What is a Contract in Australia: A Guide for the Novice

Executive Summary

This comprehensive guide aims to demystify the concept of contracts in Australia, providing novices with a clear understanding of their key elements, types, and legal implications. By the end of this article, readers will feel empowered to engage confidently in any agreement, ensuring their rights and interests are protected.

What the reader can expect from this article

Readers can expect a thorough exploration of what constitutes a contract in Australia, including definitions, types, essential elements, and the roles of offer and acceptance. The guide also covers considerations, capacity to contract, standard contractual terms, breach of contract, and dispute resolution options.

Introduction

Navigating the labyrinth of legal language can be daunting for anyone, especially for those venturing into the world of contracts for the first time. In Australia, understanding the terms of a contract is essential for protecting your rights and interests, whether you're entering into a business arrangement, signing a lease, or making a simple purchase. This comprehensive guide will demystify the concept of contracts, breaking down their key elements, types, and legal implications in clear, relatable terms. By the end, you'll not only grasp what a contract is but also feel empowered to engage confidently in any agreement. Let’s embark on this journey to equip you with the knowledge needed to make informed decisions and ensure your agreements are legally sound!

Understanding Contracts: Definition and Importance

Contracts are the backbone of any formal agreement, laying the foundation for both personal and business relationships. At its core, a contract is a legally binding agreement between two or more parties outlining their rights and obligations. In Australia, contracts play a pivotal role in various contexts—from everyday transactions to complex business deals. They ensure that all parties understand their commitments and provide a legal framework for resolving disputes if they arise.

The importance of a contract cannot be overstated. Without an explicit agreement, parties may encounter misunderstandings and disagreements, which can lead to potential conflicts. Contracts serve as a reference point, detailing each party's responsibilities and expectations, thus minimizing the risk of disputes. Additionally, a well-drafted contract can provide security and stability, giving parties the confidence to invest time, money, and resources into their ventures.

Moreover, contracts are essential for legal protection. In Australia, the law recognises and enforces contracts, provided they meet specific criteria. This legal recognition ensures that parties have recourse if the agreement is breached. By understanding the fundamental principles of contracts, individuals and businesses can safeguard their interests and navigate the legal landscape with greater assurance.

Types of Contracts in Australia

There are various types of contracts in Australia, each serving different purposes and tailored to specific situations. One of the most common types is the express contract, where the terms are explicitly stated, either orally or in writing. This type of contract leaves little room for ambiguity, as all parties are clear on their obligations from the outset.

Another prevalent type is the implied contract, which is not written or spoken but inferred from the actions, conduct, or circumstances of the parties involved. For instance, when you visit a restaurant, an implied contract exists that you will pay for the meal you consume, even if no words are exchanged about payment.

Unilateral contracts and bilateral contracts also play significant roles. In a unilateral contract, one party makes a promise in exchange for the performance of an act by the other party. An example would be a reward offer for finding a lost pet. In contrast, a bilateral contract involves mutual promises between parties, such as a service agreement where one party agrees to provide a service, and the other agrees to pay for it. Understanding these types can help individuals identify the nature of their agreements and the obligations they entail.

Essential Elements of a Valid Contract

For a contract to be legally binding in Australia, it must contain several essential elements. The first element is offer and acceptance. One party must make a clear offer, and the other party must accept it unequivocally. This mutual consent is crucial for forming a binding agreement.

Another critical element is consideration, which refers to the exchange of something of value between the parties. Consideration can be money, goods, services, or even a promise to refrain from a specific action. Without consideration, a contract lacks the necessary element of mutuality of obligation and may be deemed unenforceable.

Additionally, the parties involved must have the capacity to contract, meaning they must have the legal ability to enter into a binding agreement. This typically excludes minors, individuals with mental impairments, and those under the influence of substances. Furthermore, the contract's purpose must be lawful and not contrary to public policy. A contract involving illegal activities or contrary to societal norms is void and unenforceable. Ensuring these elements are present helps parties create valid, enforceable agreements that protect their interests.

The Role of Offer and Acceptance

Offer and acceptance form the cornerstone of any contract, establishing a mutual agreement between parties. An offer is a proposal by one party to enter into a contractual relationship, outlining specific terms and conditions. The offer must be communicated clearly to the other party, who then has the option to accept, reject, or counter the offer. A valid offer should be definite and indicate a willingness to be bound by its terms upon acceptance.

