Separable portions are a common feature in Australian construction contracts. It is important to understand when they can be used, and how they sit within the broader contractual framework.
What is a separable portion?
A separable portion is a discrete part of the site that has a different access date and/or date for practical completion to other parts of the site.
Projects are divided into separable portions to allow the principal to maximise its use of the site before and after construction.
For example, say the project involves the refurbishment of an entire hotel. Rather than giving the contractor possession of the entire building, the principal may prefer the contractor to refurbish particular parts of the hotel (e.g. specific rooms, floors or other areas) at a time. That way, the hotel can continue operating while the works are being performed.
How do separable portions arise?
Separable portions can arise in two ways.
First, they can be defined in the contract (i.e. before works are commenced). For example, in AS 4000, there is a separate part of the Annexure that allows the parties to define separable portions and to identify the relevant commercial particulars for each of them (e.g. date for practical completion, liquidated damages rate etc). You can read more about AS 4000 here.
Second, provided the contract allows for it, separable portions can be directed by the superintendent if some (but not all) of the work has reached practical completion and is capable of being used by the principal. That way, the principal does not have to wait until all of the works have reached practical completion before being able to occupy and use any of them.
What is an example of a separable portion clause?
You will find examples of separable portion clauses in various Australian Standard contracts, including AS 4000 (clause 4), AS 2124 (clause 35.4), AS 4902 (clause 4) and AS 4300 (clause 35.4).
The basic elements of a separable portion clause are:
- it will explain that the works are divided into separable portions, and typically refer to an Annexure that contains the relevant details;
- it will allow the superintendent to direct further separable portions, and it will set out the matters that must be addressed by the superintendent when doing so (e.g. the date for practical completion, security and liquidated damages); and
- it will explain which parts of the contract are intended to apply separately to each separable portion.
Sometimes parts of this detail are addressed in the definitions section of the contract or in the Annexure(s) containing the commercial detail. See, for example, the specific part of the Annexure in AS 4000 that deals with separable portions.
How do liquidated damages apply to separable portions?
This will depend on the contract.
Where separable portions are defined at the start of a project, liquidated damages are usually expressed to apply to individual separable portions, rather than the project as a whole. Where separable portions are directed after the contract has been entered, the liquidated damages specified in the contract will be apportioned across the separable portions.
Principals and contractors should consider, both at the time of entering the contract and while performing and administering it, how liquidated damages and delay costs are intended to be treated.
For example, consider the scenarios where:
- there is a single delay event (e.g. an industrial dispute) that affects multiple separable portions; or
- the agreed staging plan means that a delay event on one separable portion will have an immediate and automatic knock-on effect to all other separable portions.
Is the intention that liquidated damages and/or delay costs will be calculated and applied on all separable portions? Or will there be caps or perhaps other provisions to explain how the parties’ entitlements will work?
This level of detail can sometimes be overlooked at the time of contract entry, increasing the risk of disputes where unexpected delays emerge.
Where separable portions are used, when does the defects liability period end?
Again, the answer to this question will depend on the terms of the contract.
Under AS 4000, there will be a separate defects liability period (and potentially separate security) for each separable portion. This means that the defects liability period for some separable portions will end at a later point in time than others.
Many principals will draft their contracts so that the defects liability period for all separable portions will expire at the same time. The relevant date will usually be determined by reference to the last separable portion (e.g. 12 months after the date of practical completion for the last separable portion).
This arrangement can have two important consequences:
- the defects liability period for earlier separable portions can be longer than 12 months, and sometimes significantly longer; and
- none of the contractor’s security will become due for release until after the defects liability period for the last separable portion has expired.
Principals and contractors need to keep this in mind at the time of entering the contract, as this sometimes can have an effect on pricing.
You can read more about the defects liability period here.
Other features of separable portions
Where separable portions are defined at the beginning of the project, separable portions can be used for various other purposes. For example:
- The payment regime could be tied to the separable portions. For instance, there could be milestone payments that attach to practical completion of individual separable portions, or there could be early completion bonuses.
- If parts of the works are yet to be designed or priced, provisional sums can be assigned to separable portions (so that some of the separable portions effectively become optional works).
- The principal may need to have certain parts of the site completed earlier than other parts, and to be able to access that part, in order for the balance of the site to become operational. For instance, data/communications rooms in office refurbishment projects are often treated as a separable portion, so that the principal’s IT team can access the site and start working up the principal’s IT infrastructure before the rest of the work is complete.