Documenti di Didattica
Documenti di Professioni
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Richard Calver
Introduction
Let’s start with a slogan that my members could, in Queen, Bourke or Pitt
Streets, rally around: loading risk on parties down the contractual chain
usually produces additional costs without additional benefits.
In its final report 3 this issue was even more cogently expressed:
1
See Building the Education Revolution Implementation Taskforce Interim Report (Cth of
Aust, 6 August 2010); http://www.bertaskforce.gov.au/pages/publications.aspx.
2
Ibid at 42.
3
See Building the Education Revolution Implementation Taskforce Final Report (Cth of Aust,
July 2011); http://www.bertaskforce.gov.au/pages/publications.aspx.
2
In the case of the BER projects in New South Wales and Victoria, this
perspective appears to have backfired. Recently, Charrett and Shnookal 7
have drawn on a Japanese publication to list the consequences of self-
preservation risk loading:
4
Ibid at 63 (my emphasis).
5
D Ulbrick, ‘No Dispute? Testing the Wisdom of Abrahamson’ (2010) 21 Insurance LJ 96.
6
Ibid at 100.
7
D Charrett and T Shnookal, ‘Standard Form Contracting – The Role for FIDIC Contracts
Domestically and Internationally’, ACLN 138, May/June 2011 at 6.
3
ABIC Principles
Master Builders provides various standard form contracts, either at the
national level, the State or Territory level or through joint ventures. Master
Builders’ philosophy in promoting standard forms is that these contracts
minimise the time spent negotiating commercial transactions, and time is an
all-important element in our members’ working lives. Members also become
familiar with the standard forms. The obligations the parties assume are made
clear from use over time. This is far from a new observation. Cullen 9 in 1993
put the proposition as follows:
The more well known and the longer established are these conditions (or
rules), the more chance will there be for a reduced incidence of disputes
and, hence, more likelihood of a well-managed outcome. 10
This familiarity with how risk and responsibility are allocated in turn reduces
disputes as participants become used to administering the terms of the
contract.
In many instances, standard form contracts can be a useful tool for businesses
contracting with a large number of, particularly, domestic consumers or
subcontractors. But standard form contracts have come under increasing
attack from authorities and have been questioned as, for example, entrenching
out-of-date practices. 11 In my view, this criticism is more resonant of the
truism that application of the law preserves the status quo as well as being
derived from the factor of familiarity discussed above. Legal order in itself
may be viewed as a device to preserve the social status quo, 12 and without
regular review standard form contracts can become moribund.
That is not to say industry participants blindly follow the terms of standard
forms without modification. Construction industry contracts are not “take it or
leave it” contracts where the service is provided on the strict understanding
that no part of the standard form may be negotiated. Contracts with that effect
8
Ibid at 9.
9
A Cullen, ‘Standard Conditions of Contract in the Building and Construction Industry’
(1993) 9 BCL 89.
10
Ibid at 92.
11
See M Bell, ‘Standard form construction contracts in Australia: Are our reinvented wheels
carrying us forward?’ (2009) 25 BCL 79 at 92.
12
See Roscoe Pound, ‘The End of Law as Developed in Juristic Thought’ (1914) 27 Harv LR
605.
4
The ABIC suite is produced by a joint venture between the Australian Institute
of Architects (AIA) and Master Builders. There have been three versions of
the ABIC suite since the joint venture commenced: the 2001 version, the
2002/2003 version and the 2008 version, which was released for sale in 2009 14
and which has been adjusted in minor regards via running changes as feedback
about various provisions is obtained. 15 A 2012 version is planned.
The ABIC Joint Venture has applied a number of factors which we believe
should guide the process of determining how a balanced risk profile may be
reached in the context of establishing a suite of standard form contracts. The
following criteria have been adopted:
Linked to these broad criteria, the joint venture agreement between Master
Builders and AIA requires certain principles (described in the agreement as
‘foundational’) to be applied as follows:
13
See s23 Australian Consumer Law which forms part of Schedule 2 to the Competition and
Consumer Act 2010 (Cth). For an explanation of the provisions of the unfair contract terms
law see RV Miller, Millers Australian Competition and Consumer Law Annotated (Thomson
Reuters, 33rd ed, 2011) at 1673 et seq.