Acceptance is the unequivocal agreement to the terms of the offer. It must be communicated to the offeror, either verbally, in writing, or through conduct that clearly indicates assent. Acceptance must mirror the terms of the offer without modifications; otherwise, it may be considered a counteroffer rather than an acceptance. The moment acceptance is communicated, a contract is formed, provided all other essential elements are present.

The timing and method of acceptance can also be crucial. In some cases, the offeror may specify how and when acceptance should occur. Failure to adhere to these stipulations can result in an invalid agreement. Understanding the dynamics of offer and acceptance helps parties ensure their agreements are clear, definite, and legally binding.

Consideration: What You Need to Know

Consideration is a fundamental component of a contract, representing the value exchanged between the parties. It distinguishes a contract from a mere promise. Consideration can take various forms, such as money, goods, services, or a commitment to perform (or refrain from performing) a particular action. The presence of consideration indicates that both parties are contributing something of value to the agreement, creating a reciprocal relationship.

In Australia, consideration must be sufficient but not necessarily adequate. This means that the value exchanged does not have to be equal or fair, as long as it is legally recognised. For instance, agreeing to sell a car for a nominal amount is still valid consideration, even if the car's market value is significantly higher. The focus is on the existence of consideration rather than its adequacy.

However, past consideration, or something given or done before the contract was formed, is generally not valid. The consideration must be contemporaneous with the agreement. Additionally, consideration must be lawful and not involve illegal activities. Understanding these nuances helps parties ensure their contracts are enforceable and reflect the mutual exchange of value.

Capacity to Contract: Who Can Enter a Contract?

Not everyone has the legal ability to enter into a contract. The concept of capacity to contract ensures that parties have the mental and legal competence to understand and commit to the agreement. In Australia, several groups are typically excluded from having full contractual capacity.

Minors, or individuals under the age of 18, generally lack the capacity to contract. However, there are exceptions for contracts that are beneficial or necessary, such as employment agreements or contracts for essential items like food and clothing. Even so, contracts with minors can be voidable at the minor's discretion, providing an additional layer of protection.

Individuals with mental impairments or those under the influence of drugs or alcohol may also lack the capacity to contract. The key consideration is whether the individual can understand the nature and consequences of the agreement. If a party is found to lack capacity, the contract may be declared void or voidable. Additionally, legal entities like corporations must act within their designated powers, as outlined in their constitutive documents, to have the capacity to contract.

Ensuring that all parties have the capacity to contract is crucial for the validity and enforceability of an agreement. Parties should be aware of these limitations to avoid entering into contracts that may later be challenged or invalidated.

Common Contractual Terms and Clauses

Contracts often contain specific terms and clauses that outline the rights and obligations of the parties involved. Understanding these contractual terms is essential for ensuring clarity and preventing disputes. One common clause is the payment term, which specifies the amount, method, and timing of payments. Clear payment terms help manage expectations and cash flow for both parties.

Another important clause is the termination clause, detailing the conditions under which the contract can be terminated. This may include notice periods, grounds for termination, and any associated penalties. Having a well-defined termination clause provides a clear exit strategy if the agreement is no longer viable or if one party fails to meet their obligations.

Confidentiality clauses are also prevalent, especially in business contracts. These clauses protect sensitive information from being disclosed to third parties. They are crucial for safeguarding trade secrets, proprietary information, and other confidential data. Additionally, dispute resolution clauses outline the methods for resolving conflicts, such as mediation, arbitration, or litigation. Including these clauses helps parties address disputes efficiently and reduces the risk of prolonged legal battles.

Breach of Contract: What Happens Next?

A breach of contract occurs when one party fails to fulfil their obligations as outlined in the agreement. Breaches can be material or minor. A material breach is a significant failure that undermines the contract's purpose, while a minor breach involves a slight deviation from the terms but does not necessarily nullify the contract. Understanding the nature of the breach is crucial for determining the appropriate response.

When a breach occurs, the non-breaching party has several options. They may choose to terminate the contract and seek damages for any losses incurred. Damages can include compensatory damages, which cover direct losses, and consequential damages, which cover indirect losses resulting from the breach. In some cases, the non-breaching party may seek specific performance, where the court orders the breaching party to fulfil their contractual obligations.

Alternatively, parties may opt for mediation or arbitration to resolve the dispute. These methods can be quicker and less costly than litigation. Mediation involves a neutral third party facilitating negotiations, while arbitration involves a neutral third party making a binding decision. Understanding the options for addressing a breach of contract helps parties navigate disputes effectively and seek appropriate remedies.

