Many principals consider that parts of AS 2124 are too heavily weighted in favour of the contractor. Because of this, AS 2124 is regularly issued with amendments or special conditions. This article summarises some of the more common amendments.
1. Narrowing of relief for additional time and cost
The list of causes for which EOTs can be claimed under AS 2124 is fairly broad. (You can read more about EOTs under AS 2124 here.)
To narrow the contractor’s ability to make claims in respect of delays, principals will often seek to:
- amend the list of causes of delay for which the contractor can claim an EOT under clause 35.5(a) and (b);
- amend the latent condition clause (clause 12), often by reducing the definition of ‘latent condition’ so that it refers to specific types of latent condition (eg hazardous material, or below-ground defects, or latent structural defects);
- limit or remove the contractor’s ability to claim relief for discrepancies in the design documents (clause 8.1); and
- introduce new clauses that expressly pass the risk of ‘buildability issues’ onto the contractor.
In addition, principals will often place limits on what can be claimed. For example, many contracts will:
- include a cap on the amount that can be claimed for delay costs;
- contain rates for pricing variations;
- prevent the contractor from claiming additional overheads or profit on adjustments for provisional sums;
- not allow a contractor to claim off-site overheads or profit for additional work connected with latent conditions; or
- prescribe specific rates for the margin to be applied on variations.
2. Variations required to be directed in writing
Under clause 40 of AS 2124, a direction to execute a variation does not necessarily have to be in writing. (This is one of many differences between AS 2124 and AS 4000. You can read about other differences here.)
To avoid the possibility of disputes arising out of oral directions, many principals will incorporate clauses to the effect that:
- the contractor must not vary the work unless directed by the superintendent in writing; and
- if the contractor considers that it has received a direction that will entitle it to seek an EOT or an adjustment to the contract sum, it must notify the superintendent (in writing) within a prescribed period of time.
3. Insertion of a GST clause
AS 2124 was released in 1992, many years before the introduction of GST. Because of this, there is no GST clause.
Most commercial contracts will contain a provision that explains how GST is to be treated, and indicate whether the figures in the contract are intended to include or exclude GST.
The main purpose of a GST clause is to ensure:
- the contractor can claim payment for GST from the principal; and
- the principal is able to obtain input tax credits for any GST it is required to pay to the contractor.
4. Tightening of notice timeframes
Some of the timeframes for giving notices in AS 2124 are relatively generous. For example, the contractor has 28 calendar days from when a delay occurs to submit a claim for an extension of time (clause 35.5).
Many principals will seek to reduce these timeframes, principally to ensure that they become aware of adverse circumstances at the earliest possible opportunity.
5. Insertion of WHS, PPSA, proportionate liability and SOPA clauses
Like the GST legislation, there are various other pieces of legislation that have been passed since AS 2124 was released. There have not been any updates to AS 2124 to accommodate this.
Consequently, many principals will seek amendments to address:
- the proportionate liability legislation (to ensure the contractor will be principally responsible for any claim, even if others may have contributed);
- work, health and safety laws (for example, by appointing the contractor the ‘principal contractor’ and including specific requirements regulating WHS);
- the Personal Property Securities Act (PPSA), to give the principal rights in relation to unfixed plant, equipment or materials in the event of the insolvency of the head contractor or its subcontractors; and
- the security of payment laws (noting however that it is not possible to ‘contract out’ of this legislation).
6. Clarification around unilateral EOTs
Clause 35.5 of AS 2124 gives the superintendent the right to grant an EOT, even where the contractor is not entitled to one or none has been claimed. In addition, clause 23 requires the superintendent to fulfil all aspects of its role and functions honestly and fairly.
Read in combination, these provisions can be interpreted to mean that the superintendent can be required to grant an EOT, even where none has been claimed. In turn, this means that a claim by the principal for liquidated damages can sometimes be defeated (even where no EOT has been claimed). You can read more about this issue here.
To address this problem, principals will often clarify this clause to state the superintendent’s power to grant an EOT under this clause exists solely for the benefit of the principal, and that the superintendent is not under any obligation to act reasonably or to take into account the interests of the contractor when exercising it.
7. Subcontractor and supplier warranties
The laws around privity of contract mean that, if there are defects in the work which the head contractor is unwilling or unable to rectify (eg due to its insolvency), the principal may not be able to bring a claim directly against the subcontractor or supplier responsible.
To address this issue, principals will often incorporate obligations into the contract that require the head contractor to provide:
- subcontractor and/or supplier undertakings (in favour of the principal) at the beginning of the project; and
- subcontractor and/or supplier warranty deeds (in favour of the principal) around the time of practical completion.
These documents are sometimes required to be in a particular form (to ensure their enforceability), and these forms are regularly included in the contract annexure.
8. Other changes
This note summarises some of the more common amendments principals seek to make to AS 2124, but they are by no means the only ones.
As a principal, it is important to keep in mind that the risk profile you incorporate into your contract will typically be reflected in the pricing you receive from potential contractors.
Although it is obviously important for principals to ensure their contracts contain adequate protections, tweaking the risk profile too far can result in unnecessary risk premiums being incorporated into contractor pricing (and in some cases, contractors not being willing to tender at all).
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