Australia: Driving Success and Efficiencies in Services Contracts

Last Updated: 27 April 2013
Article by Suzy Cairney

Most Read Contributor in Australia, September 2016

In these days of lower commodity prices and high Government debt, infrastructure development for new projects in the ports, airports, water and rail sectors has slowed dramatically. In light of the resulting increase in capacity constraints, asset owners, operators and users are focusing instead on finding new ways of squeezing greater efficiencies and more value out of the assets they already have.

Most infrastructure players have good relationships with a wide range of suppliers and service providers in their industry. Changing your contracting approach to these organisations (even under your existing contractual arrangements) can achieve savings, and help you to squeeze more value out of your business, while still retaining those valuable relationships.

You might decide to outsource discrete parts of your operation (to help you focus on your core skills), refresh existing outsourced services arrangements, adjust your maintenance and supply agreements, or perhaps even to outsource the operation and maintenance of the entire asset.

Many businesses are engaging consultants to review their existing operations and see what can be done more efficiently.

Whatever type of service agreement you might want to investigate, there are certain things that are common to all, and it is important to get these right. They include:

Defining Services

When you want someone to perform a service for you, you need to agree on exactly what it is they are to do. Failure to define the services accurately means that you may be paying for a service that you do not need, or you may not be getting a service that you need. Problems in this area are common. For example, an operator under an operation and maintenance agreement in respect of a water asset was obliged under the agreement to rectify defects in that asset. The asset had been built by a third party, and then handed over to the operator. The operation and maintenance contract said that if the contractor failed to rectify a defect within a specific time during the relevant defects liability period, the owner could ask the operator to fix it and the operator would be paid to do so. However, it subsequently became clear that the asset owner expected the operator actively to go out and look for defects in the assets it was responsible for. Given the size of the asset, this was a major additional obligation. The parties resolved the issue through the variations process, but if the issue had been fleshed out before the agreement was signed, a considerable amount of cost and time could have been avoided.

Build in communications

Successful projects (construction or operations) are built on successful relationships. While many projects go well without documentation because the people on the ground make them work, you can give your project a better chance of success by setting up the right communication forums and lines. It may simply be a case of writing down what you are already doing, or anticipating what a new project might need. For example, a terminal operator at a port wanted to get more information about future volumes that might be coming to the port from a particular customer, so that it could decide whether to fund further investment in equipment. The agreement between them included the usual clauses regarding forecast volumes, covered by a fairly standard confidentiality clause, but went no further. Despite the parties' good relationship, the operator could not persuade the customer to provide more information. However, when the contract came up for renewal, the operator proposed a more detailed communications plan, including regular meetings, a team to oversee day to day issues, more frequent reporting by the operator, a more detailed confidentiality clause, and a balanced and commercial disputes process. This gave the customer the comfort it needed to commit to provide the information the operator had been seeking.

Manage your deal

Services contracts are not like other contracts. They are in many ways living documents that have to be managed by both parties, ideally working together. A miner had previously been running its own rail operations on the basis that this gave it a greater degree of control over this crucial aspect of its business. For many reasons, it decided that this was no longer feasible, and looked for a third party operator. It found a candidate and signed a contract with them. Despite the centrality of the rail operation to the miner's business, it got busy with other things, people moved on, and the contract was left to run itself. When the new operator failed to perform, the miner sought to impose the penalties it was entitled to impose under the contract. However, the operator argued successfully that it could not do so, as it had altered the contract by its conduct in failing to impose those penalties earlier. If the contract had been managed from the start, the outcome might have been very different.

Build in flexibility

Services contracts can last for long periods, (10 years or more) and of course things change. They should always include variation clauses so that additional services within the scope of the original agreement can be carried out, and the payments for them are agreed. Further, more balanced variation clauses tend in our experience to produce better results in services contracts, especially where long term relationships are involved. The agreement should be predicated upon payment of a fair price for a reasonable level of service. There was a variation clause in a maintenance agreement for baggage handling equipment at an airport, but it only allowed the principal to direct variations. There was no process for the service provider to claim certain instructions as variations. As such, the clause was very one sided. After a lengthy period of trying to comply with various instructions from the principal that the service provider regarded as clear variations, the service provider decided to terminate the contract. While there was a clear failure of relationship in this case, a more balanced variation clause may have allowed the parties to continue working together.

Set standards

They say carrots work better than sticks, and sometimes performance can be improved by setting (or resetting) reasonably achievable key performance indicators. These of course need to be SMART (specific to the job, measureable, achievable, relevant and time based). Coupled with a reward for meeting or exceeding these KPIs (with or without a penalty for failing to achieve them) this can be a very successful method of improving performance. On the flit side, however, if a reasonable balance is not struck with these KPIs a problematic contract may result.

For example, in waste water treatment plants, and certain recycled water assets, which are located near housing, ensuring that any noxious smells are avoided or dealt can be usually fundamental to ensuring that the social licence to operate continues. Operators of course should be obliged to abide by the terms of any environmental approvals, but KPIs designed to eliminate smells altogether should be regarded with caution.

Of course, implementing some of these measures may come at a cost, where you have an established contractual relationship and the other party does not wish to change it. You may need to negotiate or renegotiate with contractors, consultants and suppliers, and perhaps to offer them something extra. However, it is possible that cost savings may be significant, and if productivity is improved, you may win twice.

There are other contractual levers that can be pulled to achieve more. A more detailed discussion of these issues will be held during Holding Redlich's outsourcing seminar series which will be running during 2013. Please visit our website at for more information.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.