Dispute Resolution Options for Contract Issues

Disputes are an inevitable part of contractual relationships, but there are several dispute resolution options available to address them. One common method is negotiation, where parties communicate directly to resolve their differences. Negotiation is often the first step in dispute resolution, as it allows parties to address issues informally and reach a mutually acceptable solution.

If negotiation fails, parties may turn to mediation, a process where a neutral third party helps facilitate discussions and guide parties toward a resolution. Mediation is voluntary and non-binding, meaning parties are not obligated to accept the mediator's recommendations. However, it can be an effective way to resolve disputes without resorting to litigation.

Arbitration is another popular option, especially for commercial disputes. In arbitration, parties present their case to an arbitrator, who then makes a binding decision. Arbitration can be quicker and more cost-effective than going to court, and it offers a degree of confidentiality not available in public litigation. Additionally, some contracts include dispute resolution clauses that specify the preferred method for resolving conflicts, providing a clear framework for addressing disputes when they arise.

Conclusion: Navigating Contracts in Australia

Understanding the intricacies of contracts is essential for anyone entering into agreements in Australia. From recognising the different types of contracts to comprehending the essential elements required for validity, this guide has provided a comprehensive overview to equip you with the knowledge needed to navigate the contractual landscape confidently.

By mastering the principles of offer and acceptance, consideration, and capacity to contract, you can ensure that your agreements are legally sound and enforceable. Additionally, familiarising yourself with common contractual terms and clauses will help you draft clear, precise contracts that minimise the risk of misunderstandings and disputes.

Finally, knowing your options for addressing breaches and resolving disputes empowers you to handle conflicts effectively. Whether through negotiation, mediation, arbitration, or litigation, having a clear strategy for dispute resolution will help you protect your interests and achieve favourable outcomes. With this knowledge, you are well-prepared to engage in any contract with confidence and clarity, ensuring your rights and interests are safeguarded in every agreement

by Garry Andrews

Clearly Ambiguous! - Contract Review Series - Contract Australia

Ambiguous or Clear?

I am sure we have all been there, during the project delivery phase, there will be a time where you will hear... "...that is not what we meant." or "...you are misinterpreting the contract" or even "...you should have allowed for that." Ok, well, let us review the contract.

What is in this week blog post?

In this four-part blog series focusing on Contract Review practices, I will take you through the high-level items I look out for when reviewing Contracts, Scope of Works, Departure and Clarification Schedules, Responsibility Matrices and more.

In part one, I am highlighting the importance of looking for 'Ambiguity' in the contract documentation. I will show you some examples of ambiguity in contracts and demonstrate the remedy. This is one of many ways one can ensure good communication, clear documentation and start to build trust with the other party.

Contract Review

Scope of Works

I am always aware of the Scope of Works document at the tender stage can have some ambiguity because the client may not be fully aware or have knowledge of the details for the package of work. It is why the client is engaging a contractor for the work, to get their expertise. However, the contractor must be aware the ambiguous narrative must be clarified throughout the tender process. For example:

The Subcontractor acknowledges that is has inspected the Site, is aware of and accepts the responsibility for all Site conditions of which it ought to be reasonably aware of and the Subcontract Works must be constructed with due care taking into account those existing Site conditions.

This Scope of Works item is perfectly fine being documented in an RFT or RFQ because it will allow the contractor to assess what information, data, evidence and visual inspection are available and the contractor can clarify. However, this item must not make it into the contract unless the contractor is in fact taking all risk on-site all conditions. If not, clarify what documents, information and data were available, if any geotechnical testing was conducted for example, and what was found on the site inspection. Further, detail out in a schedule what site conditions the contractor is willing to take a risk on. Request the following amendment for example:

The Subcontractor acknowledges that is has inspected the Site and the findings are documented within the site inspection schedule "xxx" completed on date (dd/mm/yy). The contractor is aware of and accepts the responsibility for all Site conditions as per report "yyy" of which it ought to be reasonably aware of and the Subcontract Works must be constructed with due care taking into account those existing Site conditions.

I can hear alarm bells ringing already from both sides of the fence. I am not saying the contractor should not take the risk of existing Site conditions but one must be aware of the risk(s) which allows for the valuation of said risk(s). A further amendment is to schedule out which party is responsible for each site condition if known. I have two personal experiences which come to mind, once we were lucky, the other not so much. So, let's not leave this up to luck.

