PN Number F1 Previously PN4

Date December 2001

PRACTICE Note

F: BUILDING CONTRACTS

Use of AS4000 Conditions of Contract

NOTICE TO MEMBERS

These Practice Notes are designed to provide authoritative information in regard to

the subject matter covered. They are not to be regarded as providing opinion or
advice for any individual case. They are distributed with the understanding that the
author is not engaged in rendering legal or other professional services. If legal
advice or other expert assistance is required, the services of a competent
professional should be sought.

Introduction

This discussion of the proposed new standard was prepared from the draft document
circulated in October 1996. A complete annotation of the new contract has not been
attempted but rather a discussion of those provisions that would be of interest to practising
quantity surveyors. The remarks that follow are intended to be read with the draft.

The OB/3 Committee of Standards Australia has recently completed its task of reviewing the
AS2124 standard contract. The new document will shortly be published as AS4000. It was
deemed appropriate to rename the document on the basis that the final result of the
Committee's work differed so markedly from the AS2124 (1992 edition) as to justify
publication in its own right. It must be pointed out that the public review of the document was
not an unqualified success in that those representing building owner’s (principals) interests
roundly criticised the draft on the basis that the proposals demanded a higher standard of
administration from the Principal, the time bars designed to hamper so called "claims
engineering were removed," provisional sums, costs arising out of latent conditions and
adjustments for errors in the bill of quantities were treated as deemed variations.

In addition the document called for a greater accountability on the part of the Principal for the
actions of the Superintendent. In as much as the changes in these areas were relatively
minor the vigour of the opposition was surprising. Mr John Pilley, a member of the OB/3
drafting committee pointed out in an article published in 49 ACLR 27 (August 1996) that of
the 30 main changes to the AS2124 (1992 edition) 16 favoured the Principal and only 10 the
Contractor.

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The drafting committee had two main objectives in the way it approached its work. The
paramount consideration was to shorten and simplify the document. To do this the manual
approach adopted in earlier versions was dropped. By way of explanation it is pointed out
that earlier versions of the contract, in addition to identifying the parties legal obligations,
contained detailed machinery clauses designed to guide the Superintendent in the
administration of the contract. This material has been omitted. The Committee concedes that
guidance will be needed in the administration of the contract and this will be the subject of a
separate publication. Perhaps the advance here is illusory rather than real as it will mean
that those using the document will need to refer to two documents rather than one. The text
of the document has been further shortened by the use of an extensive interpretation clause
in the contract containing 47 definitions and an annexure containing 31 items wherein the
parties can adjust the contract to suit their particular requirements.

The attempts to shorten the document with the use of acronyms will set the teeth of the
traditionalists on edge, for example; WUC for work under the contract and EOT for extension
of time. Some of the attempts to shorten the text are obscure and, it is submitted, have left
the document ambiguous. These areas are identified later in this work and it is suggested
that appropriate amendments be incorporated in the document. This document suffers (as all
documents do) from the fact it was drafted by a committee and in the end represents a
compromise between the competing interests of the Principal, the Contractor and to some
extent the professional interests of those persons who act as superintendents. The best that
can be hoped for is a clear identification of the risks and adequate provision for the parties to
decide who will bear those risks.

The document succeeds moderately well in this object but no more so than say, the JCC
documents. As is indicated later in this work, legal drafting virtuosity has prevailed over the
use of plain language in at least one instance and this needs attention. It remains to be seen
whether AS4000 will receive more than the luke warm reception received by AS2124 (1992
Edition).

Use of the document by Quantity Surveyors

In the now rare occasions where the Principal wishes to make a bill of quantities a contract
document the provisions of clause 2.5 do not unduly threaten the quantity surveyor with
potential claims by the Principal where there has been an error. The liability of the Principal
to the Contractor is the same as that under AS2124 (1992 edition), approximates to that
under NPWC3 and is less than that in the JCC documents.