14
See discussion of changes by R Calver, ‘The Australian Building Industry Contract (ABIC)
Suite–2008 Contract’ ACLN 130, January/February 2010, 22.
15
R Calver and R Barton, ABIC Major Works Contract: Differences between the 2003 and
2008 versions (Master Builders Australia and Australian Institute of Architects, 2nd edition,
December 2010).
16
NPWC/NBCC Joint Working Party 1990 (National Public Works Conference, 1990).
17
Albeit labelled by some authors as an important protection for principals see for example,
TE Uher and P Davenport, Fundamentals of Building Contract Management (UNSW Press,
2002) at 131.
5
The architect must act independently (i.e. not as agent of the owner)
when acting as assessor, valuer or certifier.
The contractor must notify its intention to make a claim and the details
of the claim within an agreed time or default time.
The circumstances under which the owner can draw on the security
must be narrowly defined.
The original authors of ABIC actively applied these principles and modified
Abrahamson principles to derive a specific risk allocation as set out in Table 1
published by Booth. 18
18
R Booth, ‘The ABIC Suite of Building Contracts – Development and Particular Features’,
ACLN 85 August/September 2002 10.
6
Table 1
EVENT NO DISPUTE ABIC RISK ALLOCATION
RISK/OBLIGATION
ALLOCATED
MODEL
Programming Contractor’s Risk Contractor’s Risk
Submission of Priced Bill Contractor’s Risk Not Applicable
Giving possession of site Owner’s Risk Owner’s Risk
Physical Conditions Contractor’s Risk Contractor’s Risk
Latent Conditions Neutral Owner’s Risk
Defective work or materials Contractor’s Risk Contractor’s Risk
Subcontracting Contractor’s Risk Contractor’s Risk
Separate contractors Owner’s Risk Owner’s Risk
Opening up and testing
(a) If defective work Contractor’s Risk Contractor’s Risk
discovered
(b) If defective work not Owner’s Risk Owner’s Risk
discovered
Variations & Late Instructions Owner’s Risk Owner’s Risk
Contractor Efficiency Contractor’s Risk Contractor’s Risk
Time & Associated Costs:
(a) Inclement Weather Neutral Time given but no cost so
effectively Neutral
(b) Site Industrial Action Neutral except where Contractor’s Risk
caused by act or default
of Contractor
(c)Industry Industrial Action Neutral Owner’s Risk
(d) Authority Approvals Neutral Owner’s Risk
(e)Disputes with Neighbours Neutral Owner’s Risk
(f)Acts or default of Owner’s Risk Owner’s Risk
Architect, Consultant
Breach by Contractor Contractor’s Risk Contractor’s Risk
Breach by Owner Owner’s Risk Owner’s Risk
Force Majeure Neutral Contractor’s risk but insurable
so effectively Neutral
Shortages
(a) Labour Neutral Contractor’s Risk
(b) Materials and Plant Neutral Contractor’s Risk
(c) Finance Owner’s Risk Owner’s Risk
(d) Offshore sourced materials Neutral Contractor’s Risk
& plant
Superintendence Contractor’s Risk Contractor’s Risk
Legislative Changes after Neutral Owner’s Risk
Contract Commenced
Late Payment Owner’s Risk Owner’s Risk
Failure to Certify Owner’s Risk Owner’s Risk
Insolvency
(a) By Owner Owner’s Risk Owner’s Risk
(b) By contractor Contractor’s Risk Contractor’s Risk
Cost Fluctuations Neutral Contractor’s Risk
Provisional Sums Neutral Owner’s Risk
Contract Documentation
(a) Discrepancies Owner’s Risk Owner’s Risk
(b) Omissions Owner’s Risk Owner’s Risk
7
The 2008 version of the suite contains a number of provisions that make its
administration easier than was the case with the 2003 version, especially
where an architect fails to act. For example, one of the common complaints
received by Master Builders during the currency of the 2003 contract was the
fact that there were inadequate measures to deal with an architect simply
failing to make a decision or issue an instruction. This issue was pressed
under the foundational principle that the architect must deal with claims within
a specified time.
