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AN05.01.101 January 2001

PracticeNote
Standards Australia building contracts
The main differences between AS 4000 and AS 2124

1.

Purpose AS 4000-1997 General conditions of contract for building works, published by Standards Australia, is based on AS 2124-1992 and is one of the standard contracts in the 4000 series. The series of contracts will include general conditions for subcontracts, for supply of equipment, and for design and construct contracts.

delay, which is defined as any act, default or omission of the superintendent, principal or it's consultants, agents or other contractors (not being employed by the contractor) other than: a breach or omission by the contractor; and industrial conditions or inclement weather occurring after the date for practical completion. The principal is now required to list in item 23 of the Annexure, all causes of delay that will not entitle the contractor to an EOT. If a cause of delay is not specified in item 23, or is not a breach or omission by the contractor, or does not arise from industrial conditions or inclement weather after the date for practical completion, the contractor will be entitled to claim an EOT. Other pre-requisites for claiming an EOT include: that the contractor is delayed in reaching practical completion that the contractor has taken steps to prevent or mitigate the delay. Contractors often neglect the procedural requirements necessary to claim an EOT. Consequently, many claims based on a valid cause of delay are rejected. Under AS 4000, a failure to communicate a claim in accordance with the relevant provisions of the contract will not invalidate the claim but may entitle the principal to damages. See clause 41.2.

2.

Introduction Standards Australia prepares its publications through a process of consensus committee agreement. The committee for AS 4000 included representatives of consultants, contractors, subcontractors and owners (private and public). The objectives in drafting AS 4000 were to: make the contract more user-friendly remove ambiguities and inconsistencies remove the administrative detail contained in AS 2124-1992. This note discusses the six main issues in AS 4000 that differ from AS 2124. AS 2124 continues to be published, as owners, particularly government and semigovernment bodies have to date been reluctant to change over to AS 4000.

3. 3.1

Extensions of time (clause 34) Causes of delay Under AS 2124, causes of delay entitling the contractor to claim an extension of time (EOT) are listed in clause 35.5. Under AS 4000 the process is reversed. An EOT can be claimed for a qualifying cause of

This is an important change from AS 2124, under which the requirement to submit an EOT claim within 28 days after the delay occurs is a condition precedent to an EOT entitlement.

Published by RAIA Practice Services RAIA ABN 72 000 023 012

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3.2

Procedure for Claiming an EOT (a) Notice of delay Under clause 35.5 of AS 2124, it is necessary to promptly notify the superintendent in writing of details of a possible delay and the cause when it becomes evident: to the Contractor that anything, including an act or omission of the Principal, the Superintendent or the Principals employees, consultants, other contractors or agents, may delay the work under the Contract Under clause 34 of AS 4000, A party becoming aware of anything which will probably cause delay to work under contract (WUC) ... is to promptly give the Superintendent and the other party written notice of that cause and the estimated delay. Unlike AS 2124, AS 4000 makes it clear that it is necessary to provide information regarding the estimated delay. (b) Claim submission If the contractor is, or will be, delayed in reaching practical completion by a cause described in clause 35.5 of AS 2124, a written claim must be given to the superintendent within 28 days of the delay occurring, setting out the facts on which the claim is based. Under AS 4000, a contractor is entitled to an extension of time, if the works are or will be delayed in reaching practical completion by a qualifying cause. The contractor shall give the superintendent written notice of the delay, within 28 days of when the contractor should reasonably have become aware of the cause of delay. The notice should include an estimate of the anticipated extent of delay. Under AS 4000, if further delay results from a qualifying cause, the contractor must promptly give the superintendent a written claim setting out the facts of that delay, in order to claim a further EOT for such delay. Contractors should ensure EOT claims are well documented, addressing each prerequisite for an EOT. Otherwise, principals may be able to reject an EOT claim. 4.

claim is only triggered once the contractor claims a specific period of days as extension of time. If the superintendent fails to respond within 28 days, the contractor's only remedy is to claim damages for breach of contract. This has been amended in AS 4000. Clause 34.5 now provides that, if the superintendent does not assess the contractors claim within 28 days of receiving it, the contractor is entitled to the extension of time claimed. This removes the uncertainty that a contractor has in relation to whether or not it will be receiving an extension of time. However, it also makes it more important for contractors to properly document their claims for EOTs. 3.4 Delay costs The events entitling a contractor to claim delay costs have not changed. However, the contractor is now entitled to delay damages rather than its extra cost incurred. Delay damages may be wider than the actual costs incurred. Progress claims and payment (clause 3739) The claim Under AS 2124 a claim has to include: the value of the work carried out by the contractor at the time of making the claim; and all amounts then due to the contractor arising out of or in connection with the contract or any alleged breach of the contract. Under AS 4000, the contractor is required to claim payment progressively, in accordance with the requirements set out by the parties in item 28 of the Annexure. The claim only has to include details of the value of the WUC. A contractor may include details of other money then due to the contractor but there is no longer an obligation to provide these details in a progress claim. 4.2 Payment of workers and subcontractors Under clause 38 of AS 4000, the contractor has to provide documentary evidence to the satisfaction of the superintendent of payment of all money in respect of:

4.1

3.3

Assessment of an EOT claim Under AS 2124, the 28-day period in which the superintendent is to respond to an EOT