Where a quantity surveyor is asked whether or not the document protects the interests of a
principal the answer should be a qualified yes. Needless to say the NPWC3 protects the
interests of the Principal to a greater degree but it would be difficult to induce a contractor to
sign this document on a project in the private sector. In any event this discussion proceeds
on the unlikely basis that the document will be used in an unamended form. The fact is that
private clients of the industry usually commission their lawyers to draft substantial
amendments to any proposed contract. This, on the questionable basis that a hard
document will ensure a more efficacious contractor performance. If the document is heavily
amended it does not matter much what standard contract was the starting point. In these
cases the most that can be hoped for is that the amendments are obvious and
understandable.

A matter of greater professional interest to the Quantity Surveying Profession is the

possibility that quantity surveyors might be engaged a superintendents. It is beyond the
scope of this work to canvas the ability of the profession to fulfil this role but prima facie the
education available from the universities to those wishing to enter the profession would

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seem very relevant. If this is so the document gives positive encouragement. The
independence of the superintendent has been enhanced.

Status of the Bill of Quantities under the contract, clauses 2.2-2.5

The status of the bill of quantities seems dependant on it having been made a contract
document. Clause 2.2 specifically states that the bill will or will not be part of the contract
according to the way item 11(a) of the annexure is completed. This part of the annexure
refers to "alternative 1" denoting that the bill is part of the contract and "alternative 2"
denoting that the bill is not part of the contract. The choice of "alternative 1" automatically
dictates that a priced bill will be lodged. Item 11(b) provides a further alternative whereby a
bill, not part of the contract, is or is not required to be priced.

The intention of the Drafting Committee would seem to be that where a bill is made part of a
contract, the principal must assume responsibility for its accuracy. Clause 2.5 requires that
where the principal has accepted either a lump sum or a rate for an item, an error as to the
actual quantity required to execute the work expressed in the lump sum or the rate, is
deemed a variation. Equally, if the bill or schedule omits an item that should have been
included, the omission is deemed a variation. The extent of any of any error leading to an
adjustment under clause 2.5 must exceed $400 or be within the parameters as to rates set
out in item 10 of the annexure.

The provisions are unexceptional and reflect the current norms within the industry. In this
respect the manner of adjustment is not dissimilar to AS2124 (1992 edition), JCCA or
NPWC3. What is noteworthy is the fact that the obligation on the principal to meet the
additional cost arising out of errors in the bill seems intended to be dependant on: (i) the bill
being expressed to be a contract document and (ii) the principal accepting a lump sum or
rate. This may not be the result achieved by the drafting. The mere making a bill a contract
document is, of itself, a neutral event.

What is required is a further statement of the consequences of doing so (as is the case here
with clause 2.5). Otherwise the bill will have such a consequence only where it can be
construed as a promise of its own accuracy forming part of the contract or misleading
conduct within the meaning of s52 of the Trade Practices Act (Federal) 1974 or similar state
legislation. It is suggested that the words in the contract that trigger the principal's obligation
to meet the cost of errors in the bill is his or her acceptance of the lump sum or rate. The
word accept is not defined in the contract. It is possible to imagine a scenario where a
principal wishes to use a priced bill for the purposes of valuation of variations but does not
wish to be liable for the inaccuracies in the bill. Clause 35.4(d) clearly contemplates this
possibility.

Surely if the contractor submitted a priced bill in compliance with item 11(b) of the annexure
and the principal signified in some way that the bill had been rated to his satisfaction or
required changes, this could be said to be acceptance within the meaning of clause 2.5. In
these circumstances it is hard to see why the contractor could not claim an adjustment under
clause 2.5. This clearly not the intention of the contract and the clause may need redrafting.

If a principal becomes liable to a contractor under the clause discussed, a secondary

question arises as to whether or not the Principal can recover the sums thus paid from the
quantity surveyor who prepared the bill. Such a claim might be based on an express or
implied term in the contract for the preparation of the bill to the effect that the quantity
surveyor would execute his or her work with reasonable skill. The same professional
services contract might also contain a clause limiting the quantity surveyor's liability in the
event of an error. A second basis of liability might arise under the law of negligence. This
would depend on a court holding that the quantity surveyor owed the principal a duty of care
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in the preparation of the bill, a breach of that duty of care and that the principal suffered loss
as a result of the breach. Such a liability was held to exist in Bains Harding Construction &
Roofing (Aust) v. McCredie Richmond & Partners Pty Ltd (1985) 4 BCLR 258.

