Defence Medium Works Contract - an Overview

This post is for contractors who are new to the Medium Works Contract used by the Australian Government Department of Defence.  The commentary below provides a high level introduction to the Medium Works Contract, focusing on some of its features that make it different to other standard form contracts (such as AS 4000).

Coming to grips with the Medium Works Contract

The Medium Works Contract is an extremely detailed document.  It is highly prescriptive and places a number of obligations on the Contractor that are specific to Defence and/or other Commonwealth Government projects.

The Medium Works Contract is 170 pages long, before the particulars have been completed or any project-related documents have been incorporated.  The Schedule of Collateral Documents and other ancillary documents mentioned in the Medium Works Contract make the overall page count considerably longer.

For obvious reasons, the commentary below does not attempt to capture every risk or explain every nuance of this contract or the numerous documents it refers to. This post is merely a high level overview, to help get you started and to understand the general principles.

Please do not hesitate to contact us if you have any questions that are not answered below or if you otherwise need any support with your project.

How the Medium Works Contract fits into the Defence Contracting Suite

Defence uses a number of contract templates for its projects, which you can find on the Defence website (here).  

Common contract forms used by Defence include:

• Head Contract
• Medium Works Contract
• Managing Contractor Contract
• the Medium Works Subcontract and Major Works Subcontract, which are designed for use in conjunction with the Managing Contractor Contract (and available here.)

You will find a number of documents on the Defence website that relate to these documents, including the ‘Schedule of Collateral Documents’ mentioned below.

Overview of the Medium Works Contract

The Medium Works Contract is a lump sum contract used by Defence on both ‘construct only’ and ‘design and construct’ projects.  

You can download a copy of the template here. Defence updates this template periodically.  The commentary below is based on the version that was updated in November 2024.

Contract Manual

Also available for download on the Defence website (here) is a Contract Manual for the Medium Works Contract and a set of Proforma Notices.  Both are worth looking at, if only to get a sense of what they contain.

Over 350 pages long, the Contract Manual contains guidance relevant to the preparation and administration of the contract.  It is intended to be used as a basic reference source for contract users.  Depending on what you are looking for, the Contract Manual may provide further information about how Defence is likely to interpret certain provisions of the contract. However, in many cases, it merely summarises the provisions of the contract. You should not expect to find detailed commentary in the Contract Manual on every situation you are likely to encounter.

Proforma Notices

The Proforma Notices (which you can find here) are very basic document shells, as one would expect.  

The Proforma Notices contain the basic requirements that need to be included in various notices contained in the Medium Works Contract.  

Although use of the Proforma Notices is not mandatory, some Contract Administrators prefer seeing notices based on these templates as it tends to result in the Contractor’s administration of the contract being more focused than might otherwise be the case.  

Be aware that some scenarios may call for multiple notices. Also be aware that these notices do not explain how or when they are intended to be used.  

If you intend to use the Proforma Notices, keep in mind that they are intended as a starting point only.  You will need to refer to the relevant parts of the contract when using these notices, ensuring that you add all necessary detail.

Key Concepts in the Medium Works Contract

Some of the key concepts in the Medium Works Contract are as follows:

• The Commonwealth and the Contractor are the parties to the contract.
• The Contract Administrator performs the role that would usually be performed by a superintendent.  However the Contract Administrator will act as agent of the Commonwealth and not as an independent certifier, assessor valuer.  (See cl 2.1)
• The Contract Price is the lump sum amount payable to the Contractor for performing the Contractor’s Activities, being the things that the Contractor is required to do to comply with its contract obligations.
• The Works Description sets out Contractor’s scope of works, and would usually comprise various technical documents contained or listed in Annexure 3.
• Completion has a similar meaning to the usual concept of practical completion, in the sense that Completion can be achieved despite there being minor defects that do not prevent the works from being reasonably occupied, used, operated and maintained for their intended purpose. Various other requirements must be met before Completion will occur, including satisfaction of the ‘HOTO Obligations’ (discussed below).
• The Contractor is required to achieve Completion by the Date for Completion.  If the Date of Completion is later, the Contractor will be exposed to liability for liquidated damages.
• The Contract Particulars contain all the key commercial information for the contract. 
• The template includes a set of proforma Special Conditions, which are often used and sometimes supplemented.
• The template refers to various documents that are contained in a Schedule of Collateral Documents.  Some of these documents are explained below.  The Schedule of Collateral Documents is available on the Defence website.
  
