Whether you need help drafting a Construction Contracts for your project, reviewing a Construction Contract to understand how risky it may be for your business, negotiating the terms of a Construction Contract, or general advice about the Construction Industry (and related Industries) or Construction Law, we've got you covered.
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Blaze Business & Legal are experts in reviewing, drafting and advising on all types of Construction Contracts, including:
Rachelle Hare has specialised in front-end Construction Law and Construction Contracts for over 23+ years, in Top Tier Law Firms, In-House (including Acting General Counsel in Thiess and DHA, and Senior Legal Counsel in Laing O'Rourke, AirServices, Goldings, Acciona and UGL), and in Government (at AGS and advising dozens of government clients).
She has practiced in Brisbane (including the Sunshine Coast and the Gold Coast), Sydney and Canberra, and has returned to Brisbane to put down roots and build her specialist Construction Law practice so it works for businesses all around Australia.
M. S.
Owner - Mid-Sized Earthworks Company
Rachelle Hare is an expert on construction contracts. She can tell you what is wrong with your templates at a glance, and she helped my business streamline its contracting process so it works more efficiently. I no longer dread entering into new contracts now I have Blaze Business & Legal's help to review my contracts and tell me the risks and what they mean for my business.
It's almost impossible to have a successful construction project without a signed construction contract. In the world of construction, nothing is left to chance. Every brick laid, every beam installed, and every dollar spent needs to be accounted for in a construction contract, whether via Bill of Quantities, Specification, Statement of Requirements or Scope of Work. Construction contracts are not just legal documents - they are the blueprint for the entire project. They define what needs to be done, how it should be done, and how much it will cost the Principal.
In my experience. the best construction contracts are those that are clear, comprehensive, and fair to all parties. They leave no room for ambiguity and provide a solid foundation for a successful project.
Here are 11 tips to ensure that your construction contract works effectively for your construction project in Australia.
Rachelle's Key Tip.
Make sure you don't sign any contract until you understand your obligations and potential liabilities under the contract. If you don't know what you're getting your business in for, things are likely to go pear-shaped!
I've been a Construction Contract specialist in Australia for over 23 years now. I can help you with a Contract Review within your budget, so you can make sure your business is protected.
The construction industry is a major contributor to Australia's economy. It employs hundreds of thousands of people and is responsible for building the infrastructure that we rely on every day. But it's also an industry that's fraught with risk. Delays, cost overruns, and disputes are all too common.
The key to navigating these risks is to understand the legal and contractual landscape of the construction industry. This includes understanding the different types of construction contracts, the key elements and clauses in a contract, and the laws and regulations that govern construction contracting in Australia.
Each construction contract reflects a different project delivery method.
For example, here are some different types of construction contracts:
It is essential that you have a good understanding of the relevant project delivery methods and construction contracts before you use them.
In my experience, it's important to consult with someone who understands the different types of Project Delivery Methods and knows how they work best in particular Construction Projects.
Different Construction Contracts are used for different Project Delivery Methods, and it's critical to know how each works, the payment methods of each, how they deal with risk and liability, and their other features.
Over the last 23+ years, I have advised on thousands of Project Delivery Methods and Construction Contracts, including developing some new types of Construction Contracts - or new provisions - to cater for unusual aspects of the chosen Project Delivery Method. That's why it's so important to get advice from a skilled Construction Lawyer rather than guessing - you might be missing opportunities or falling into traps you're not aware of otherwise.
Lump sum contracts work best for projects with a well-defined scope and little likelihood of significant changes. They provide certainty for the owner in terms of cost, but require a high level of detail in the contract documents to avoid disputes over scope.
Lump Sum, Cost Plus, and Guaranteed Maximum Price (GMP) contracts are common contract types used in the Construction Industry and related Industries in Australia. Each has its own unique features and applications:
One of the most common types of construction contracts in Australia is the lump sum contract. Under this type of contract, the contractor agrees to complete a defined scope of work for a fixed price. The contractor assumes the risk of cost overruns, but also stands to benefit if the work can be completed for less than the agreed price.