Provisional sums, clause 3

Clause 3 in AS4000 makes, in respect of provisional sums for work to be carried out by the
contractor or of an item to be supplied by the contractor, similar provisions to clause 11 of
AS2124 (1992 edition). There is a slight difference in drafting in that clause 11 states that the
work or item shall be valued in accordance with clause 40.5 (valuation of variations) whereas
clause 3 of AS4000 states that the work executed or item supplied shall be deemed a
variation.

The difference in result between the two approaches is perhaps minimal save for the slight
argument that where the work is a deemed variation it might be possible for the contractor to
argue for an extension of time to execute the work. If this were possible it might also be
possible for the contractor to argue that a direction in respect of the work was a compensible
cause within the meaning of clause 34.9 and for an entitlement to delay damages. This is
merely put forward as a possibility however it is something that a Superintendent should be
mindful of when issuing instructions in respect of expenditure of provisional sums.

Where the provisional sum relates to the work of a subcontractor the contractor recovers the
sum payable to subcontractor disregarding any damages payable in resolution of a dispute
under to subcontract or a discount allowable to the contractor for prompt payment. To this
sum is added a scheduled percentage for profit and attendance or in default a sum assessed
by the Superintendent. Although not stated there is an implied requirement for the
Superintendent to act reasonably in making this assessment.

If the value of the work the subject of the provisional sum exceeds the sum allowed, the
difference is added to the contract sum and if it is less the difference is deducted.

The structure of the clause should mean that a contractor in estimating the contract sum will
not need to take into account the cost of dealing with or administering the work involved in
the provisional sum because that cost is accommodated in the provisions described above.

There is no provision within the clause for dealing with nominated subcontractors. The
drafting committee has, as a matter of policy, omitted any reference to nominated
subcontractor from the document. A principal wishing to make use of nominated
subcontractors would need to draft appropriate amendments to the document.

Role of the Superintendent, clause 20

A comparison of clause 20 of the new document with clause 23(a) of the 1992 version shows
that the role of the Superintendent has been reconsidered. Previously the principal was
required to ensure that the superintendent acted "honestly and fairly" whereas the present
requirement is that the Superintendent act "reasonably and in good faith." It is considered
that the change enhances the independence of the Superintendent. In the earlier document
it was thought that the Superintendent's essential role was to protect the interests of the
principal. This view suited the philosophy of the main users of the contract viz. public
authorities and it was not inconsistent with the use of an employee of the principal in that
role.

The changes were partly in recognition of an implied obligation which the courts are
increasingly prepared to impose on the parties to a construction contract. The first judicial
indication of the direction that the law would take was in Perini v. Commonwealth of Australia
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[1962] 2 N.S.W.R. 530 where Macfarlan J held that there was an implied term in a contract
that the principal would ensure that the Superintendent did his duty as a certifier. In that case
a superintendent had refused an extension of time because of departmental policy. Similarly
the NSW Court of Appeal in Renard Constructions Pty Limited v. Minister of Public Works
(1992) 26 NSWLR 234 held that the principal must give reasonable consideration to the
question whether or not the contractor had shown cause why the contract should not be
cancelled.

The authors of the document have taken the view that since the law imposes an obligation
on the Principal to "act reasonably and in good faith," it is appropriate that the contract
acknowledges that obligation and requires the Principal to act accordingly in exercising
control over the Superintendent. This means that the Principal has contractually bound
himself or herself not to give an instruction to the superintendent which when carried into
effect would involve the Superintendent in acting unreasonably or in bad faith towards the
Contractor. It is thought this that will afford a measure of protection to the Superintendent
from legal actions by contractors and perhaps even justify the Superintendent in refusing to
carry out a particular instruction from a principal.