Contract Clauses

In Australia, we tend to use Standard Forms of Contracts, AS4000 family of contracts and GC21 here in NSW for a range of construction, civil engineering, design and construct among others. There are others, of course, NEC3, JCT and FIDIC for our international friends. From recent statistics, 84% of AS Forms of Contracts were amended. Therefore, it is imperative we do not take these for granted, regardless of how long we have worked with them. Here is a straight forward example I found in a contract recently which I believe is ambiguous.

The Contractor may request that any Subcontract Services be tested. The Subcontractor shall provide such assistance and samples and make accessible such part of the Subcontract Services as may be required for such testing. If necessary, on completion of the tests, the Subcontractor shall make good the Subcontract Services in order that they fully comply with the Subcontract.

Let me give you some context, this clause was in a contract for a basement retention package of works, where the subcontractor's works would have been disrupted by testing. In my view, this is an ambiguous clause because it does not clearly articulate or clarify what is to be tested, when, by what standard, to what quality. Further, "make good" wording is open-ended and cannot be quantified, therefore, ambiguous. One might say the keyword here is "Request" which constitutes a direction. Therefore, the subcontractor is entitled to notify the contractor of the direction and notify of a potential variation to the contract. You would be correct, but the clause is still ambiguous.

One way to approach such a clause would be to request the testing to be quantified and clarified through an Inspection and Test Plan for example. Further, any re-work due to works outside of the scope of works must be instructed.

Departure, Clarification and Other Return Schedules

My last point of this week's blog is any correspondence which is returned to the client must be clear and not ambiguous. The same way you have reviewed the contract document is the same for the tender schedules in return.

I hope you have found this blog helpful and if you require further clarification please do not hesitate to get in contact with us at www.contractaustralia.com.au or email [email protected] or LinkedIn

N.b. Nothing in this article constitutes legal, professional or financial advice.

by Garry Andrews

Free AS4000 Contract Templates

Free Contract Templates Exclusive for Contract Australia Subscribers.

Mastering AS4000: Your Ultimate Guide to Contract Administration Templates in Australia

Welcome to the ultimate guide on contract administration templates for AS4000 in Australia! Whether you're a seasoned professional or new to the game, navigating the intricacies of contract administration can be daunting. But fret not, as we've got you covered with expert insights and invaluable resources to help you master AS4000 like a pro.

In this comprehensive guide, we delve into the nitty-gritty of contract administration templates specifically tailored for the Australian market. From understanding the key components of AS4000 to practical tips on implementation, this resource is your go-to companion for streamlining your contract processes and enhancing efficiency.

Get ready to unlock the secrets of effective contract administration with our step-by-step guidance and customisable templates that will empower you to take your projects to new heights. Whether you're a project manager, contract administrator, or legal professional, this guide is designed to elevate your contract management game and maximise success in every endeavour.

Understanding the key components of AS4000

AS4000, officially known as the AS 4000-1997 General Conditions of Contract, serves as a foundational document for construction and engineering projects in Australia. This standard contract form is designed to manage the relationships between parties involved in construction works, including contractors, subcontractors, and clients. One of the key components of AS4000 is its clear delineation of roles and responsibilities, which helps to minimise ambiguities in contractual obligations. Each party's duties are explicitly outlined, ensuring that everyone involved understands their specific contributions and expectations.

Another significant aspect of AS4000 is the incorporation of risk management provisions. The contract addresses how risks are allocated between the parties, which is crucial for determining liability and responsibility in case of unforeseen circumstances. This allocation not only helps foster a collaborative environment but also protects parties from potential disputes that can arise from ambiguous risk-sharing arrangements. Understanding these provisions is essential for effective contract administration and can significantly impact a project's success.

Additionally, AS4000 includes clauses related to payment processes, variations, and dispute-resolution mechanisms. These elements are vital for ensuring that financial transactions are conducted smoothly and that changes to the project scope are managed effectively. The payment clauses outline the timing and conditions for payments, while the variation clauses provide a framework for handling modifications that may arise during the project lifecycle. By familiarising themselves with these key components, contract administrators can navigate the complexities of contract management more efficiently.