Lump sum contracts can be risky, as the Contractor is often forced to bear the burden of any unforeseen costs. However, with careful planning and accurate costing, they can also be profitable.
Another common type of construction contract in Australia is the cost plus contract. Under this type of contract, the owner agrees to pay the contractor for the actual costs of the work, plus a fee for overhead and profit. The fee can be a fixed amount, a percentage of the cost, or acombination of both.
These types of construction contracts - cost plus contracts - are often used for complex projects where the scope of work is uncertain or likely to change. They provide flexibility for the owner and reduce the risk for the contractor, but they also require a high level of trust and transparency between the parties.
Cost plus contracts can be less risky than lump sum contracts, as they are reimbursed for actual costs. However, they also require meticulous record-keeping and can be subject to scrutiny from the owner.
Guaranteed maximum price (GMP) contracts are a variation of cost plus contracts. Under a GMP contract, the contractor is reimbursed for actual costs up to a guaranteed maximum price. Any costs above the GMP are borne by the contractor, but any savings below the GMP are typically shared between the owner and the contractor.
GMP contracts can be a good compromise between lump sum and cost plus contracts. They provide a cap on the cost for the owner, while allowing for flexibility in the scope of work. However, they also require a high level of trust and transparency, as well as careful management of costs by the contractor.
GMP contracts can provide an opportunity for profit if the work is managed efficiently. However, they also carry the risk of cost overruns above the GMP.
Each contract type has its own advantages and disadvantages, and the choice between them should be based on the specific needs and risk profile of the project. It's recommended to consult with a specialist Construction Lawyer to make sure that the chosen contract type is appropriate for your particular situation.
| Contract Type | Lump Sum | Cost Plus | Guaranteed Maximum Price (GMP) |
|---|---|---|---|
| Definition | A fixed total price for all work. | Costs are reimbursed plus an agreed fee. | A cost-plus contract with a capped price. |
| Risk Profile | Contractor bears most of the risk. | Client bears most of the risk. | Shared risk; client's risk is capped. |
| Price Certainty | High - price is agreed upon upfront. | Low - final cost can vary. | Moderate - cost can't exceed a set maximum. |
| Flexibility | Low - changes can be costly. | High - allows for changes during the project. | Moderate - flexibility with a price ceiling. |
| Complexity | Moderate - requires detailed scope. | Low - suitable for uncertain projects. | High - requires cost control mechanisms. |
| Usage | Suitable for well-defined projects. | Suitable for projects with uncertain scope. | Suitable for projects with some uncertainty but budget constraints. |
| Payment Terms | Progress payments or upon completion. | Regular payments for costs plus fee. | Regular payments up to the maximum price. |
| Transparency | Low - fixed price may hide actual costs. | High - all costs are visible to the client. | Moderate - transparency with a price cap. |
| Suitability | Commercial construction, well-defined scope. | Renovations, custom builds, uncertain scope. | Large-scale projects with budget constraints. |
Standard form contracts are pre-drafted contracts that are widely used within the construction industry. They are designed to be used in a variety of projects with little or no modification.
Using standard form contracts can expedite the contract negotiation process, reduce legal costs, and ensure that industry standards are adhered to. But they are usually amended heavily - particularly in Australia where the Australian Standard Form Contracts are decades old!
Standard form contracts provide a familiar framework, making it easier to understand obligations and expectations. Usually, however, even when the base General Conditions of Contract are drafted in favour of the Contractor, they are heavily amended by the Principal before the contracts are put out to tender.
BUT - in practice, none of these "benefits" hold true as there is still as much review, negotiation and amendment required as there is for bespoke construction contracts. The main reason that I believe still holds true for the Standard Form Contracts is Industry understanding and acceptance. These days, even the amendments that are commonly made to the main Standard Form Contracts - AS 2124 and AS 4000 - have become largely standardised and understood in Australia.
Here are some of the more common actions that you need to take when using a Standard Form Contract for your construction project:
Ensure the standard form contract is tailored to suit the unique requirements of your project, rather than being a one-size-fits-all solution.