Some public authorities have already complained that the changes strike at the strict
employer/employee relationship between principals and their superintendents. It is noted
that the Drafting Committee has used a minimalist drafting approach in achieving these
changes. Clause 20 may be compared with the comprehensive regime determining the role
of the Superintendent (architect) in section 5 of the JCC documents. It remains to be seen if
the authors' intentions are realised. Unlike JCC (clause 5.07) there is no express or implied
qualifications required in the Superintendent nor does the Contractor have a right of
objection to any proposed replacement superintendent.

The administrative role of the Superintendent under the contract is documented in the
relevant clauses. With the innovations described above the role of superintendent could be
performed by any person well educated in the building industry. The obligation of the
Principal under the contract in respect of the Superintendent invites the use of an
independent professional. Such a person can perform the role without fear of compromise to
his or her ethical position. It is a role that could be performed well by a person who had
training in quantity surveying. There is a positive advantage in having a person with training
in quantity surveying act as superintendent as that person has the required training in
contract administration to administer the contract and the technical skill to evaluate the
Contractor's performance.

These skills can be brought to the project without the potential conflict of interest that must
arise where the designer of the project also acts as superintendent. This principle was
supported by the Research Report that preceded the No Dispute report of the NPWC/NBCC
published in May 1990. Ultimately this has benefits for both principal and contractor. The
quantity surveying profession should actively pursue the opportunity which, it is suggested,
is presented by the changes to AS2124 introduced in AS4000.

Latent conditions, clause 25

There have been changes to this clause. Firstly, the definition of latent condition has been
changed from "a physical condition on the site or its surrounds" to "physical conditions on
the site and its near surrounds." This will limit the ambit of latent conditions. In addition the
requirement of "competent" has been added description of a contractor reviewing the
situation at the time of tender. It was thought by the Drafting Committee that the addition of
this word shifted the risk in favour of the Principal. This matter is open to doubt as the word
would almost certainly have been implied. The major change to the drafting of the clause is

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in the fact that any additional cost arising out of the detection of latent defects is now a
deemed variation. This will assist in the administration of the contract.

Programming, clause 32

The clause defines a program as "a written statement showing the dates by which, or the
times within which, the various stages or portions of the work under the contract are to be
carried out or completed." The 1992 and 1986 versions of the contract state that the
Principal may require the Contractor to provide or the Contractor may of his or her own
volition provide a construction program. The NPWC3 contract has a similar provision but
there is no reference to a construction program in the JCC documents. The AS4000 restates
the requirement of the previous versions of AS2124. There is however a significant
difference in the way the program is dealt with within the contract.

Under the earlier versions of AS2124 and NPWC3 there was a requirement that the
contractor adhere to the program and consequences were attached to a Superintendent's
direction to deviate from the program. Under AS4000 the program becomes the yardstick
against a contractor's "proceeding with due expedition and without delay" is measured.
Clause 39.2(c) defines a "substantial breach" for which the Principal can require the
Contractor to show cause as "a substantial deviation from the construction program without
reasonable cause or the Superintendent’s approval." It was thought that the new words
would replace the subjective test implicit in the previous versions with an objective test which
should make administration of the contract more certain. It is unfortunate that the word
"depart" was used to describe the builder's obligation to adhere to the program.

One of the primary meanings of the word is "deviate" and this suggests that the vice the
clause is addressed to is the possibility that the Contractor might adopt some program other
than that directed by or submitted to the Superintendent. It could be argued that if the
Contractor carried out the work in the sequence ordained by the program but was behind the
times prescribed for the execution of the work; he or she had not "departed" from the
program. At some time in the future this point might be taken. In any event the problem can
be solved by a simple amendment to the contract.

It is unlikely that this contract would be used without a program however the possibility does
exist as the requirement is called up with the use of the discretionary word "may." If there is
in fact no program the Principal will loose the right to require to Contractor to show cause as
a result of the Contractor's failure to proceed diligently.

