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17 November 2017

10 things you should know about AS 4000

Although AS 4000 is one of the most widely used construction contracts in Australia, many people remain unfamiliar with the detail. You can find our easy to understand explainer right here. The following article lists ten features that are often overlooked.


1. The contractor can claim its costs of pricing a variation

Clause 36.2 requires the contractor to provide estimates and, if requested, detailed quotations, in response to notices of proposed variations issued by the Superintendent.

The clause goes on to state, 'the Contractor’s costs for each compliance with this subclause shall be certified by the Superintendent as moneys due to the Contractor.'

The purpose of this clause is to encourage the principal to specify the works as accurately as possible at the beginning of the project, and to ensure the contractor is reasonably compensated for the additional work involved in pricing changes.

2. Responsibility for concurrent delays is apportioned

Clause 34.4 states:

'When both non-qualifying and qualifying causes of delay overlap, the Superintendent shall apportion the resulting delay to WUC according to the respective causes’ contribution.'

This stands in contrast to the corresponding provision in AS 2124, which states:

'Where more than one event causes concurrent delays and the cause of at least one of those events, but not all of them, is not a cause referred to in the preceding paragraph, then to the extent that the delays are concurrent, the Contractor shall not be entitled to an extension of time for Practical Completion.'

3. An unanswered EOT claim is deemed to be approved

The Superintendent is required to respond to EOT claims within 28 days. Clause 34.5 states that if the Superintendent does not do so, there will be a deemed assessment and direction for an EOT as claimed. 

4. The contractor will carry the risk of nominated and novated contractors not performing

Clause 9.5 makes the contractor liable for the acts, defaults and omissions of all subcontractors. This includes nominated and novated subcontractors, even though the contractor will not have chosen the subcontractor concerned.

If the nominated or novated subcontractor causes the head contractor to breach its obligations under the head contract, the intention is for any losses to be passed through the head contractor onto the subcontractor.

The risk for the head contractor is that the nominated or novated contractor becomes insolvent or is otherwise unable to cover the loss concerned.

To address this risk, contractors will often:

  • conduct due diligence on the nominated or novated contractors before the head contract is signed. This means checking to make sure their contracts are back-to-back with the head contract, ensuring adequate insurance and security arrangements are in place, confirming that these contractors have the capacity and capability to perform; and
  • if the head contractor has concerns, seek to have these contractors engaged by the principal (so that the contractor does not inherit the risk of their default).

5. Late claims are not necessarily time barred

The contract requires various notices to be given within specific timeframes.

For example, an EOT claim is required to be made within 28 days of when the contractor should reasonably have become aware of the causation occurring. (See clause 34.3.)

Clause 41.2 states:

'The failure of a party to comply with the provisions of subclause 41.1 or to communicate a claim in accordance with the relevant provision of the Contract shall, inter alia, entitle the other party to damages for breach of Contract but shall neither bar nor invalidate the claim.'

This is very different to a time bar

This clause effectively means that a late claim will not be invalid. Instead, the consequence of a late claim is that the contractor’s entitlements will be reduced to the extent the delay causes the principal to suffer a loss. For example, if the principal's position would have been different had the claim been made within the required timeframe, that will be taken into account in assessing the contractor's entitlement.

Note that this does not mean that AS 4000 is without time bars at all. For example, in pricing the effects of a latent condition, clause 25.3 states that no regard may be had to:

'additional cost incurred more than 28 days before the date on which the Contractor gave the notice required by the first paragraph of subclause 25.2.'

Similarly, it is at least arguable that the contractor's entitlement to an EOT under clause 34.3 may be conditional upon the contractor making an EOT claim within the required 28 day period. (There may be other ways for the contractor to seek an EOT, as we explain here.)New call-to-action

6. The Superintendent has up to 14 days to approve documents

Where the contract requires the contractor to obtain the superintendent's approval of documents, clause 8.3 requires the superintendent to give the approval within the time stated in Item 16 of the Annexure Part A. Unless the parties include a different amount of time at Item 16, the default position is 14 days.

An example of a document that often requires the superintendent’s approval is a shop drawing. 

This could effectively mean that the contractor will not be able to claim an EOT for a delay caused by the superintendent approving a shop drawing within this 14 day period.

7. There is no GST clause

AS 4000 was released in 1997, roughly two years before the passing of the GST legislation.

Consequently, there is no GST clause.

The incorporation of a GST clause is one of the first amendments principals typically seek to make to this form of contract.

Various other legislation has been reformed or introduced since AS 4000 was released, including:

  • security of payment legislation;
  • the Personal Properties Securities Act;
  • work health and safety legislation; and
  • proportionate liability legislation.

Many principals will prepare special conditions to address these items, among others.

8. There is nowhere to sign

The AS 4000 conditions of contract are designed to be used with either a formal instrument of agreement or some other document that incorporates their terms.

AS 4950 is a formal instrument of agreement prepared by Standards Australia for use with the Australian Standard forms of contract.

Some parties will use AS 4950, some will prepare their own formal instrument, and others will address the issue through correspondence. For example, the parties may prefer to rely on the tender documents and letter of acceptance (often signed by both parties).

9. It does not identify the contract sum or describe the contract documents

This is for the same reason as above. These matters are intended to be addressed in the formal instrument of agreement or in a letter of acceptance.

The definition of contract sum in clause 1 identifies that the contract sum might be a lump sum, it might be calculated by applying agreed rates, or a combination.

Similarly, clause 6 states that until a formal instrument of agreement is executed, documents evidencing the parties’ consensus shall constitute the contract. The AS 4000 general conditions do not attempt to identify what those documents are.

If you are entering into an AS 4000 agreement, it is therefore critical to make sure these issues are addressed - and usually this is done by using an appropriately prepared formal instrument. At a minimum, that document should identify the contract sum together with each of the documents (including their revisions) that make up the contract.

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10. It is sometimes used as a ‘cost plus’ agreement

Although AS 4000 is more suited to a lump sum arrangement, it is sometimes adapted for use in ‘cost plus’ engagements.

This is occasionally done by limiting the contract works to the contractor’s preliminaries and supervision, and treating all of the trade works as provisional sum items.

More commonly however, this is done by amending the contract (or by creating a set of special conditions) to explain how the arrangement is intended to work.

In both cases, the intention is that the trade cost will be priced on an open book basis. Once the prices for the individual elements of the work have been agreed or determined, the books will often close and the contractor will be required to deliver the project for the fixed lump sum amount.

Cost plus arrangements can be documented in different ways, with different risk profiles and different commercial consequences. Whether AS 4000 is an appropriate starting point will depend on your circumstances.

Other observations

AS 4000 contains a number of features of which many people are unaware, including some of those described above.

If you regularly work with AS 4000, whether as a contractor, principal or superintendent, it is critical that you are familiar with the detail. Although the general concepts are fairly well understood, it's the detail that can make a real difference to your final position.

Want to know more about AS 4000? Our AS 4000 Contract User Guide is available here.

About the Author

Greg Henry | Principal

Greg is a principal at Turtons and a senior commercial lawyer who acts for a range of clients mainly in the construction and technology sectors. Greg advises on both transactional and contentious matters.


greg.henry@turtons.com | (02) 9229 2904

About Turtons

Turtons is a commercial law firm in Sydney with specialist expertise in privately owned construction and technology businesses.

Greg Henry | Principal

Author

Greg Henry | Principal

greg.henry@turtons.com

Greg is a principal at Turtons and a senior commercial lawyer who acts for a range of clients mainly in the construction and technology sectors. Greg advises on both transactional and contentious matters.


greg.henry@turtons.com | (02) 9229 2904

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