to grant an extension of time unilaterally.62
In Hervey Bay (JV) Pty Ltd v Civil Mining and Construction Pty Ltd [2008] QSC 58,63
McMurdo J acknowledged that Peninsula Balmain has been the subject of academic criticism and has been followed in Victoria.64 The correctness of the decision was not doubted,65 and it may therefore be assumed to be part of the law of Queensland.
The case has significance beyond this recognition, however, in that McMurdo J had the opportunity to consider the effect of adding “in the Superintendent’s absolute discretion and without being under any obligation to do so” to the relevant part of cl 35.5.66 Amendments along these lines have been common in principal-focused contracts since the identification of the potential nexus – ultimately upheld in Peninsula Balmain – between cll 23 and 35.5.67
The effect of McMurdo J’s judgment is to uphold the efficacy of such an amendment in breaking the Peninsula Balmain nexus – his Honour set aside the adjudicator’s decision on the basis that the adjudicator appeared to have applied Peninsula Balmain without taking the amendment into account. McMurdo J held that “there is no tenable construction of [cl 35.5 as amended] by which the
Superintendent could be said to be under any obligation and in particular an obligation to extend time if it would be fair to do so”.68
Latent conditions – BMD Major Projects
BMD Major Projects Pty Ltd v Victorian Urban Development Authority [2007] VSC 409 came before Pagone J in the Victorian Supreme Court in late 2007. His Honour’s judgment reflects the complexity that is a hallmark of our area of law – indeed, it opens by noting that the transcript in the proceedings ran to 3,765 pages.69 Essentially, though (and by no means seeking to neglect the many interesting aspects to the case, which have been the subject of commentary elsewhere),70 for present purposes, it provides an example of a standard form provision being put under intense scrutiny in the context of a
61 See, amongst others, Baron A, “The Superintendent’s Discretion to Extend Time: A Long Story Must be Told to Satisfy ‘The Earnest Enquirer’” (2007) 23 BCL 410; Bell M, “Scaling the Peak: The Prevention Principle in Australian Construction Contracting” (2006) 23 International Construction Law Review 318; Ritchie J, “The Superintendent’s Power to Extend Time in the Absence of a Complying EOT Claim” (2007) 19(1) Australian Construction Law Bulletin 1; Goldstein D and Miechel B, “Fairness and Extensions of Time in Construction Contracts” (2007) 2(4) Construction Law International 19; Jones D, “Can Prevention be Cured by Time Bars?” (2009) 26 International Construction Law Review 57.
62 Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd (2002) 18 BCL 322 at 341 (Hodgson JA).
63 See, generally, Rudge N and Hill
L, “Extensions of Time: What Discretion Does the Superintendent
Have?”
(2008) 20(4-5)
Australian Construction Law
Bulletin 38.
64 Hervey Bay (JV) Pty Ltd v Civil Mining and Construction Pty Ltd [2008] QSC 58 at [38], citing Kane Constructions v Sopov (2006) 22 BCL 92 and 620 Collins Street Pty Ltd v Abigroup Pty Ltd [2006] VSC 491.
65 Hervey Bay (JV) Pty Ltd v Civil Mining and Construction Pty Ltd [2008] QSC 58 at [40]. 66 Hervey Bay (JV) Pty Ltd v Civil Mining and Construction Pty Ltd [2008] QSC 58 at [16].
67 The referee in Peninsula Balmain noted the source of this identification to be Jones D, Building and Construction Claims and Disputes (Construction Publications Pty Ltd, Sydney, 1996) p 98 – see Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd (2002) 18 BCL 322 at 348. For an example of a standard form employing wording of this type, see cl 10.10 of PC-1 1998.
68 Hervey Bay (JV) Pty Ltd v Civil Mining and Construction Pty Ltd [2008] QSC 58 at [40].
69 BMD Major Projects Pty Ltd v Victorian Urban Development Authority [2007] VSC 409 at [2]. In his Honour’s later judgment on costs, Pagone J made further comments (albeit obiter) about the trial being “‘over burdened’ by much unnecessary material and argument which added to the time and cost of the proceeding” – BMD Major Projects Pty Ltd v Victorian Urban Development Authority (No 2) [2007] VSC 441 at [12].
70 See, eg Myint T, “Case note” (2008) 122 Australian Construction Law Newsletter 55.
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substantial claim. Here, the provision under consideration was cl 12.1 of AS 2124-1992 and the claim (in respect of alleged latent conditions at the former Niddrie Quarry) amounted to just under $7 million.
Pagone J confirmed that the test for what the contractor ought reasonably to anticipate under cl 12.1 “is to be judged by what a competent and suitably qualified contractor would expect to encounter by way of physical conditions in the execution of the works”.71 Ultimately, on the basis of an assessment of the various expert evidence presented to the court, his Honour held that the contractor (BMD) could not reasonably have been expected to anticipate the difference in surface levels which led it to incur the extra costs.72
The author understands that an appeal from this decision was due to be heard by the Victorian Court of Appeal in late March of 2009.