The contract obliges the Contractor to give reasonable advance notice of a requirement for
information, materials, documents or instructions. The Principal and Superintendent cannot
be required to furnish the information earlier than at a time that could have been reasonably
anticipated at the date of acceptance of the tender. Both of these provisions appear in the
1992 version of the contract and in a less sophisticated form in the 1986 version. The
provisions are aimed at preventing a contractor using a delay arising out a failure to supply
information as a basis of a claim for an extension of time and the consequent delay or
acceleration costs. This practice is referred to as "programmesmanship" by Dorter &
Sharkey at page 4535. No similar protection for the Principal is afforded by the NPWC3.

Extensions of time, liquidated damages and delay damages, clauses 34, 36

The contract imposes the prime obligation on the contractor to ensure that the work under
the contract is brought to practical completion by the date for practical completion, Clause
34.1. Either party to the contract on becoming aware of an event that would probably cause
delay must give notice to the other party and to the Superintendent of the event and the
estimated delay, clause 34.2. Under clause 35.5 of AS2124 (1996 edition) the obligation only
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required notice to the superintendent of delay in anything the Principal is required to do
under the contract.

To this extent there has been a minor shift in risk against the Principal. The Contractor is
entitled to such extension of time as the Superintendent assesses subject to the delay being
a qualifying cause of delay and the contractor giving notice within 28 days of when the
contractor should reasonably have become aware of the cause of the delay and the extent
of the delay, clause 34.3. If the delay extends longer than first anticipated then a further
notice is required. Qualifying cause of delay is defined in clause 1 as; acts or default by the
Principal and matters beyond the control of the Contractor. The circumstances where a
contractor might be allowed an extension of time can be modified in item 22 of the annexure.
The present provision is simpler in that the notice under clause 34.3 is all that is required.

The follow up requirement on the Contractor to notify the period of time claimed has been
dispensed with. Clause 34.4 allows the Superintendent to apportion qualifying and non-
qualifying causes of delay. This can be of significance to a principal who might otherwise be
liable for delay costs where there were both a qualifying and non-qualifying causes of delay
operating concurrently.

Clause 35.5 of the AS2124 (1992 edition) sought to protect the Principal's right to liquidated
damages by providing that the failure of the Superintendent to grant an extension of time
within the 28 days did not render time at large but rather the principal liable for damages as
a result of the failure. This provision was of doubtful legal value to a contractor as the law
would require the Contractor to assume that no extension of time was to be forthcoming and
then speed up the work to protect itself from liquidated damages. The additional costs could
then be claimed as acceleration costs. The new contract makes the far more sensible
provision that in default of the Superintendent acting within the required time the extension of
time originally claimed is deemed to have been granted, clause 34.5. This change will be
welcomed by contractors but will require superintendents to exercise care in administering
the contract in this regard.

Clause 34.6 deals with practical completion in an unexceptional manner.

A change is introduced by clause 34.7 in that the Superintendent is required to certify the
quantum of liquidated damages payable. This is an administrative improvement on the
AS2124 (1992 edition) which stated that the Contractor was indebted for a sum equal
(presumably) to the product of the delay and the rate of liquidated damages. Now the
Principal knows precisely what sum is to be deducted. The change follows the drafting policy
of the JCC documents, clause 10.14.02. It is possible for the parties to limit the total
liquidated damages payable by completion of item 23(b) of the annexure. Clause 34.8
provides a bonus for the Contractor reaching practical completion early. The total bonus
payable may be similarly limited by the parties in appendix item

It is submitted that the drafting of the definition of qualifying cause of delay in clause 1 is
open to serious question. The Drafting Committee pursuant to the policy of economy of
words in the drafting have omitted words from the introductory paragraph after the word "or."
There is no doubt that the courts would imply the necessary words to give the contract a
clear meaning however the difficulty is that respectable arguments could be mounted as to
several words that could be included to supply the deficiency. If for instance the word "delay"
were implied, the position of the contractor would be approximated to that under the previous
AS2124. If it could be argued that a phrase like "industrial conditions or inclement weather "
were appropriate the rights of the contractor would be curtailed. It is suggested that in the
negotiation of a contract based on these conditions appropriate modifications be drafted to
make clear the intention of the parties.

