The objective is to provide certainty for the parties when the unexpected occurs. Key features of effective construction contracts and their management are discussed below.
An effective construction contract will have documented the appropriate share of project risk and rights to payment, with each party minimising risk and maximising payment where appropriate.
Construction contracts that fail to properly apportion risk and unduly limit contractor’s rights to payment for work performed or time and costs incurred, can lead to poor project outcomes.
Poorly apportioned risk occurs where the party burdened is least able to manage the risk. This often takes the form of elimination of contractor rights to recover time and cost for changing circumstances on a construction project beyond the contractor’s control, including interruptions to site access and co-ordination of work, latent conditions, excepted risks, variations, extensions of time, delay costs, and related matters.
Careful drafting of contract terms to adopt a preferred balance of these risks is for the benefit of both parties.
Constructions contracts also commonly describe the role of the Superintendent or Principal’s Representative with functions both as an agent of the Principal and an independent assessment function. How that role is described by the contract and its intersection with the general law is also critical to the management of risk and a contractor’s ability to recover time and cost.
Once the construction contract is entered into, diligent project management and contract administration is critical to ensure project objectives are met.
This requires a full understanding of contract management and the contract terms with timely submission of contract notices, claims and project reporting.
This together with an appreciation of the intersection of construction industry specific legislation on the meaning and effect of key contract terms ensures effective contract administration and project management.
Having a clear and concise process for management of disputes is critical to delivering projects on time and on budget. Disputes are inevitable.
Adopting conciliation and/or mediation is an opportunity for key decision makers to negotiate an outcome cost-effectively. And if ineffective, expert determination is a further option for more technical issues to be fleshed out and resolved.
Not all disputes are suitable for expert determination (particularly those involving contractual or legislative interpretation) and pathways to other forms of resolution such as litigation or arbitration should be included as options in an effective dispute resolution clause.
Using unamended dispute resolution clauses in Australian Standard Contracts (eg. AS 4000, AS 4902, AS 2124 etc) is problematic.
These unamended clauses, despite being widely used in the construction industry in Australia, have been found by the Courts to be void for uncertainty, and unless effectively amended, lead to greater uncertainty than having no dispute resolution clause at all.
No party to a construction contract benefits from uncertainty Dispute resolution clauses in Australian Standard Contracts need to be carefully amended to give them the intended effect.
Payment mechanisms in construction contracts are for parties to manage and maintain cash flow. They are also the subject of specialist security of payment legislation in place across Australia, and the interplay between that legislation and the contract terms themselves should co-operate to ensure the certainty of payment rights.
Drafting payment clauses to achieve certainty is for the benefit of both parties reducing the likelihood of dispute.