  

Design Responsibility

The Contractor is required to design the parts of the works which the Works Description ‘expressly or impliedly’ require it to design. (cl 5.1(a)(i)) The Medium Works Contract can therefore be used for construct only and design & construct engagements, as well projects where there is a mix. This is one way in which the Medium Works Contract is different to the equivalent Australian Standards contracts, such as AS 4000.

The extent of the Contractor’s design obligations will be determined by reference to the information contained in the Works Description in Annexure 3.

The Contractor is required to ensure that, to the extent the works are designed by the Contractor, they will be ‘fit for the purposes as set out in, or reasonably to be inferred from’, the Works Description. (cl 5.3)  

Contractors need to make sure they understand (1) the level of design responsibility they are required to assume under clause 5.1 and (2) the intended purposes of the works as reasonably inferable from the Works Description.

As a condition to completion, the Contractor must provide written certification from an accredited building surveyor that the works (or stage) comply with the Defence Building Works Manual (available here) and the National Construction Code. (cl 18.13)  This obligation exists regardless of the extent to which the Contractor is required to design the works.

When the Contractor can claim an EOT

The Contractor is entitled to claim an extension of time under clause 9.4 for an ‘Act of Prevention’ or any other cause specified in the Contract Particulars.  

An Act of Prevention is limited to:

• a breach of Contract by the Commonwealth,

• any other act or omission of the Commonwealth, the Contract Administrator or another contractor engaged by the Commonwealth (excluding any act or omission in accordance with or permitted by the contract), and

• a variation.

You will need to check the Contract Particulars to see if any other delay events are listed.

Adjustments to the Contract Price

The Contractor may claim an adjustment to the Contract Price for extra costs reasonably incurred which arise directly from:

• a failure by the Commonwealth to give access in accordance with the contract (under cl 1.3);
• a ‘Latent Condition’, noting the restricted meaning of this expression, as explained in further detail below (under cl 6.5);
• the finding of a valuable, archaeological or special interest item on the site (under cl 6.8);
• a change to the Building Works Manual, National Construction Code or Statutory Requirements after the Award Date (under cl 7.3);
• a ‘Pandemic Adjustment Event’, which is defined to mean certain events that arise as a direct result of the COVID-19 pandemic (under cl 7.7);
• the Contract Administrator requiring the Contractor to perform a test that is not required by the Contract, where the results of the test shown that the relevant work complies with the Contract (under cl 8.3);
• a direction by the Contract Administrator to suspend work (under cl 9.7(b)), unless the suspension has arisen due to a failure by the Contractor to perform its obligations; and
• a change to Defence’s Security Alert System from the level specified in the Contract Particulars (under cl 18.4).

The costs that may be claimed by the Contractor under these provisions includes any extra costs reasonably incurred as a direct result of the applicable event delaying the Contractor. (See cl 24.2(u). Although cl 9.7 is not specifically mentioned in clause 24.2(u), delay costs caused by a suspension should be available under cl 9.7.)

The Contractor may also be entitled to have the Contract Price increased where the Contract Administrator determines that:

• latent hazardous materials have been encountered or found, assuming clause 1 of the Special Conditions is used; or

• there is a defect or other matter in work carried out by another person on which the Contractor’s work depends, assuming clause 5 of the Special Conditions is used.

The Contractor is entitled to claim delay costs under clause 9.6 where the Date for Completion is extended due to a breach of contract by the Commonwealth. The Contractor’s entitlement to claim delay costs will be capped at the maximum daily amount specified in the Contract Particulars.

Latent Conditions

The Medium Works Contract may address site conditions in several different places.  Its treatment of site conditions is different to the approach taken in the Australian Standard contracts.

Ground Conditions

Clause 6.5 entitles the Contractor to claim an extension of time and an increase to the Contract Price where the Contract Administrator determines that a ‘Latent Condition’ has been encountered or found.  

However a ‘Latent Condition’ is limited to a ‘ground condition at the Site, excluding a ground condition resulting from inclement weather’, which differs materially from that which should have been anticipated.  

Anything that is not a ‘ground condition’ is not a ‘Latent Condition. An example would be a feature of an existing structure above the ground, including hazardous materials contained in that structure.  

Also, a ground condition will not be a ‘Latent Condition’ unless it differs materially from the conditions that should reasonably have been anticipated. The fact that the conditions are different will not be enough to establish an entitlement.

Valuable, archaeological or special interest items

Clause 6.8 allows the Contractor to claim an extension of time and an increase to the Contract Price for reasonable costs incurred which arise directly from the finding of valuable, archaeological or special interest item.

Latent Hazardous Materials

Clause 1 of the Special Conditions permits the Contractor to claim an extension of time and an adjustment to the Contract Price where the Contract Administrator determines that the Contractor has encountered or found latent hazardous materials.  

Because this clause is contained in an optional set of special conditions, it may not apply to all projects.

Defects in Prior Work 

If the Contractor notifies the Contract Administrator of a defect or other matter it discovers in work ‘to be carried out or that has been carried out’ by another person on which the Contractor’s work depends, clause 5 of the Special Conditions requires the Contract Administrator to issue a direction to the Contractor and value any work carried by the Contractor by reason of that Variation as a Variation.

Clause 5 of the Special Conditions does not identify how recently the ‘Prior Work’ needs to have been performed.  (This is also not clarified in the Contract Manual.)  As with the provision above regarding hazardous materials, this clause is an optional clause in the Special Conditions and may not apply to all projects.

Schedule of Collateral Documents

The ‘Schedule of Collateral Documents’ mentioned in the Medium Works Contract is available for download on the Defence website (here).  

The Schedule of Collateral Documents includes various templates relevant to the Medium Works Contract, including:

• a form of payment claim, which the Contractor must use unless the Contract Administrator requires a different format (cl 11.2(c));
• a declaration that the Contractor must provide with each payment claim to confirm that all workers and subcontractors have been paid (cl 11.14);
• a form of unconditional undertaking for the Contractor’s security (‘Approved Security’)
• a ‘Collateral Warranty’, which the Contractor must obtain from its subcontractors, and through which the subcontractors provide warranties and assume related obligations in favour of the Commonwealth (cl 7.4(d));
• a Consultant Design Certificate, Contractor Design Certificate and Subcontractor Design Certificate, which the Contractor must provide in respect of its designs (cl 5.8);
• a Subcontractor Deed of Covenant and Consultant Deed of Covenant, which the Contractor must obtain from subcontractors and consultants (as applicable) and execute on request by the Contract Administrator (cl 7.4(e)).  

The purpose and effect of these documents are explained below.

The Subcontractor Deed of Covenant

The Contractor is required to obtain the Contract Administrator’s approval before entering into any subcontracts (cl 7.4(a)). This includes any subcontracts for consultancy services. The Contract Administrator may require, as a condition to the Contractor seeking that approval, that the Contractor provide a Subcontractor Deed of Covenant or Consultant Deed of Covenant (as applicable).

The Subcontractor Deed of Covenant is intended to be serve a number of purposes, including the following. 

1. It contains certain undertakings by the Subcontractor in favour of the Commonwealth, which would allow the Commonwealth to make claims directly against the Subcontractor.  (These rights do not affect the Commonwealth’s rights against the Contractor.)
2. It requires the Subcontractor to notify the Commonwealth of any dispute that arises under the subcontract, or of any default by the Contractor under the subcontract.
3. It prevents the Subcontractor from terminating the subcontract without giving the Commonwealth an opportunity to remedy the default.
4. It contains obligations on the Subcontractor (in favour of the Commonwealth) to comply with its insurance obligations under the subcontract, and to not do anything that may prejudice any insurance.
5. It requires the Contractor to deposit any unconditional undertakings (eg bank guarantees) provided by the Subcontractor as security with the Commonwealth.  In addition, it requires that any unconditional undertakings be assignable to the Commonwealth.
6. It requires the Subcontractor to provide information about the status of the subcontract in the event the head contract is terminated, and allows the Commonwealth to require the Subcontractor to complete its works (through a new contract with the Commonwealth) if this occurs.
7. It contains a regime that allows the Contractor to claim payment for unfixed materials, plant and equipment, which may be subject to a requirement that the Subcontractor provide security in the form of an unconditional undertaking to the Commonwealth.
8. It contains a provision that allows the Contract Administrator to do anything under the subcontract that the Contractor is obliged to do.  The Contract Administrator may exercise this power in its own name, in the name of the Commonwealth or in the name of the Attorney.

