Australia: Do your cost provisions add up? Important clauses to consider in your next construction contract

Last Updated: 27 October 2018
Article by Suzy Cairney and Grace Power
Most Read Contributor in Australia, November 2018

Anything that affects pricing affects the profitability of your contract. After all, you are in business to make money, so anything that impacts this requires special scrutiny. Understanding the key clauses relating to costs will ensure that you have the best chance of appropriately pricing the contract and carrying out the project profitably.

In the second of a series of articles on procurement and contracts, the first of which is available here, this article focuses on how to approach a contract review, particularly in respect of cost provisions. If a proposal sounds too good to be true, it often is, so we've set out below some helpful tips for both contractors and principals to consider.

Pricing

Firstly, if there is no consideration, then legally there is no contract. Consideration means giving something for value in return for a promise. In construction contracts, this is generally in the form of a dollar amount, but a method for calculating consideration is also sufficient.

Clearly setting out the amount to be paid under the contract is of vital importance. If a contract price has been agreed based on certain assumptions, you should include these assumptions in the contract. The price is based on the contractor performing a particular scope of works, so the scope must be clear in order to make sure the price is clear.

Parties should also turn their mind to issues like whether amounts stated are inclusive or exclusive of GST or are in Australian dollars.

The payment process

Are there any preconditions to payment? If the contract makes it difficult to get paid, contractors should consider why. The clauses regarding payment should comprehensively set out when and how a payment claim is to be made, assessed and paid. It is important, for contractors in particular to ensure they can comply with the timeframes, as failure to do so can be a bar to payment.

Is the payment process consistent with the Building and Construction Industry Payments Act (Qld) 2004? The act cannot be contracted out of and any clause purporting to do so will be of no effect 1. It is often worthwhile ensuring that the payment process under the contract is consistent with this Act, so that parties only have one payment process to administer. If it is not consistent, then parties may have to use one process under the contract and potentially a separate one under the Act. Note, this act is expected to be replaced by the Building Industry Fairness Act (Security of Payment) Act 2017, although it is not clear when.

Set off clauses

Most principals want to ensure that they have a right to set off monies the contractor owes to them against monies they have to pay the contractor. Where this right only applies to amounts due and owing to the principal, it is not unreasonable to include it. If however the principal wants to include a right to set off amounts it claims are due, this is usually resisted by contractors. Arguably, a wide set off clause can be good for a principal, but can also lead to disputes and increase pricing, so both of these factors will need to be considered by principals.

For contractors it is important to understand the scope of your set off clause and what is the principal entitled to set off against amounts owing to you. Set offs should be limited to amounts actually owed to the principal and exclude for example, amounts for any potential claims or debts that the principal believes are owing. Also, is it only amounts due under this contract, or under any contract between the same parties?

Variations

Understand how your contract defines variation. This should be considered in light of the scope of works. If you don't understand that original scope of works, you can't identify what is a variation. This is one reason why doing your due diligence on a contract up front is so vital.

Consider how variations are issued and who controls this. Can the contractor claim that something is a variation, even if it is not issued as one? It is important that the parties are aware of any procedural requirements, particularly the timing for claiming or approving a variation. Failure to comply with timeframes can be a bar to claiming a variation ie the claim is prevented permanently.

Often requests or directions for changes to the works are made verbally on site. This can lead to disputes about whether they actually constitute a variation, so the contract should deal with the effect of any verbal representations (eg they are valid only if backed up in writing).

Once a variation is issued, how is it valued? Contractors should avoid clauses which allow the principal or superintendent to value variations in their "sole or absolute discretion". A reference to a schedule of rates or valuation by agreement between the parties is preferable for both parties, since again it provides certainty and helps avoid disputes.

Delay costs

Is the contractor entitled to delay costs? If so, how are these calculated? Consider expenses such as offsite overheads and whether these are included. For principals, a limit on delay costs is usually preferable, but this will need to be assessed on a case by case basis. For contractors, consider the costs of dedicating resources to the project as a result of any delay and ensure that you are adequately compensated for costs actually incurred.

Finally, as a general rule, any hurdles in the way of getting paid can affect a contractors' cash flow. This can have serious consequences, and are issues that (as a general rule) cannot just be accepted. Principals should also consider whether these hurdles are necessary, as they can arguably increase pricing. Striking the right balance, and driving the right behaviours and relationship between the parties, is important for a profitable and successful project.

Footnote

1 Building and Construction Industry Security of Payments Act 1999, s 99.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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

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

Authors
Suzy Cairney
Grace Power
 
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”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions