This article explains how to make a claim for a latent condition under AS 4902. It includes a flowchart to explain the process.
1. What is a latent condition?
Clause 25.1 of AS 4902 defines a latent condition as:
“physical conditions on the site and its near surrounds, including artificial things but excluding weather conditions, which differ materially from the physical conditions which should reasonably have been anticipated by a competent contractor at the time of the Contractor’s tender if the Contractor had inspected:
(a) all written information made available by the Principal to the Contractor for the purpose of tendering;
(b) all information influencing the risk allocation in the Contractor’s tender and reasonably obtainable by the making of reasonable enquiries; and
(c) the site and its near surrounds.”
2. What should you do if you discover a latent condition?
If the latent condition poses an immediate safety risk or creates the risk of property damage, you should take steps to contain the risk so that those risks are mitigated or avoided wherever possible.
Otherwise, upon discovery of a latent condition, you should promptly, and as soon as possible before the latent condition is disturbed, provide the superintendent with a written notice of the latent condition.
This notice should set out the general nature of the latent condition and how you propose to deal with it in order to minimise the delay to the work under the contract.
This initial notice is fairly basic. Its main function is to alert the superintendent to the problem. For this reason, its contents can be fairly brief (provided you address the information required by the clause).
If the latent condition is likely to delay the project, you should give a notice of delay under clause 34, to ensure you are able to claim an extension of time (and delay costs) if needed. You can read more about the process for claiming an extension of time here.
3. Requests for further information
After receiving a notice of a latent condition, the superintendent may request that you provide further information in relation to the latent condition.
Clause 25.2 requires you to provide a response promptly after receiving the superintendent’s request. Your response must include details of:
- the latent condition;
- how the latent condition differs materially from the physical conditions which should reasonably have been anticipated at the time of tender if you had inspected the area surrounding the latent condition;
- an estimate of the additional work, resources, time and cost necessary to deal with the latent condition; and
- any other details reasonably required by the superintendent.
Clause 25.3 allows you to claim the costs of providing this information. If you wish to claim those costs, we suggest that you include a statement to this effect in your response, identifying the amount you intend to claim and how the amount has been calculated.
4. What to do if the superintendent does not respond to your initial notice
Regardless of whether the superintendent requests further information from you in response to your initial notice, it is good practice to provide the superintendent with as much information about the likely time and cost effects of the latent condition before you embark on any remediation or rectification work.
Specifically, we suggest that you provide as much information as you can about the additional work, resources, time and cost necessary that will be required to deal with the latent condition, before you start work.
It is much harder for a superintendent (or principal) to deny a claim for additional time or cost in connection with a latent condition if you are transparent about the issues from the outset.
5. Are you entitled to costs for a latent condition?
Clause 25.3 provides that the effect of the latent condition is a deemed variation. This means your costs of investigating how to deal with the latent condition will be priced by the superintendent as if they were a variation.
However, any costs you incur more than 28 days before the date you provided your notice of latent condition will not be recoverable. These are specifically excluded by clause 25.3.
6. When can you claim payment for a latent condition?
In most cases, you will be entitled to claim payment for a latent condition through your regular progress claims.
When you make your claim, it will be important to include sufficient information to enable the superintendent to assess the value of the work you have performed (and any delay costs you have incurred), if you have not already done so.
If you disagree with the superintendent’s treatment of your claim, the security of payment legislation may provide an interim remedy. Clause 42 of AS 4902 also prescribes a method for resolving disputes on a final basis.
7. Delays caused by latent conditions
If the latent condition is likely to cause a delay to the project, you will be entitled to claim an extension of time and delay costs. (Often, delay costs are included as part of the variation.)
However, to claim an extension of time, you will need to follow the process in clause 34. This means that you may need to give multiple notices in relation to the same latent condition to protect your position.
You can download a print-friendly version of the latent condition flowchart above by clicking here.