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Variations, clause 36

The point is made at the outset that the clause imposes an obligation on the Contractor not
to vary the work unless the variation has been directed in writing. The statement serves as a
direction to the Contractor to adhere to the technical requirements of the contract. It is
submitted that the provision does not constitute the need for writing as a condition precedent
to payment to a contractor directed to execute a variation otherwise than in writing. A
contractor who accepts a verbal authority to vary work under a contract would be entitled to
payment pursuant to clause 36.4(d) or on the basis of the common law principle of unjust
enrichment. A contractor who executes a verbal instruction to vary the work will probably
breach the contract as will a principal who initiates such an instruction. It is hard to see what
damages would flow from this breach and in any event it is likely that both parties would
have waived the writing requirement. Even so, a contractor faced with the situation of being
required to carry out a major variation would be well advised to insist on the instruction in
writing as the clause allows him to do. This avoids what might become a problematic issue
of fact in later proceedings. The question being; was the instruction ever issued at all?

Clause 36.1 requires that a direction of the Superintendent to vary the work be give before
the date for practical completion. In the interpretation clause, (clause 1) the date for practical
completion is defined as the originally agreed date for completion extended by the provisions
of the contract. The date of practical completion is defined as the date stated in the
certificate of practical completion. The provision means that no variation can be directed
after the date for practical completion. The drafting policy behind the change was to relieve
the contractor of the obligation to comply with such a direction whilst he or she was
potentially in breach of contract and under threat of a liability to pay liquidated damages.

The drafting intention here is not altogether altruistic as to give such a direction might
prejudice the principal's right to liquidated damages on the Peak Construction Ltd v.
McKinney Foundations Ltd (1970) 1 BLR 111 principle. In this case it was held that a
principal who delayed the contractor's timely completion of the project without extending the
time for completion lost the right to liquidated damages. Since the decision in the English
Court of Appeal some doubt has been cast on the decision especially by the Australian
courts. Brooking J in SMK Cabinets v. Hili Modern Electrics Pty Ltd [1984] VR 391
considered the matter to be one of construction of the original contract. There it was held
that where a variation was ordered after the date for practical completion the liquidated
damages that had accrued to that point were recoverable but not in respect the delay
caused by the execution of the variation. The drafting of the present clause appears
intended to accommodate that principle.

The 1992 version of AS2124 (clause 40.1) prohibited the ordering of a variation only after
practical completion. The drafting of the 1992 provision is unclear but it would appear a
reference to the date of practical completion. These matters are not specifically dealt with in
the NPWC3 or JCC documents but it would appear on general principles that under either, a
variation could not be ordered after the date of practical completion.

There is a further requirement that the variation be "of the character and extent
contemplated by and capable of being carried out under the provisions of the contract,"
clause 35.1. The AS2124 (1992 version) merely limited a variation to being within the
general scope of the contract," clause 40.1. It may be that the change further restricts the
right of the principal to require that the contractor execute a variation. It is considered that
the expression scope may be a wider concept. A substantial variation that might be within
the scope ie. ambit or overall contemplation of the contract having regard to the contractor's
resources if ordered at the beginning of the contract but cease to be "capable to be capable
of being carried out under the provisions of the contract" if ordered close to the date for

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practical completion. The change is said to be in keeping with the new obligation on the
Principal, pursuant to clause 20, to ensure that the Superintendent acts reasonably.

The contract defines a variation in similar terms to its predecessor, NPWC3 and the JCC
documents. It seems the definition originated in the NPWC documents. A fifth category is
added viz. "demolish or remove material or work no longer required by the principal," clause
36.1(e). On a strict reading of the earlier contracts these matters may not have been capable
of being a variation in the past although there seem to have been few problems caused by
the drafting of the earlier contracts.

The regime for pricing variations found in clause 36.4 has been simplified. The provision for
daywork has been omitted and, if desired, could be added as a special condition.