Importance of contract administration in Australia

Contract administration plays a pivotal role in the successful delivery of construction projects in Australia. It involves managing contracts to ensure compliance with the terms and conditions agreed upon by all parties. Effective contract administration is crucial for mitigating risks, enhancing communication, and ensuring that projects are completed on time and within budget. By actively monitoring the contract's performance and adherence to its provisions, contract administrators can identify potential issues early on and implement corrective measures before they escalate.

Moreover, contract administration contributes to maintaining strong relationships among stakeholders. In the construction industry, where multiple parties are often involved, clear communication and transparency are essential. By adeptly managing contracts, administrators can facilitate dialogue among clients, contractors, and subcontractors, fostering collaboration and trust. This collaborative approach not only enhances project efficiency but also helps in resolving conflicts amicably, which can save time and resources.

In the Australian context, where regulatory compliance and industry standards are stringent, the importance of contract administration cannot be overstated. Proper administration ensures that all legal obligations are met, reducing the likelihood of disputes and legal challenges. This is particularly important in a highly regulated sector, where a failure to comply with contractual and legal requirements can lead to severe penalties and reputational damage. Therefore, understanding the significance of robust contract administration practices is essential for anyone involved in the construction industry in Australia.

Benefits of using contract administration templates

Utilising contract administration templates offers numerous advantages for professionals managing construction projects. One of the primary benefits is the significant time savings they provide. By having a ready-made structure, contract administrators can quickly develop contracts that meet specific project requirements without starting from scratch. This efficiency not only expedites the contract creation process but also allows professionals to focus on other critical aspects of project management.

Another noteworthy benefit of using templates is the consistency they bring to contract administration. Templates ensure that standard terms and clauses are included in every contract, which helps maintain uniformity across various projects. This consistency is particularly beneficial for organisations that manage multiple contracts simultaneously, as it minimises the risk of errors and omissions. Additionally, having a standardised approach fosters familiarity among stakeholders, making it easier for them to understand and comply with contractual obligations.

Furthermore, contract administration templates can enhance compliance with legal and regulatory requirements. Many templates are designed to align with industry standards and best practices, ensuring that all necessary provisions are included. This alignment reduces the likelihood of legal disputes arising from ambiguous or incomplete contracts. By leveraging these templates, contract administrators can ensure that their contracts are not only practical but also compliant with the relevant laws and regulations in Australia.

Overview of AS4000 contract administration templates

AS4000 contract administration templates are tailored documents designed to streamline contract administration based on the AS4000 framework. These templates typically include standard clauses, terms, and conditions aligned with the AS4000 guidelines, making them invaluable resources for construction industry professionals. They can cover various aspects of contract administration, including risk allocation, payment schedules, and dispute resolution processes, providing a comprehensive tool for managing contracts effectively.

One of the key features of AS4000 templates is their flexibility. While they offer a standardised structure, they can also be customised to suit a project's specific needs. This adaptability is crucial in the construction sector, where every project is unique and may require tailored clauses to address particular risks or requirements. By using these templates, contract administrators can ensure that they meet both the general expectations set by AS4000 and the unique demands of their projects.

In addition to saving time and enhancing compliance, AS4000 templates often come with built-in best practices for contract administration. They may include checklists or guiding notes to assist users in understanding the purpose of each clause and its implications. This educational component can be particularly beneficial for those who are new to contract administration or seeking to improve their knowledge of the AS4000 framework. By providing a comprehensive overview of key considerations, these templates empower professionals to manage their contracts with greater confidence and expertise.

Step-by-step guide to using AS4000 templates

To effectively utilise AS4000 contract administration templates, it is essential to follow a structured approach. The first step involves selecting the appropriate template based on the specific project requirements. Consider factors such as the type of project, the parties involved, and any unique risks or challenges that may arise. By ensuring that the selected template aligns with the project's needs, administrators can lay a solid foundation for successful contract management.

Once the template is selected, the next step is to customise it to reflect the specific terms and conditions relevant to the project. This process may involve modifying or adding clauses to address particular risks, payment terms, or project milestones. It is crucial to involve all relevant stakeholders in this process to ensure that their interests and obligations are accurately represented in the contract. Collaboration during this phase can help prevent misunderstandings and conflicts later in the project lifecycle.

After customisation, the contract should be thoroughly reviewed and finalised before execution. This review process is critical for identifying any potential issues or ambiguities that could lead to disputes down the line. Engaging legal professionals or contract specialists during this phase can provide an additional layer of assurance, ensuring that the contract complies with all legal requirements and accurately reflects the intentions of the parties involved. Once all parties are satisfied, the agreement can be executed, marking the beginning of the project.