Make certain the contract adheres to Australian laws and regulations, including consumer protection and competition laws.
Ensure all terms and conditions are clearly defined and understood by both parties to avoid any ambiguity.
Evaluate how risks are allocated between parties and whether this is appropriate for your specific project.
Include a clear mechanism for resolving disputes, preferably through mediation or arbitration, to avoid costly legal battles.
Understand the conditions under which the contract can be terminated and what penalties may apply.
Clearly outline payment schedules, milestones, and methods to avoid financial disputes.
Specify who owns the intellectual property created during the project, especially important in tech and creative industries. And who owns "Background IP" brought into the project.
Include clauses that protect sensitive information and specify the duration and scope of confidentiality.
Set caps on liabilities to protect your business from excessive claims.
Include a clause to address unforeseen circumstances like natural disasters, ensuring a fair exit strategy for both parties.
If subcontracting is likely, specify the conditions under which this can occur and the responsibilities of the contractor in relation to subcontracted work.
Clearly define the scope of warranties and indemnities to align with the risk profile of the project.
Always have the contract reviewed by legal professionals experienced in Australian contract law to identify any potential issues. Rachelle Hare has 23+ years of experience and expertise in reviewing and advising on construction contracts.
Leave room for additional clauses that may become necessary as the project evolves, ensuring the contract remains relevant and adaptive.
By taking these actions, you'll be better positioned to use Standard Form Contracts effectively for your construction projects.
Australian Standards Contracts are a subset of standard form contracts that are specifically tailored to the Australian construction industry.
They are developed by Standards Australia (SAI Global) and are often used in construction projects, even though they are ageing substantially.
In my experience. Australian Standards Contracts are well-known in the Construction Industry in Australia, and they are often used by both Principals and Contractors.
Substantial amendments are usually made to the General Conditions of Contract before these contracts are executed - these amendments change the risk allocation in the contract, add clauses that are required for most construction projects given the age of the standard form contracts and the many court cases that have passed down case law affecting the interpretation of their provisions, and ensure compliance with current legislation.
From the Contractor's perspective.
While these Australian Standards Contracts are often said to be fair and reasonable, by the time they are amended by special conditions, they usually significantly favour the Principal.
Every construction contract involves at least two parties: the owner who commissions the project, and the contractor who carries out the work. In some cases, there may be additional parties such as subcontractors, architects, and engineers.
In my experience. clearly identifying all parties involved in a contract is crucial. It helps avoid confusion and ensures that everyone knows their roles and responsibilities.
Don't forget that ancillary contracts may also hold a piece of the puzzle. For example, the Services Agreement that engages a Superintendent for a Project will govern how the Superintendent acts towards the parties.
Other obligations of the Superintendent will also be set out in the Construction Contract itself.
The Time Cost, and Quality Triangle is a pivotal challenge in project management of construction contracts. These three factors are interconnected, so altering one affects the others. For instance, expediting the timeline may increase expenses or compromise quality, while reducing costs could extend the Date for Completion of the project. Achieving equilibrium among these elements is crucial for successful construction project delivery, demanding astute project management to optimise outcomes.
Variations are inevitable in construction projects. A variations clause sets out how changes to the scope of work will be managed and priced.
In my experience. a clear variations clause is essential to prevent disputes and ensure that changes are managed efficiently.
From the Contractor's perspective. understanding the variations clause is crucial for managing changes to the scope and ensuring they are properly compensated for any additional work.
Keep in mind that Variations / amendments to the terms of the Contract are different in Construction Law to variations to the scope of the works. If you are varying the Contract terms, you need to sign a Deed of Variation or Deed of Amendment with the other party to the Contract. But if you are varying the scope of the works, you are able to do so in accordance with the variations clause, and this can be effected by written instruction of the Principal or Superintendent (and doesn't require both parties to sign).
This clause specifies a pre-agreed amount of money that must be paid as compensation for failure to complete the project by the agreed date.