The Consultant Deed of Covenant

The Consultant Deed of Covenant does two things.

First, it allows the Commonwealth to require the novation of the consultant’s contract to the Commonwealth. In this scenario, the Consultant’s engagement will continue, however the other party to the consultant contract will be the Commonwealth (not the Contractor).  This right is intended for the situation where the head contract is terminated, to allow the Commonwealth to continue working with the consultant once the Contractor has been removed from the project.

Second, the Deed of Covenant contains warranties and obligations by the consultant in favour of the Commonwealth.  The purpose of these provisions is to give the Commonwealth a direct right of recourse against the consultant, independently of its rights against the Contractor under the head contract.  

Commonwealth Policies and Requirements

The Medium Works Contract requires the Contractor to assume various obligations in connection with strategic initiatives of Defence and/or the Commonwealth. Some of these requirements apply to all projects, whereas others will only apply where indicated in the Contract Particulars.  

Depending on the value of the contract, the way the Contract Particulars are completed and any special conditions, the Contractor may be required to:

• comply with the Payment Times Procurement Connected Policy, the purpose of which is to improve payment times to subcontractors and suppliers,
• use reasonable endeavours to increase its purchasing from Indigenous Enterprises and its employment of Indigenous Australians and assume related obligations in accordance with the Commonwealth’s Indigenous Procurement Policy;
• prepare and implement a Local Industry Capability program, the purpose of which is to promote the involvement of Australian contractors and suppliers in Defence projects (see here),
• be fully familiar and comply with Defence’s Security Alert System;
• hold satisfactory Statements of Tax Record, and obtain Statements of Tax Record from subcontractors, in accordance with the Commonwealth’s Shadow Economy Procurement Policy;
• comply with the Supplier Environmental Sustainability Plan and provide a copy of that plan and evidence of the Contractor’s compliance in accordance with the Commonwealth’s Environmentally Sustainable Procurement Policy; and
• meet prescribed skills guarantee targets in accordance with The Australian Skills Guarantee Procurement Connected Policy.

The Contractor will have reporting requirements in relation to a number of these policies.

Information Security

Information security is a key concern on Defence projects, for obvious reasons.

Unless excepted for a particular project, the Contractor will be required to hold the level of Defence Industry Security Program (DISP) membership specified in the Contract Particulars. The different DISP membership levels and accompanying security classifications are as follows:

• Entry Level – OFFICIAL and OFFICIAL:Sensitive

• Level 1 – PROTECTED

• Level 2 – SECRET

• Level 3 – TOP SECRET

The Contractor will assume strict obligations in relation to the use and handling of confidential, sensitive and classified information and comply with the Commonwealth’s Information Security Requirements comprising:

• the Australian Government's Protective Security Policy Framework;

• the Australian Government's Information Security Manual; and

• the Defence Industry Security Program. 

You will need to check your information systems to ensure that you can comply.

Handover and Takeover - HOTO Requirements

The Contractor is required to comply with certain ‘HOTO’ Requirements – being Defence’s requirements in respect of the commissioning, handover and takeover of its projects. These requirements are specific and detailed and are published on the Defence website here.  

The HOTO Requirements oblige the Contractor to complete prescribed checklists and provide other documents in a specified form.

To achieve a smooth project handover, the Contractor will need to familiarise itself with these requirements at an early stage of the project.

Tips on using the Medium Works Contract

Defence projects differ from other types of project in various ways, and this is reflected in their contracts. Three key things to keep in mind are:

• You should not expect Defence to depart from its standard form contract unless exceptional circumstances apply to your project.
• You should expect Defence to require strict compliance with your obligations under the contract.
• You should expect to be required to administer the contract strictly in accordance with its terms.

Please contact us if you require any support with any issue connected with a Defence or other Government construction project.