Common challenges in contract administration and how to overcome them

Contract administration is fraught with challenges that can impede the successful execution of construction projects. One common challenge is the lack of clarity in contract terms, which can lead to misunderstandings among parties. Ambiguous clauses may result in different interpretations, causing disputes that can stall project progress. To mitigate this risk, it is essential to use clear and precise language when drafting contracts. Engaging legal experts during the contract formulation process can also help identify potential ambiguities and ensure that all terms are easily understandable.

Another challenge faced in contract administration is managing changes to the project scope. Variations are common in construction projects due to unforeseen circumstances, but they can complicate contract management if not appropriately handled. To address this challenge, it is vital to establish a transparent process for managing variations when using AS4000 templates. This process should outline how changes are proposed, assessed, and approved, ensuring that all parties are on the same page regarding modifications to the contract.

Additionally, effective communication is crucial for overcoming challenges in contract administration. Poor communication can lead to delays, misunderstandings, and, ultimately, disputes. To foster open lines of communication, regular meetings and updates should be scheduled among all stakeholders. Establishing a culture of transparency and collaboration can significantly enhance project outcomes and reduce the likelihood of conflicts arising from misunderstandings or miscommunications.

Training resources for mastering AS4000 contract administration

To excel in AS4000 contract administration, ongoing training and education are essential. Various resources are available to help professionals deepen their understanding of the AS4000 framework and improve their contract management skills. Online courses and webinars offered by industry associations and educational institutions provide a flexible way to learn about contract administration principles, best practices, and the specific nuances of AS4000.

Additionally, attending workshops and seminars can offer valuable hands-on experience and networking opportunities with industry peers. These events often feature expert speakers who share insights and real-world experiences related to contract administration. Engaging in discussions with fellow professionals can also provide different perspectives on common challenges and practical solutions, enriching one's understanding of the subject matter.

Moreover, numerous publications and reference materials are dedicated to AS4000 and contract administration. Books, articles, and industry reports can serve as excellent resources for both novice and experienced practitioners. These materials often cover case studies, practical examples, and detailed analyses of contract administration practices, enabling readers to apply theoretical knowledge to practical scenarios effectively. By leveraging these training resources, individuals can enhance their expertise in AS4000 contract administration and contribute to more successful project outcomes.

Contract administration services in Australia

In Australia, various contract administration services are available to assist organisations and professionals in managing their construction contracts effectively. These services encompass a wide range of offerings, including contract drafting, negotiation, and ongoing administration throughout the project lifecycle. Engaging professional contract administrators can help organisations navigate the complexities of AS4000 and ensure that their contracts are compliant with legal requirements and industry standards.

One key benefit of utilising contract administration services is access to specialised expertise. Professional contract administrators possess in-depth knowledge of the AS4000 framework and can provide valuable insights into best practices for contract management. They can assist in tailoring contracts to meet specific project needs, ensuring that all relevant terms and conditions are adequately addressed. This expertise is particularly beneficial for organisations lacking in-house resources or experience in contract administration.

Additionally, contract administration services can help organisations streamline their processes and improve efficiency. These services often include implementing contract management software, which can automate various tasks, such as tracking milestones, managing payments, and monitoring compliance with contractual obligations. By leveraging technology, organisations can enhance their contract administration capabilities, reduce the risk of errors, and ultimately achieve better project outcomes.

Conclusion and key takeaways

In conclusion, mastering AS4000 and effective contract administration is crucial for the success of construction projects in Australia. Understanding the key components of AS4000, recognising the importance of contract administration, and leveraging templates can significantly enhance project efficiency and mitigate risks. The benefits of using contract administration templates, including time savings and consistency, cannot be overstated.

As professionals navigate the challenges of contract administration, it is essential to adopt a structured approach when using AS4000 templates. Clear communication, thorough review processes, and effective change management strategies are vital for overcoming common obstacles. Furthermore, investing in training resources and engaging professional contract administration services can provide invaluable support and expertise.

Ultimately, by prioritising effective contract administration and leveraging the resources available, professionals can significantly improve their project outcomes and contribute to the overall success of the construction industry in Australia. Embracing these practices will not only enhance individual capabilities but also foster a culture of collaboration and accountability among all stakeholders involved.