19
Richard Calver and Richard Barton, above, note 15.
20
Clause A8.1.
21
Clause A8.2.
22
The User Guides published by the joint venture parties contains a table setting out the time
bars that are in the relevant contract forms.
23
Above, note 11 at 91.
8
Section J is drafted on the basis that all or part of a quotation might not be
accepted. It proceeds on that basis because it contains the implicit
acknowledgment that the owner has accepted that the variation will proceed
without agreement as to the price covered by a quotation if the quotation is not
referred to in the instruction to proceed. This is a new process in the 2008
contract. The owner in effect loses an opportunity to formally accept any
future claim for cost or time prior to the cost or time occurring. This is
because once the work has commenced where no quote or a partial quote
covers the work, the change will be based upon information kept by the
contractor in detailed records. 31 Whilst the administration associated with
24
See Clauses J1.8 and J2.2.
25
Clause J1.1.
26
Clause J3.1.
27
Clause J3.1(a).
28
Clause J3.1(b).
29
Clause J3.1(c).
30
Clause J4.1.
31
Clause J4.2(a) and J4.2(b).
9
keeping those records has lifted the administrative burden associated with
variations, compared to an accepted quotation, the contractor is advantaged
because the cost risk is with the owner. In turn, the owner has obtained the
benefit of the variation but with the architect, under section H, assessing the
records that must be kept before a claim is accepted. 32
Specific Elements
The next step I will take in examining the ABIC Suite is to further show how
some of the principles I have mentioned are translated to the practice of the
contract. I have chosen to examine the manner in which delay costs and
design risk are treated as these are subjects that Ulbrick 33 analysed when
looking in detail at the application of the Abrahamson principles, finding them
to be an incomplete answer to the practical application of risk assessment and
risk allocation.
Delay Costs
Section L of the ABIC Suite deals with adjustment of time. It sets out
particular causes of delay that entitle the contractor to make a claim for an
adjustment of time with costs.34 For other delays, the contractor is also able to
claim for an adjustment of time without costs but only where the delays
exceed the allowances provided for in particular items of Schedule 1 of the
contract. 35 Overlapping delays are specifically dealt with in Clause L6.
The structure of Clause L1.1 dealing with adjustment of time with costs
follows the risk allocation set out by Abrahamson, with the numbers shown
below being of my making:
the contract should state the extent to which the contractor will be
compensated for delay costs incurred as a result of neutral events.
This is best done by allocating risk to a list of neutral causes of
delay…. The contract may provide that a certain percentage of delay
costs will be reimbursed for certain neutral causes of delay….
[Principle 2]
principle number or numbers that is attached to each category set out above.
This allocation is intended to expand on the broader categorisations made by
Booth in Table 1.
An architect’s instruction 1
A dispute with a nearby owner or occupier (except one caused by an act 2 and 3
or omission of the contractor)
Widespread industrial unrest not limited to the site or to any other sites
on which only the contractor any of its subcontractors is working
2
Any delay shown in item 24 of Schedule 1 – these are causes which are 1, 2 and 3
agreed to trigger adjustment of time with costs
37
See M Bell, ‘Scaling the Peak: The Prevention Principle in Australian Construction
Contracting’ (2006) 23 ICLR 318.