In my experience. setting a reasonable rate for liquidated damages is key. It should reflect a genuine pre-estimate of the loss likely to be suffered.
From the Contractor's perspective. it’s important to be aware of the implications of this clause as it can have a significant financial impact if the project is delayed.
Performance guarantees and bonds are instruments that ensure the contractor fulfills their obligations under the contract. They are used in many of the different types of construction contracts.
In my experience. performance guarantees and bonds are essential tools for providing the owner with assurance that the project will be completed according to the contract terms.
From the Contractor's perspective. providing performance guarantees and bonds is often a requirement for securing contracts, especially for large or high-risk projects.
Types of Performance Guarantees and Bonds include:
Implications of Performance Guarantees and Bonds:
A retention clause allows the owner to withhold a percentage of the payment until the completion of the project to ensure that all work is done to standard. Some countries refer to this as "retainage."
In my experience. retention clauses can be useful for ensuring quality, but they must be fair and reflect the value of the work still to be completed.
From the Contractor's perspective. cash flow can be significantly affected by retention, so it’s important to factor this into financial planning.
Subcontracting involves engaging third-party specialists to perform specific portions of the construction work. And the subcontracting clause deals with the conditions under which the contractor can engage subcontractors.
In my experience. it’s important for this clause to be clear on the responsibilities of the contractor regarding the acts and omissions of their subcontractors.
From the Contractor's perspective. managing subcontractors effectively is crucial for ensuring that the project stays on schedule and within budget. Understanding the subcontracting clause is vital for managing relationships with third parties and ensuring compliance with the main contract.
Key considerations when subcontracting include:
This clause sets out the contractor’s obligation to repair or replace defects that arise after the completion of the project.
In my experience. warranty clauses should be reasonable and reflect the nature of the work performed.
From the Contractor's perspective. it’s important to be aware of the extent of the obligations under this clause, as it can have implications for liability long after the project is completed.
This clause deals with the ownership of intellectual property created during the project, such as plans and designs.
In my experience. clarifying ownership of intellectual property upfront can prevent disputes down the line.
From the Contractor's perspective. understanding who owns the intellectual property can have implications for how plans and designs can be used in future projects.
There are various different types of Intellectual Property, including:
1. Background Intellectual Property - The IP that one party brings into the contract (ie they created it previously).
2. Contract Material - The deliverables created by the Contractor during performance of the Project. Ownership of Contract Material often vests in the Principal, with the Contractor licensed to use the IP to the extent necessary to perform their work.
3. Third Party Intellectual Property - The documents etc brought into the contract by either party. Ownership is usually retained by the third party, and a licence to use the Third Party Intellectual Property is granted to the other party (usually with an indemnity for breach of that Third Party's Intellectual Property rights should this occur).
This clause sets out the information that must be kept confidential and the conditions under which it can be disclosed.
In my experience. confidentiality clauses are important for protecting sensitive information, but should not be so broad as to be unenforceable.
From the Contractor's perspective. it’s important to understand what information is considered confidential and ensure that employees and subcontractors are aware of these obligations.
Environmental and sustainability considerations are increasinglyimportant in construction projects. This involves ensuring that construction practices are environmentally sustainable and comply with relevant regulations.
In my experience. incorporating environmental and sustainability considerations is not only ethically responsible but can also lead to cost savings and a positive public image.
From the Contractor's perspective. adopting sustainable practices can be a selling point, demonstrating commitment to environmental responsibility and potentially attracting clients who value sustainability.
Key Environmental and Sustainability considerations include:
Benefits of Sustainable Construction include:
Force majeure clauses are a common feature of construction contracts. They provide for the suspension or termination of the contract in the event of unforeseen circumstances beyond the control of the parties, such as natural disasters, war, or industrial action.
In my experience. force majeure clauses can be a lifeline in times of crisis. However, they need to be carefully drafted to ensure that they cover the right events and provide the right remedies.
From the Contractor's perspective. a force majeure clause can provide relief from liability for delays or non-performance caused by events beyond their control. However, they also need to be aware of their obligations to mitigate the effects of a force majeure event.
