Australia: Are Guaranteed Maximum Price Contracts Guaranteed?

Last Updated: 19 February 2009
Article by Tim Poisel and David Jury

In Auburn Council & Anor v Michael Davies Associates Pty Ltd [2008] NSWCA 286, a claim that there had been misleading and deceptive conduct in relation to the guaranteed maximum price for a construction contract failed because the Court found that the clause in question was incomplete and uncertain.

The Facts

Auburn Council (Council) and the New South Wales Police Service (Police) entered into a joint venture to redevelop the Council's Civic Centre. The redevelopment was intended to provide the Council with an administration building, library and multi-purpose community centre, and the Police with premises for a Local Area Command Centre, a car park and commercial office space.

The Council took on the role of managing the design and construction for the project. It selected a proposal from Michael Davies Associates Pty Ltd (Davies) to provide design advice and to call for tenders for the construction work. The Council wanted to have a guaranteed maximum price (GMP) contract. Austin Australia Pty Ltd (Austin) was eventually contracted to complete the redevelopment for a GMP of $16.9 million, subject to modifications in the design. Regardless of what was written in the contract, the Council accepted that the actual GMP was $17.105 million. Construction commenced and, due to design changes, construction costs blew out to $19.6 million. Austin then claimed payment of $3 million in excess of the $17.105 million GMP. At the same time, Davies sued the Council for his fees.

The Council cross-claimed against Davies to recover the expenses that it had incurred over $17.105 million.

The Council submitted that Mr Davies breached section 52 of the Trade Practices Act 1974 (Cth) as he had misrepresented the certainty of the $16.9 million price and the adequacy of the GMP contract design documentation. The Council also submitted that in the absence of such representations, it would have reduced the scope of the work or decided against proceeding with the project.

Procedural Background

The trial Court held in favour of Mr Davies and ordered the Council to pay the outstanding fees. In addition, the Court dismissed the Council's cross-claim that Mr Davies had made representations about the certainty of the price of $16.9 million. The Court accepted that Mr Davies made representations about the adequacy of the design documentation for a GMP contract, but held that the Council failed to demonstrate that they were incorrect. The Council then appealed.

The Appeal

The New South Wales Court of Appeal agreed with the trial judge and dismissed the Council's claim. The Court held that Mr Davies had not engaged in misleading conduct. In coming to this decision the Court gave regard to the information that passed between the parties, the Council's knowledge, Mr Davies' warning about Austin, and the circumstantial relativity of the notion of 'inadequacy'. In addition, the Court held the circumstances that arose in this case did not amount to misrepresentations by Mr Davies.

Critical to the finding that Mr Davies did not engage in misleading conduct was the uncertainty of the $16.9 million GMP.

First, the contract stipulated that this amount could be varied by design modifications. Second, the evidence from the Council meetings suggests that the costs for the redevelopment had to be limited to $17 million rather than $16.9 million. Third, Mr Davies produced a document stipulating that the figure the Council 'should be aiming for' was $18,721,246. Mr Davies also warned the Council that he believed that Austin's tender was 'contrived', and he had put the Council on notice that it did not allow for any risk at all. Therefore, the $16.9 million price lacked any certainty or intention as constituting a GMP.

The Council argued that Mr Davies had made representations about the adequacy of the design documentation for the GMP contract. However, the Court held that the incompleteness of the GMP documentation did not amount to misleading conduct by Davies because the incompleteness was obvious and known by both the Council and Austin. The Court found that the Council was well aware that the GMP documentation was not complete as the design remained to be finalised. Similarly, Austin knew that modifications to the design could occur which would affect the GMP. It was noted by the Court that had the GMP management contract been appropriately framed, the risk of the cost exceeding the GMP for the redevelopment would ordinarily fall upon the contractor.


While GMP contracts can be an appropriate form of contract delivery, this case makes clear that for such a contract to be effective, the 'P' (Price) in GMP must be precise and certain. In turn, the scope of the work must also be clearly defined. If, as a consultant, you think the GMP is not achievable you should notify the principal in writing.

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This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

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