The consultation period recently ended for draft AS11000 General
Conditions of Contracts ("AS 11000")
from Standards Australia. AS11000 is a new standard contract that
is intended to provide general guidance for legal contracts in all
sectors of industry, including construction, engineering, health,
manufacturing and infrastructure. It is intended to supersede
AS2124-1992 and AS4000-1997.
Standards Australia hopes that AS11000 will provide a broadly
balanced approach to risk allocation in plain language. The changes
in AS11000 cover a variety of issues. Importantly, they include a
new early warning procedure based upon an express good faith
obligation, which is intended to assist in the management and
resolution of disputes.
In this article, Litigation and Insolvency Partner, Sarah
Davies, looks at these far reaching amendments and the important
implications the changes will have for participants in the building
and construction industry.
AS11000 introduces a new obligation on each party to act in good
faith towards the other. Good faith is not defined in the contract,
so parties need to look to case law to understand what extra
obligations this imposes on them.
Good faith is a difficult concept to define, but can involve the
Co-operation between the parties to achieve the contract's
Doing what is necessary to ensure the success of the
Honest and reasonable standards of conduct being followed by
Contractual rights being exercised for a proper purpose;
Parties avoiding capricious or unreasonable behaviour;
Parties having regard to the legitimate interests of the other
party (although note they are not required to subordinate their own
legitimate interests to the interest of the other party); and
Avoiding bad faith, such as evasion of the spirit of the
contract or wilfully rendering only substantial performance instead
of complete performance.
EARLY WARNING PROCEDURES
AS11000 contains an early warning procedure, which requires a
party to notify the other party if circumstances arise which create
an issue under the contract. It imposes an obligation on the
parties to try to resolve the issue, including by attending a
resolution meeting. We will need to wait until the final version of
AS11000 is available to see what specific obligations will be
included. However, the early warning procedure will be impacted by
both the obligations of good faith referred to above and the new
dispute resolution clauses proposed for AS11000.
The parties to the contract should anticipate greater focus on
attempting to resolve disputes at an early stage. In a practical
sense, this is likely to involve the following:
notifying the other person of the issues that are in dispute
and offering to discuss them;
responding appropriately if you receive such a notice from the
providing relevant information and documents to the other party
to enable them to understand the issues involved and how the
dispute might be resolved;
considering whether the dispute could be resolved by a process
facilitated by another person, such as a mediator;
attending any such process in good faith, and considering a
different process if it fails to resolve the dispute;
attempting to negotiate with the other party, with a view to
resolving some or all the issues in dispute;
actively engaging in any conferral process;
giving serious and genuine consideration to any proposals
received from the other party and making appropriate proposals to
settle the dispute;
making and responding to proposals in a reasonably timely
manner having regard to the nature and scope of the issues to be
negotiated, their technical and factual complexity, and their
commercial significance to the parties; and
acting honestly and not conferring in an arbitrary or
Clearly, AS11000 can potentially deliver benefits to those in
the building and construction industry. However, it will do so in a
way that imposes additional obligations on parties to facilitate
early resolution of issues in dispute between them. This might
involve additional time and effort, but it is likely to pay off if
disputes can be avoided or resolved at an earlier stage.
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.
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Warranties can be risk-shifting mechanisms when the party giving the warranty is not the party at fault for the defect.
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