Termination clauses set out the circumstances in which the contract can be ended, either by completion of the work, by agreement of the parties, or by default of one of the parties.
In my experience. termination clauses need to be clear and unequivocal. They should set out the rights and obligations of the parties on termination, including notice requirements, payment for work done, and liability for damages.
From the Contractor's perspective. understanding the termination clause is crucial. It outlines the conditions under which they could lose the contract, and what they are entitled to if the contract is terminated.
Disputes are a fact of life in the construction industry, and construction contracts usually include a clause setting out how disputes will be resolved. This could be through negotiation, mediation, arbitration, or litigation.
In my experience. a well-drafted dispute resolution clause can save time, money, and relationships. It provides a clear process for resolving disputes and can help to keep disputes out of court.
From the Contractor's perspective. a dispute resolution clause provides a roadmap for dealing with disagreements. It allows them to plan their strategy and manage their risks in the event of a dispute.
Good project management is essential for successful construction projects - so is having strategies for effective project management.
Delays can have a significant impact on the cost and success of construction projects.
Quantity surveyors play a vital role in construction projects, especially in cost management.
Universal design ensures accessibility and usability for all individuals.
Weather conditions can significantly affect construction timelines and safety. It's important to plan for and mitigate weather-related challenges.
Insurance is crucial for managing risks in construction, and it's essential to understand the options available to you.
Unless you carry out soil testing, you won't know the basic ground conditions upon which you are carrying out your construction work.
The construction industry is constantly evolving with new techniques and trends, and it's important you stay updated with the latest innovations.
Building Information Modeling (BIM) is transforming the way construction projects are planned and executed, so you need to understand how BIM enhances collaboration and efficiency.
Effective stakeholder management is key to the success of your construction project. Full stop!
Risk allocation in construction contracts involves assigning responsibility for potential risks and unforeseen events to the parties best equipped to manage them.
In my experience. proper risk allocation is essential for avoiding disputes and ensuring that the project is completed successfully.
From the Contractor's perspective. understanding which risks they are taking on is crucial for pricing and project management.
It is often suggested that risk under a contract should be allocated to the party best able to bear the risk. Noble sentiments, but I've found that risk is more often allocated by the party drafting the contract on a "take it or leave it" basis.
Insurance is a critical component of construction contracts, providing protection against unforeseen events and liabilities.
In my experience. ensuring that adequate insurance is in place is essential for protecting the interests of all parties involved.
From the Contractor's perspective. insurance is a safety net that can protect against potentially catastrophic losses.
Disputes in construction are often complex and can be costly. Having an effective dispute resolution mechanism is essential.
Mediation involves a neutral third party who helps the disputing parties reach a mutually satisfactory resolution.
In my experience. mediation can be a cost-effective way of resolving disputes without the need for litigation. It’s less formal and can help maintain business relationships.
From the Contractor's perspective. mediation allows for more control over the outcome and can often lead to faster resolution than goingthrough the courts.
Expert determination involves a neutral expert in the relevant field making a decision on a specific issue, often technical or specialised in nature.
In my experience. expert determination can be highly effective for resolving complex disputes that require specialised knowledge. However, it's crucial to ensure that the expert is truly impartial and highly qualified in the specific area of dispute.
From the Contractor's perspective. expert determination offers a way to resolve intricate issues without getting bogged down in legal complexities. However, contractors should be aware that the expert's decision is generally binding and may not be subject to appeal. Therefore, it's vital to weigh the risks and benefits carefully.
Arbitration is a more formal process where a neutral third party makes a binding decision based on the evidence presented by the disputing parties.
In my experience. arbitration can be faster and more private than litigation, but it can also be costly. It’s important to consider whether the potential benefits outweigh the costs.
From the Contractor's perspective. arbitration can provide a definitive resolution to a dispute, but it’s important to be prepared for the possibility that the decision may not be in their favor.
When all else fails, litigation is the process of taking a dispute to court. It's a formal and public process that can result in a legally binding decision.