I hope you have found this blog helpful and if you require further clarification, please do not hesitate to get in contact with us at www.contractaustralia.com.au or email [email protected] or follow us on LinkedIn.

N.b. Nothing in this article constitutes legal, professional or financial advice.

References. I have referred to the following published material to stand on the shoulders of giants.

RICS Cost Reporting: RICS Cost Reporting, 1st edition

RICS Commercial Management of Construction: RICS Commercial Management of Construction, 1st edition

AIQS Construction Cost Planning & Role of the Quantity Surveyor: AIQS Cost Planning

The Practitioner’s Guide to Briefing an Expert Witness: The Practitioner’s Guide

by Garry Andrews

Indemnity… …What a Liability! - Contract Review Series - Contract Australia

Might as well just give my business away!

When reviewing a contract one of the first places I look in the Contract is Indemnity. Some of you ready this will know exactly why. For those who do not, it is because we need to understand the level of risk the business is being exposed to in the unlikely event of an incident. If you do not cap the indemnity, define parameters and cross-reference with insurances, you might as well just give your business away.

What is in this week's blog post?

In part two, I am highlighting the importance of understanding 'Indemnity' in the contract documentation. I will show you an example of an Indemnity Clause in contracts and demonstrate the remedy.

Contract Review

Contract Clauses

In Australia, we tend to use Standard Forms of Contracts, AS4000 family of contracts and GC21 here in NSW for a range of construction, civil engineering, design and construct among others. There are others, of course, NEC3, JCT and FIDIC for our international friends. From recent statistics, 84% of AS Forms of Contracts were amended. Therefore, it is imperative we do not take these for granted, regardless of how long we have worked with them. Here is a straight forward example of an Indemnity clause found in a contract recently:

The Subcontractor is liable for and indemnifies and shall keep indemnified the Contractor (to the maximum extent permitted by law) against:

(a) all cost, loss, damage and expense (including legal fees on an indemnity bases) suffered by the Contractor and any of its employees or agents; and

(b) all liabilities incurred by the Contractor as a consequence of any liability the Contractor has or may have to the Principal or another third party in relation to, arising out of or in connection with the Head Contract, the work under the Head Contract or work under a separate subcontract or consultancy agreement,arising directly or indirectly as a result of or in connection with the performance of the Subcontractor's obligations under this Subcontract, any breach of Subcontract by or any negligence of the Subcontractor, its employees, secondary subcontractors or agents. However, the Subcontractor’s liability to indemnify the Contractor, its employees, or agents is reduced proportionally to the extent that the act or omission of the Contractor, its employees or agents caused or contributed to the cost, loss, damage, expense or liability.

The issue for me is the "all" costs and "indirectly" as a result of the Subcontractors obligations. For me, this is too open-ended, subjective, in fact! Therefore, needs to be defined and capped.

One way to approach such a clause would be to request the indemnity to be capped at X% of the contract value and set parameters. I have given an example of how this clause can be amended to ensure there is some cap to the liability.

The Subcontractor shall indemnify the Main Contractor against foreseeable costs relating to the following which were caused by negligent acts or omissions of the Subcontractor:

(a) loss of or damage to the Contractor’s property; and

(b) claims in respect of personal injury or death, arising out of or as a consequence of the carrying out of the Subcontract Works, but the indemnity shall be reduced proportionally to the extent that the act or omission of the Principal, the Contractor or the consultants, agents or other Contractors (not being employed by the Subcontractor) of the Principal or the Contractor may have contributed to the injury, death, loss or damage and/or the Contractor failed to reasonably mitigate the injury, death, loss or damage.

This subclause shall not apply to:

i. the extent that the Subcontractor’s liability is limited by another provision of the Subcontract;

ii. damage which is the unavoidable result of the construction of the Subcontract Works in accordance with the Subcontract”

(c) the Subcontractor shall indemnify the Contractor againsts foreseeable costs capped at the value set out in "Item X in Schedule 1 of the Contract" (Input Item and Set % of Contract Value in Schedule 1)

The main point of this blog is for construction professionals to make a concerted effort to fully understand the Indemnity Clause. If the clause raises the risk exposure to the business, one must try to negotiate the Indemnity Clause in Contracts. It will limit the liability and protect the business you are working for. There is one thing for sure you do not want this to be open-ended as you might as well just give your business away.

Departure, Clarification and Other Return Schedules

N.b. Nothing in this article constitutes legal, professional or financial advice.

by Garry Andrews