The formation of contracts is both an exciting and stressful
period for any construction project, and those without a legal
background can often be left unsure of the formalities and
statutory requirements needed to be complied with. This situation
is exacerbated when the project is to take place in a foreign
jurisdiction, where the terminology, language and practice may all
be very different to what the party to a contract is accustomed to.
It is essential that the variances between the Australian and
Chilean jurisdictions are understood and appreciated, so each party
is able to enforce and comply with their rights and
The most immediate difference is that Australia operates under a
common law system, whereas Chile works as a civil law jurisdiction.
Under Australian common law, each of the principles of contract law
comes from individual cases, which means the person drafting the
contract should be familiar with the cases, which give us these
principles. At the most basic level, there are four essential
elements needed for a contract to be valid: offer, acceptance,
intention to create a legal relationship, and consideration
(normally money). A contract will only be enforceable when formed
with sufficient clarity and agreement has been reached on all
essential terms. A contract does not have to be in writing and can
in fact be oral. Of course, for a large-scale project this would
not only be extremely unusual but also highly inadvisable.
In Chile, in general terms the only crucial elements required
for a legally binding contract are offer and acceptance. Obviously
though, construction contracts would normally be highly detailed
and evidenced in written form. As a key exception to this, public
work contracts have a number of specific legislative requirements
that make them more complex.
Standards Australia has published a series of standard form
contracts for use in Australian jurisdiction. It is also very
commonplace for other public authorities and government bodies to
use their own standard forms. The Chilean market has no equivalent
regulating body that provides the private sector such a service,
however, the terms and conditions of contracts are largely constant
and disputes in this area are uncommon.
In Australia, "letters of intent" will sometimes be
employed in circumstances where delaying the start date of a
project until contracts have been signed isn't practical. They
represent a somewhat awkward aspect of contract law, as often they
themselves will be determined to be binding contracts, something
which is decided objectively based on the terminology used and
whether the essential terms are agreed upon. For this reason, they
need to be drafted with the utmost care and skill. In Chile, such
preliminary agreements are much less common. In the private sector,
they do exist and can be legally enforceable when they contain the
specific terms and conditions that the employer agrees to comply
with. In the private sector, on the other hand, there is generally
no recognition of preliminary agreements or subsequent acts.
In regards to statutory requirements, Australia presents as the
more convoluted framework, because in effect there are nine
different legal systems in place—eight state and territory
systems and the overarching federal system. Each jurisdiction has
different (but broadly comparable) legislation in place for factors
such as security for payment, employment laws, tax and allowances
and health and safety. Chile has a much more uniform framework. The
main requirement in public works is that the contractor be
registered in the relevant public registry, as kept by the Ministry
of Public Works. There are a number of different categories of
registries, and which one a specific project will be designated to
will depend on a few factors such as its nature and size. Private
works do not have this requirement, and only require the relevant
sectoral permits. As with Australia, a person drafting contracts
needs to keep in mind the applicable labour, tax and health and
The formation of contracts can be convoluted and confusing
process. It is essential that at this initial stage everything is
completed correctly to avoid any unpleasant surprises further down
the track that could lead to costly disputes. This is especially
true for companies working in foreign countries, where the advice
and guidance of lawyers skilled in both jurisdictions can mean the
difference between a successful outcome for all or a costly
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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