In my experience. litigation should be a last resort. It's often time-consuming, expensive, and can strain business relationships. However, in some cases, it may be the only way to resolve a serious dispute.
From the Contractor's perspective. litigation can be a daunting prospect. It's important to have good legal representation and to understand the potential implications, both financial and reputational.
The Building and Construction Industry Security of Payment Act is a key piece of legislation in the Australian construction industry. It provides a mechanism for ensuring prompt payment of construction contracts and provides a fast and efficient dispute resolution process.
In my experience. the Security of Payment Act is a powerful tool for contractors. It can help to ensure cash flow and resolve payment disputes quickly and efficiently.
From the Contractor's perspective. understanding the Security of Payment Act is essential. It provides them with a means of enforcing their right to payment and can help to protect them from insolvency.
Key Provisions of Security of Payment Legislation include:
Australian Consumer Law applies to all businesses in Australia, including those in the construction industry. It provides protections for consumers and imposes obligations on businesses, including warranties for goods and services, protections against unfair contract terms, and rules about advertising and marketing.
In my experience. Australian Consumer Law can have significant implications for construction contracts. It can affect the terms of the contract, the way the services are advertised and sold, and the remedies available to the owner.
From the Contractor's perspective. compliance with Australian Consumer Law is not just a legal obligation, but also a good business practice. It can help to build trust with clients and avoid costly disputes and penalties.
Work Health and Safety laws set out the obligations of businesses to ensure the health and safety of their workers. In the construction industry, these laws cover a wide range of issues, from the safe use of equipment to the management of hazardous substances.
In my experience. Work Health and Safety laws are a critical part of any construction project. They help to prevent accidents, protect workers, and create a positive safety culture.
From the Contractor's perspective. understanding and complying with Work Health and Safety laws is essential. It can help to protect their workforce, avoid legal liability, and enhance their reputation in the industry.
In my view, you need a specialised Construction Lawyer to help you with your Construction Contracts and Construction Projects. Check out our article here about finding the right Construction Lawyer Brisbane and give Rachelle a call if you need assistance.
Construction contracts are a key component of the construction industry in Australia. They set the terms and conditions for the work to be done, define the rights and responsibilities of the parties involved, and provide mechanisms for managing risk and resolving disputes.
In my experience. a well-drafted construction contract can be the difference between a successful project and a costly dispute. It's important to understand the different types of contracts, the key elements and clauses, and the impact of Australian laws and regulations.
From the Contractor's perspective. understanding the contract is crucial. It's not just about the price and the scope of work, but also about managing risk, dealing with changes, and knowing what to do when things go wrong.
A construction contract is a legally binding agreement between the owner of a project and the contractor who will carry out the work. It sets out the scope of work, the price, and the terms and conditions for the work.
There are several types of construction contracts used in Australia, including lump sum contracts, cost plus contracts, guaranteed maximum price contracts, and design and construct contracts.
The key elements of a construction contract include the parties involved, the scope of work, the contract price, and the timeframe and schedule. The contract will also include various clauses dealing with issues such as variations, liquidated damages, retention, subcontracting, warranties, intellectual property, and confidentiality.
Australian laws and regulations set the rules for construction contracts. They cover issues such as security of payment, consumer protection, work health and safety, and dispute resolution.
Dispute resolution in construction contracts is typically handled through negotiation, mediation, arbitration, or litigation. The contract will usually include a dispute resolution clause setting out the agreed process for resolving disputes.
The Building and Construction Industry Security of Payment Act provides a mechanism for ensuring prompt payment of construction contracts and provides a fast and efficient dispute resolution process.
Australian Consumer Law provides protections for consumers and imposes obligations on businesses, including warranties for goods and services, protections against unfair contract terms, and rules about advertising and marketing.
Work Health and Safety laws set out the obligations of businesses to ensure the health and safety of their workers. In the construction industry, these laws cover a wide range of issues, from the safe use of equipment to the management of hazardous substances. You should make sure you always comply with these obligations, whether or not they are specified in your construction contract.