Liquidated damages noted to be “N/A” – Silent Vector
Silent Vector Pty Ltd t/as Sizer Builders v Squarcini (2009) 25 BCL 5873 provides a reminder that, whilst hasty contract production is a fact of life in our industry, it can be a false economy in the long run. Here, AS 2124-1992 was used and a variety of approaches were taken to the numerous provisions which had to be dealt with before signature: some clauses (or parts) were struck out, and, in the Annexure of contract-specific information, “N/A” was inserted in respect of several items and one was noted to be “NIL”.74
The items in respect of which “N/A” was inserted included those for cll 35.6 (the liquidated damages applicable per day) and 35.7 (the cap on such liquidated damages). The question was what the parties intended in respect of the principal’s entitlement to general law damages for delay – that is, whether (as had been held in Temloc Ltd v Errill Properties Ltd (1988) 39 BLR 34), there were to be no liquidated damages and no general damages or (as had been held in Baese Pty Ltd v RA Bracken Building Pty Ltd (1990) 6 BCL 137), general damages might still be available.75
The arbitrator allowed the principal to claim general damages for delay on the basis that “N/A” indicated the parties’ intention that the entirety of cl 35.6 not apply or, in the alternative, that clear words are required to abandon a general law remedy.76
John Dorter has noted that the “quintessence of the issue” in resolving the meaning of “N/A” is objectively to ascertain the intention of the parties from the words they have used.77 Likewise, Jenkins J emphasised that Temloc and Baese “turned on the particular contractual terms under consideration”;78 her Honour therefore undertook a detailed review of the contract at hand, ultimately finding that the arbitrator’s approach was justifiable.
For our present purposes, therefore, the case reminds us that it is not simply the terms of the contract which need to be fully understood by the parties – the way in which the form is completed can also have a crucial bearing on the ultimate legal meaning of the parties’ rights and responsibilities. As Jenkins J noted:
71 BMD Major Projects Pty Ltd v Victorian Urban Development Authority [2007] VSC 409 at [32].
72 BMD Major Projects Pty Ltd v Victorian Urban Development Authority [2007] VSC 409 at [32]- [33].
73 See Hollingdale M and French R, “Using Liquidated Damages Clauses in Australian Standard Contracts” (2009) 9 Australian Construction Law Bulletin 91; Bailey J, “Liquidated Damages – N/A” (2009) 4(1) Construction Law International 34.
74 Silent Vector Pty Ltd t/as Sizer Builders v Squarcini (2009) 25 BCL 58.
75 See, generally, Thomas T, “$Nil Liquidated Damages: An Exhaustive Remedy for Delay Under a Construction Contract?” (2008) 24 BCL 82.
76 Silent Vector Pty Ltd t/as Sizer Builders v Squarcini (2009) 25 BCL 58at [35].
77 Dorter J, “The Standards Australia Suite” (2003) 19 BCL 320 at 329. Julian Bailey makes similar observations in his article cited at n 73 above (at 34).
78 Silent Vector Pty Ltd t/as Sizer Builders v Squarcini (2009) 25 BCL 58 at [80].
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Standard form construction contracts in Australia: Are our reinvented wheels carrying us forward?
What is clear to me is that parties to such contracts should be careful to delete, amend or add clauses ... in a consistent and clear manner. The uncertainty that exists in this area of commercial law, primarily exists because parties have failed to adhere to this principle.79
ABIC
Compared to AS 2124 and other forms in the AS Suite (and ABIC’s predecessor, JCC), there have been relatively few cases on ABIC, and even fewer that have engaged in detail with the provisions of the contract.
As a sample of the cases which have come before the courts:
• CBQ v Welsh & Ian Hammett Electrical Pty Ltd [2006] QSC 235 dealt with whether a contract based upon MW SC-1 2002 (the ABIC subcontract form) was entered into before or after 1 October 2004, the trigger date for application of the Building and Construction Industry Payments Act 2004 (Qld). Cullinane J found that the contract was entered into by execution of the contract form on 9 November 2004 (rendering the Act applicable) rather than at the point when the agreement was concluded by way of written and oral dealings (prior to 1 October 2004). His Honour took into account the form’s “entire contract” clause,80 and in particular its preclusion of reliance upon “anything ... said or done by the other party ... before this contract was entered into”.81
• In Mowby Pty Ltd v Moose Property Services Pty Ltd (in liq) [2007] VSC 111, leave was sought to appeal from the ruling of an arbitrator in relation to a project using the ABIC MW-1 2001 form, and there was detailed consideration of the effect of the applicable arbitration agreement. Having said that, the arbitration agreement was separate to the project contract and Hansen J did not need to have regard to the ABIC MW-1 for the purposes of his judgment.
• In Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd (2009) 25 BCL 29, Hammerschlag J was called upon to review a referee’s report directed towards resolving a complex web of claims relating to a shopping mall project at Picton in New South Wales. The contract was a modified form of ABIC MW-1 2003.82 In the course of preparing his report, the referee referred to a number of provisions of the standard form, including those relating to disputing the Architect’s decision, claims to adjust the contract, extensions of time, practical completion and liquidated damages.83 Having said that, the judgment does not provide any detailed guidance on the standard provisions: in the case of the practical completion clauses, this is because they were substantially modified by the special conditions,84 and other matters seem to have been approached as primarily matters of fact rather than contractual interpretation. There was an argument by the plaintiff that the contract was a code,85 but his Honour dismissed it on the basis that the relevant provisions had been waived.86 Nonetheless, the case remains of interest, not only for its detailed discussion of issues relating to the adoption of referees’ reports (which are beyond the scope of this article), but also because it provides an indication that ABIC is – as was its promulgators’ intent – being used on projects of significant size: in this case, the contract value exceeded $11.2 million.87
79 Silent Vector Pty Ltd t/as Sizer Builders v Squarcini (2009) 25 BCL 58 at [99].
80 Clause R10 of MW SC-1 2002, which is virtually identical to cl R4 of MW-2008.
81 CBQ v Welsh & Ian Hammett Electrical Pty Ltd [2006] QSC 235 at [31].
82 Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd (2009) 25 BCL 29 at [2].
83 The relevant provisions (respectively, cll A8, H1-H4, L1, M1 and M10-M11) are set out in the judgment at [32]-[42].
84 See, especially, Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd (2009) 25 BCL 29 at [84]-[106].
85 There is no explanation in the judgment as to the contractual basis for this submission but, presumably, it is cll A10 and R4, which are discussed above.
86 Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd (2009) 25 BCL 29 at [109], [112]. 87 Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd (2009) 25 BCL 29 at [1].
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WHERE DO WE GO FROM HERE?
The process of drafting, using and redrafting standard forms in the construction industry has a very long history. The ongoing evolution dates back at least 4,000 years and may well stretch back even further.88
Towards the end of the first decade of the 21st century, this process continues in Australia. As has been seen, ABIC aside, there has been relatively little activity towards producing a wholly new form of contract in recent years; instead, there has been a proliferation of forms within existing suites, and the continued use of bespoke or heavily-amended forms of contract for particular projects.
It has been noted that Standards Australia has a policy of reviewing its contractual standards every five years or so.89 Even allowing those five years to run from the end of 2003, when the last form in the suite was issued,90 the AS suite seems overdue for revision so as to fulfil its stated aim of “tak[ing] into account current legal decisions and current construction practices”.91
The question for construction industry practitioners is whether it remains an efficient use of scarce resources of expertise and capacity to embark upon the process of updating these forms.
Answering this question in the negative would be to accept that consensus-based forms are “congenitally unable” to “play a dynamic role in the continuous improvement vital to the domestic and international health of the construction industry”.92 Answering it in the positive would be to continue the long quest for the “holy grail” of a single form for each delivery method being available for use across all sectors of the industry.93
Notwithstanding the apparent desirability of such standardised documents, both from the point of view of transaction costs and because of their underlying achievement of forging an industry consensus as to key issues of risk allocation, forces militating against such a development are embedded into the construction contract landscape.
First, if the requisite underlying consensus is able to be gained and the drafting undertaken – both immensely time-consuming exercises94 – it is a function of construction law’s being a constantly-evolving “primordial soup in the ‘melting pot’ of the law”95 that, inevitably, the form would be out of date in at least certain aspects as soon as it were published.
Secondly, such forms would face the legal truth – albeit, perhaps, an “inconvenient” one – which is discussed above. That is, just as every construction project is unique and the industry and its commercial forces are changing on a daily basis (especially during the volatile economic times in which we find ourselves), so is the underlying deal. If the parties seek to make that agreement contractually enforceable, the contract documents need to reflect the deal or else run the risk of overtaking the reality of the parties’ agreement. Hence, it seems that bespoke contracts – or, at the least, heavily amended standard forms – will continue to be the norm.
Having said all that, the question of how successful a new standard form might be really comes down to whether the industry wishes to commit the significant investment in resources – in this case, time, expertise and goodwill – required to create a consensus form which can develop a critical mass of buy-in, whether as part of the Standards process or otherwise.
88 Indeed, noting that one of the oft-cited virtues of standard forms is their ability to avoid “reinvention of the wheel”, it is not too far-fetched to imagine that “design and construction of a circular device to facilitate the transporting of goods” may itself have been stipulated as the workscope of a prehistoric form of contract.
89 Pilley and Coombes, n 2 at 414.
90 See, generally, Pilley, n 9.
91 Pilley and Coombes, n 2 at 416.
92 Jones, n 2 at 26.
93 Seeking a separate form for each delivery method is a less ambitious target than a single form for the entire industry – as Jones notes, however, commitment to a single form “is likely to entrench mediocre practice and stifle reform” (Jones, n 2 at 26).
94 For observations on the exigencies of such a process in the context of ABIC, see Booth, n 10 at 10-14.
95 Bruner, n 1 at 13-14.
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Standard form construction contracts in Australia: Are our reinvented wheels carrying us forward?
We need only look out our windows at the built environment surrounding us to remind ourselves of the ability of construction professionals to create extraordinary things by a mixture of ingenuity, innovation and due respect for proven techniques. The challenge now is whether we wish to apply those resources to improving that most ancient of tools, the standard form construction contract.
(2009) 25 BCL 79 93
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URL: http://www.austlii.edu.au/au/journals/UMelbLRS/2009/13.html