Considerations for AS 4300 contracts
The AS 4300 is a standard form contract for design and construct commonly used on commercial construction projects. This type of contract is often used for large domestic buildings, commercial buildings and infrastructure. In 2014, a Melbourne University study revealed that the AS 4300 was used for 23% of construction projects that made use of standard form contracts. You can purchase a licence to use the AS 4300 from Standards Australia.
If you have received an AS 4300 contract or you are simply wondering what it is, this article should help breakdown the key provisions.
What kind of projects are covered by the AS 4300?
- Design and construct: Where the principal generally provides only the project requirements.
- Design development and construct: Where the principal provides the project requirements and a preliminary design to the extent desired by the principal.
- Design, novate and construct: Where the principal provides the project requirements, a preliminary design and requires the contractor to accept the novation of particular subcontractors/consultants (often the original design consultants). This method enables the principal to ensure the final design is completed by the original designers and means that the contractor assumes the rights and obligations of the principal towards the designers.
Basics of the AS 4300 and what to consider
Lump-sum price: AS 4300 contracts allow only for lump-sum prices to be paid to the contractor within a fixed timeframe.
Fixed timeframe: The contractor must reach practical completion of the project by an agreed date between the parties. If this does not occur, liquidated damages may be available to the principal. As with any construction project, the fixed timeframe is a key provision. For the principal, it tells you when to expect practical completion. For the contractor, it sets clear deadlines with the potential for liquidated damages.
Practical completion: Practical completion refers to the stage in a project where the building can be used and occupied although minor works still need to be completed.
Design provisions: The principal is obliged to provide the ‘Principal’s Project Requirement’ (i.e. the design brief) and the ‘Preliminary Design’ depending on the type of project described above. This provision should cover all of the principal’s specific requirements as this evidences and legally binds the contractor to perform according to those specifications. The principal must also provide the purpose of the project which is relevant to the contractor’s warranties (below). The more vague and unclear this section, the less likely the principal will be able to claim it was not adhered to or the warranties have been breached.
Warranties: The AS 4300 details specific warranties. The contractor should ensure they are capable of meeting these warranties before signing the contract. For example, the AS 4300 includes warranties that the contractor is suitably qualified and experienced, will exercise due skill, care and diligence, will execute and complete the work according to the design obligations and will examine the design to ensure it is fit for purpose.
Variations: This outlines a process for dealing with variations. The variations clause in the AS 4300 does not require the cost of variations to be agreed on before the work commences or within any particular timeframe. This can lead to disputes and should be considered when negotiating the contract.
Latent conditions: If the contractor encounters a latent condition, they can claim an extension of time and additional costs (provided they follow the notice procedure to make such a claim). A latent condition is a physical condition on or near the construction site which could have been reasonably anticipated by a competent contractor when the contract was tendered after reasonable inquiry and investigation (e.g. contaminated soil, asbestos). The principal may find this clause is too broad and seek to restrict the kinds of conditions giving rise to EOTs and additional costs. Both parties should consider their rights, obligations and liabilities under this provision carefully.
Extension of time (EOT): The EOT clause in the AS 4300 enables contractors to claim an EOT for any reason/event listed in clause 35.5. The clauses allocating the risk of time due to industrial conditions and inclement weather can be deleted by agreement between the parties. This EOT clause is considered quite generous to contractors. Principals may find it too broad and seek to limit its application.
Provisional sums: Where a fixed sum for part of the project is unattainable, the parties can agree to a provisional sum which is a reasonable estimate for the supply of products and cost of work for that part of the project. The AS 4300 has a specific clause on how provisional sums are adjusted once the final cost is known.
Separable portions: The AS 4300 allows for the project to be divided into separable portions with separate timelines and conditions.
Liquidated damages: The liquidated damages clause renders the contractor liable to pay fixed, pre-determined compensation to the contractor for a breach of the contract (often failing to meet the timeframe). For contractors, the liquidated damages clause in any construction contract is worth careful consideration. It is important to understand your liability under this clause and the notification process that needs to be taken to seek EOTs and when they are available (e.g. latent conditions).
I disagree with clauses in the AS 4300, what can I do?
Of course, provisions of the AS 4300 can be amended. This may be necessary to address relevant legislation. However, it can also be changed purely to reflect the agreement between the parties on particular provisions (e.g. EOTs, liquidated damages).
The standard form AS 4300 contract is widely used for construct and design projects. However, it is common to amend the provisions to meet current legislative requirements and the agreement of the parties. Hopefully, this summary has been a useful aid to understanding key provisions of an AS 4300 contract and what to look for. Before signing a construction contract, a lawyer can advise you on your rights and obligations under the contract and assist in negotiations so that the terms protect your interests and meet your needs.
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