Clause 36.2 allows the superintendent to give a notice of a proposed variation and requires
the Contractor to indicate if such a variation can be carried out, the effect on the program
and the cost. The provision is clearly is intended to put the Principal in a position to decide
whether or not to go ahead with a variation. This obligation extends to requiring the
Contractor to give a detailed quotation. The cost of complying with clause 36.2 are
recoverable by the Contractor.

Pricing variations clause, 36.4

The Superintendent is required to price each variation as soon as possible. In doing so, the
Superintendent is required to use an order of precedence in determining the method of
pricing the variation. That order of precedence is as follows: prior agreement, applicable
rates stated in the contract, bill of quantity or scheduled rates (even if not a contract
document) where it is reasonable to use those rates or rates (including an allowance for
profit and overhead) determined by the Superintendent to be reasonable. Where the
variation involves a deduction from the contract sum the deduction is to include a reasonable
amount for profit but not overheads. Presumably the Drafting Committee considered that a
contractor should forego part of the profit on work that was not required but since overheads
were an ongoing cost it was reasonable that the Principal should meets these expenses in
respect of omitted work.

Where the execution of a variation entitles a contractor to an extension of time and delay
damages under clause 34.9 the regime described above for pricing variations does not
provide for a the Contractor's entitlement to payment of a percentage for profit on the delay
damages. The obligation in respect of overhead and profit on delay damages is to some
extent taken care of by the fact that the contract uses the expression delay damages.

Progress claims, clause 37

The timing of progress claims is agreed by completion of item 27 of the annexure. The claim
must show details of the claim for payment for work under contract that has been executed
and may include details of any other moneys claimed to be due to the Contractor. Upon
receipt of the claim the Superintendent must within 14 days issue a progress certificate
"evidencing the Superintendent's opinion of the moneys due from the Principal to the
Contractor" and the reasons for any difference. In addition the Superintendent must issue,
where appropriate, a certificate evidencing his assessment of moneys due from the
Contractor to the Principal.

If the Superintendent does not issue the progress certificate within 14 days of receiving the
claim the claim is deemed the certificate. This period has been reduced from the 28 day
period provided in AS2124 (1992 edition) and although to be welcomed by contractors will
impose additional burdens on superintendents. The Principal is required to pay the
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contractor within 7 days after receipt of either or both certificates. In the event that only a
progress certificate is issued then the Principal must pay the sum shown on the certificate as
payable.

Where a progress certificate is issued and a certificate showing moneys due to the Principal
then the Principal is required to pay the difference. If the sum payable to the Principal
exceeds that payable to the Contractor then the Contractor shall pay the difference to the
Principal within 7 days of receiving written notice of the claim. It is noted that the period for
payment has been shortened from 14 days to 7 days. This will be welcomed by contractors.
The change was made as a deliberate policy attempt to enhance the subcontractor's
position as the shortened period will be reflected in subcontract documents.

The notion of the two certificates was deemed necessary after the decision of the
Queensland Court of Appeal decision in Blue Chip Pty Ltd v. Concrete Construction Group
Pty Ltd (1996) 15 ACLR 109 where it was suggested that the failure of the Superintendent
include in a progress certificate moneys then due from the Contractor to the Principal could
expose the Superintendent to liability to the Principal.

The regime for payment for unfixed materials has been simplified however the fundamental
conditions for payment remain unchanged. One significant change is the requirement that
payment can only be sought for those materials identified in item 28 of the annexure. This
means that there must be agreement about this matter at the time the contract is entered.

Final Payment Claim and Certificate, clause 37.4

Within 28 days of the expiry of the defects liability period or periods the Contractor must give
to the Superintendent a final claim which comprises any outstanding progress claim plus "all
other claims whatsoever in connection with the subject matter of the contract." Within 42
days of the expiration of the period the Superintendent shall issue a final certificate
evidencing the moneys finally payable as between the Contractor and Principal. Such
moneys must be paid by the debtor within 7 days of receipt of the certificate. The certificate
is conclusive evidence of "accord and satisfaction, and in discharge of each party's
obligations" save as to fraud, defects that would not be disclosed by a reasonable inspection
at the time of final certificate and accidental errors.

