Most informed principals consider AS 4902 to be too heavily weighted in favour of the contractor. Consequently, it is fairly normal to see AS 4902 issued with amendments or special conditions. This article summarises some of the more common amendments.
1. Introduction of time bars
Unlike its predecessor (AS 4300), AS 4902 contains few time bars. In fact, subclause 41.2 expressly provides that:
“failure of a party to comply with the provisions of subclause 41.1 [Communication of Claims] 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”.
The general idea is that, unless a delay by the contractor in giving a notice causes the principal to suffer a loss, the delay should not have any adverse consequences for the contractor.
Many principals will change the contract so that a failure to give a notice in time will immediately result in the relevant claim being time barred.
Read more about the enforceability of time bars here.
2. Narrowing of relief for additional time and cost
Many principals will tweak the risk profile of AS 4902 by reducing the circumstances in which the contractor can claim an EOT or adjustments to the contract sum.
Typically, this will be done by:
- amending the definitions of ‘qualifying cause of delay’ or ‘compensable cause’;
- amending the latent condition clause (clause 25), sometimes by expressly stating that relief for latent conditions will not be available, sometimes by narrowing the definition of latent condition;
- limiting or removing the contractor’s ability to claim relief for discrepancies in the design documents (clause 8); or
- Introducing 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 damages;
- contain rates for pricing variations;
- prevent a 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.
3. Removal of deemed EOTs
Subclause 34.5 of AS 4902 states that, if the superintendent does not respond to an EOT claim within 28 calendar days, the claim will be deemed to be approved in full. Most informed principals seek to delete this provision.
4. Insertion of a GST clause
AS 4902 was released in 2000, several 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 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.
5. Tightening of notice timeframes
Some of the timeframes for giving notices in AS 4902 are relatively generous. For example, the contractor has 28 calendar days from when they should reasonably have become aware of a delay, to submit a claim for an extension of time (subclause 34.3).
Many principals will seek to reduce these timeframes, principally to ensure that they become aware of adverse circumstances at the earliest possible opportunity.
6. 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 4902 was released. There have not been any updates to AS 4902 to accommodate this.
Consequently, many principals will seek amendments to address:
- the proportionate liability legislation (to ensure the contractor will have principal liability 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.
7. Clarification around unilateral EOTs
Clause 34.5 of AS 4902 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 20 requires the superintendent to fulfil all aspects of its role and functions reasonably and in good faith.
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).
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.
You can read more about unilateral EOTs here.
8. 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 often in a prescribed form, included in a contract annexure.
9. Other changes
This note summarises some of the more common amendments principals seek to make to AS 4902, 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 your pricing. Market conditions should always be taken into account in preparing a construction contract.
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).
To read our Introduction to AS 4920, click here.