11
In other words, the contract through this prescription requires the contractor to
make an estimate of the risk of disruptive weather conditions on the date for
the expected completion of the works. Ulbrick labels this approach as
“hybrid”. 39 In respect of an earlier version of ABIC he then asserts that “it is
unclear from the form whether inclement weather beyond the number of days
allowed entitles the contractor to an extension of time.” 40 L2 operates so that
the date for practical completion may be the subject of a claim for change
where the disruptive weather conditions exceed the number of days set out in
item 25 of Schedule 1, but no costs are able to be claimed. That is the
meaning of the words in Clause L2.1a of the 2008 version. Hence the
contractor must actively engage in assessing the risk of inclement weather.
The contractor would obviously benefit from placing “nil” in the relevant item
in Schedule 1. This is because any amount of disruptive weather would hence
mean a claim could be made to change the date for practical completion.
However, the articulation of the amount in that way would mean it would be
difficult to meet the warranty required by L4 which acts as a check for the
principal’s interests. It is this tension which provides a balanced risk
allocation for this difficult subject.
38
Items 25 and 26 Schedule 1.
39
Above, note 5 at 120.
40
Ibid, author’s emphasis.
12
Clause L3 sets out that the contractor must, within two working days of
becoming aware of the start or end of the delay, in respect of any of the causes
in Clauses L1 or L2, notify the architect in writing with a number of details
relating to the delay as set out in Clause L3.1a and b.
Design Risk
For consistency I have used the broad definition adopted by Ulbrick as
follows:
The design risk associated with a project is the risk that the design is
found to be flawed and either cannot be constructed or upon
construction in accordance with the design, the structure fails. 43
Feedback from members is that the risk flowing from poor design is becoming
increasingly common and is correlated with a decline in contract
documentation generally. 44
Ulbrick’s admonition that when compiling its tender an astute contractor ought
to assess the progress and adequacy of the design and exercise due diligence at
that point is becoming increasingly difficult for contractors. This is in part
because tenders which might have taken an owner six months to put together
are placed in the market for a very short period, sometimes only a week or a
fortnight. Hence, quite often, as Ulbrick, elsewhere identifies, 45 design risk is
principally dealt with in clauses dealing with variations to the contract which
reflect design risk being the owner’s.
41
Above, note 18.
42
Telephone conversation with Mr Booth, 20 July 2011.
43
Above, note 5 at 108.
44
See the charting of this trend in Getting it Right the First Time (Engineers Australia,
October 2005); http://www.bdaq.com.au/pdf/Quality_of_Documentation_Report.pdf.
45
Ibid, at 122.
13
I have earlier dealt with variation clauses. However, in the ABIC Suite
section B deals with documents and is relevant to the subject of design risk.
Clause B1 sets out the requirement for the owner or the contractor to notify the
architect promptly if a discrepancy, ambiguity or omission in the contract
documents is discovered. Once notified, the architect must issue an
instruction to the contractor promptly, having regard to the order of
precedence of documents set out in Schedule 3 of the contract. Where the
order of precedence is not shown in Schedule 3, Clause B2 sets out the order
of precedence of documents. If the architect issues an instruction to resolve a
discrepancy, omission or ambiguity in the contract documents that is not in
accordance with the order of precedence, the instruction is an instruction for a
variation. Obviously, in that case, the process set out in Section J applies.
Conclusion
Blind adherence to the Abrahamson principles is not a feature of the ABIC
suite of contracts. They are a starting point to the allocation of risk that from
2001 have been palpably applied. As indicated earlier, Booth, 46 in 2002
charted each major risk allocation from Abrahamson to the ABIC risk model
to show how the risk had been translated. This general translation tempered
with the other more practical features that I have set out still drives the joint
venture. Standard form contracts have as a central function the allocation of
risk. As the ABIC suite gains currency in the market, the risk allocation and
the practices that flow from the clauses adopted by the drafters should become
increasingly discernible and practical. They certainly add a more balanced
perspective to the landscape of building and construction contracting practices
than the approach which loads risk onto the parties doing the work.
46
Above, note 18 at 19