Apart from some adjustment of the operation of the time limits in the Principal's favour and
the use of some unusual language the clause does not differ significantly from clause 42.8 of
AS2124 (1992 edition). One matter that is important however is that fact that a Contractor
who wishes to dispute the content of a certificate must serve a notice of dispute "before the
7th day after the issue of the final certificate." This represents a reduction from 15 days to 6
days. Notices of dispute that have been issued at any other time prior to the expiry of the
time limit referred to are not affected by the time bar.

Notification of claims, clause 41

This clause is a radical departure from the drafting policy adopted by clause 46 of AS2124
(1992) and clause 48 of NPWC3. The clauses referred to represented an attempt by
Principals to limit a time beyond which claims could not be made by the Contractor. This
desire is understandable however the provisions were perceived by contractors to be unjust.
A good deal of legal ingenuity went in to circumventing the clauses with some success. The
present clause 41 (rightly it is suggested) abandons the attempt to cut off claims and instead
seeks to set the issues on a sound procedural footing. It is recognised that both Principal
and Contractor might wish to make a claim on the other arising out of the way the works are
being executed and therefore the clause requires the party wishing to make a claim to give
the other party a prescribed notice or a notice of dispute under the dispute resolution clause
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(clause 42). Clause 41 does not apply to claims the communication of which might be
required under any other provision of the contract. The clause then provides that although a
failure to give a notice on time might be a breach of contract entitling the aggrieved party to
damages the failure does not bar or invalidate a claim. Care should be taken here however
because this clause does not relate to the time limit applying to disputing a final certificate.
Clearly a final certificate must be disputed within 6 days of issue otherwise any claim will be
barred.

There follows machinery provisions requiring the Superintendent to assess the claim and for
an aggrieved party to pursue the matter further under the disputes resolution clause.

Dispute Resolution, clause 42

Clause 42 represents a substantial departure from the policy followed in clause 47 of

AS2124 (1992 edition). The drafting has been simplified and the option contained in clause
47 to refer a dispute in the first instance to the Superintendent for his or her determination
has been dropped. No doubt such a provision was included in AS2124 (1992 and 1986
editions) at the behest of public authorities who seem to need advance warning of impending
disputes. The clause identifies the type of disputes that are arbitrable in an exhaustive
manner. Every conceivable matter of dispute is listed: a dispute or difference in connection
with the subject matter of the contract; a dispute concerning the Superintendent's direction;
claims in tort, under statute or restitution, claims for rectification or frustration; or like matter
matters available under the law governing the contract. The clause envisages the possibility
that the contracting parties will not be nationals of the same country and that the law
governing the contract will be other than Australian. Even so, it will be possible to take the
dispute to international arbitration.

Clause 42.2 requires the parties to attend a conference within 14 days of service of the
notice of dispute for the purpose of resolving the dispute or to reach agreement on a method
of doing so. The conference must be attended by representatives of the parties who have
the authority to agree on a resolution or the methods to be adopted to resolve the dispute.
This clause is intended to make available to the current techniques of Alternative Dispute
Resolution (ADR). The attempt is to be applauded as is the time limit placed on attempts to
reach a settlement in this way. If the dispute is not resolved within 28 days of the issue of the
notice of dispute it is referred to arbitration. Without time limits ADR can be used to frustrate
a party who has a legitimate claim.

The identity of the body to nominate the arbitrator and the rules to apply to the arbitration are
matters that must be stated in annexure item 31. Some care is needed here with the default
provision. The rules of the Institute of Arbitrators Australia are called up for domestic
arbitrations and the UNCITRAL rules for international arbitrations. These provisions are
sensible. The default position with regard to the nomination of the arbitrator and the
appointing authority under to UNCITRAL rules requires some consideration. The gift here is
vested in the National Disputes Centre. The National Disputes Centre was set up under the
auspices of the Law Council of Australia. The point is made that legal qualifications will not
always be the appropriate qualifications in an arbitrator.

(With thanks to John Twyford, University of Technology, Sydney)

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