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workers of the contractor and the subcontractor (this only has to be given on request under AS 2124); and subcontractors (this is also required as a matter of course under AS 2124). 4.3 Unfixed plant and material Under AS 2124, the principal is obliged to pay for unfixed plant and materials where the item is imported into Australia (provided the contractor gave the principal a clean bill of lading drawn or endorsed to the principal), or where the item is listed in the Annexure to the contract (provided the contractor could establish to the satisfaction of the superintendent that the item had been paid for, is properly stored, labeled and protected). In relation to all other unfixed plant and materials to be incorporated into the works, AS 2124 provides three alternatives for the parties to choose from: (a) principal not obliged to make payment unless the contractor provides extra security; or (b) principal not obliged to make payment but may, if the contractor establishes that: the items have reasonably but not prematurely been delivered; ownership will pass to the principal upon payment being made; and the items have been properly stored, labeled and protected; or 4.5 (c) contractor not entitled to payment. AS 4000 is far more restrictive in that it eliminates the options listed in AS 2124. Under AS 4000, the principal is not obliged to make payment for unfixed plant and materials unless they are listed in the Annexure and the contractor provides additional security and satisfies the superintendent that they have been paid for and are properly stored, labeled and protected. This provision severely limits the contractor's ability to be paid for unfixed goods. 4.4 Certification and payment Under AS 2124, the superintendent has to issue, within 14 days after receipt of a claim

for payment, a payment certificate stating the amount of payment (in the opinion of the superintendent) that is to be made by the principal. Under AS 4000, the superintendent has to, within 14 days after receiving a progress claims, issue the following two certificates: a progress certificate that sets out the superintendent 's opinion of the money due from the principal to the contractor; and a certificate setting out the superintendent's assessment of retention money and money due from the contractor to the principal. AS 4000 provides that, if the superintendent does not issue the progress certificate within 14 days of receiving a progress claim, the progress claim submitted by the contractor will be deemed to be the relevant progress certificate. This is intended to reduce the incidence of late certification by superintendents. Under AS 4000 the principal has seven days, after receipt of both certificates, to pay the contractor the balance of the progress certificate after deducting any retention moneys and setting off any amounts evidenced in the superintendent's second certificate. However, if the superintendent fails to issue the various certificates, the principal must pay the contractor the amount in the progress claim within 21 days after the superintendent receives the progress claim. These time periods are shorter than under AS 2124. Final payment claim The final payment claim still has to be given within 28 days after the last defects liability period. The claim has to be in writing, endorsed Final Payment Claim and include all other claims whatsoever in connection with the subject matter of the contract. The superintendent has 42 days after the expiry of the last defects liability period to issue to both the contractor and the principal a final certificate that is evidence of all the money finally due and payable between the contractor and the principal, subject to the similar exemptions as under AS 2124. All money certified as due and payable has to be paid within seven days of receipt of the final certificate.

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It is important to note that if there is a dispute over the final certificate, a notice of dispute must be issued within seven days of the certificate. Previously the time limit was 14 days. 5. Notification (clause 41) Clause 41 of AS 4000 applies to all claims for which notification is not required under another provision of the contract. It requires a party to notify the other of any claim in connection with the contract as soon as practicable after that party becomes aware of the claim. The notice must be in writing, and: specify the general basis of the claim; and

One of the major pitfalls for contractors is the execution of a variation without a written direction to do so. Under clause 36.1 of AS 4000 a contractor is required not to vary WUC excepted as directed in writing. It is therefore imperative that, before requiring a variation to be executed, the principal/superintendent must issue a written direction. Likewise, before executing a variation a contractor must receive a written direction. The process for valuing variations has been greatly simplified under the new AS 4000 and clause 36.4 sets out a clear order of precedence of assessing a variation: prior agreement;

specify the general quantum of the claim. applicable rates or prices in the contract; Details of the claim are not required for a further 28 days. This is stricter than under AS 2124, where a party has 28 days after the first day upon which they could reasonably have been aware of a breach to give the notice. However, a substantial change under AS 4000 is that if a party fails to notify a claim within the time required, that claim is not barred or invalidated. Unlike AS 2124, AS 4000 also provides a mechanism by which a claim is to be processed: the party giving the notice must give details of the claim within 28 days after it has issued the prescribed notice. If the party fails to give details then the prescribed notice shall be deemed to be the claim; the superintendent then has 56 days, from the receipt of the prescribed notice, to assess the claim and notify the parties of the decision. If neither party disputes that decision, after a further 28 days from notification of the superintendent's decision the superintendent will certify the amount the original decision to be the money that is then due and payable. If a party disputes the decision, they will have to revert to the dispute determination process in clause 42. 6. Variations (clause 36) Under AS 2124, the superintendent could direct a variation after practical completion in respect of rectification work. This is no longer possible under AS 4000. rates or prices in a priced bill of quantities, schedule of rates or schedule of prices (even those that are not contract documents) to the extent that it is reasonable to use these documents; and reasonable rates or prices, which are to include a reasonable amount for profit and overheads. The clause also makes it clear that any deduction shall include a reasonable amount for profit but not for overheads. The scope for valuing variations has been greatly expanded by the third option, which allows the superintendent to turn to rates or prices that do not actually form part of the contract documents. However, they can only be used if it is reasonable to do so and additional protection is provided to contractors by the obligation imposed on the superintendent to fulfill all aspects of the role and functions reasonably and in good faith. In relation to variations, it is important to note that a number of items that would have been assessed as variations under AS 2124 will not be valued as such under AS 4000. Rather, the actual cost will be assessed by the superintendent and added to or deducted from the contract sum. This will deprive the contractor of the ability to claim overheads and profit on that value. In addition, the concept of day work has been removed from AS 4000.

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7.

Termination (clause 39) Under AS 4000, the events entitling a principal to serve a show cause notice have been amended to include a substantial departure from a construction program by the contractor, without reasonable cause. If there is no construction program then the AS 2124 event is used failing to proceed with due expedition and without delay. A substantial departure from the construction program will be easier to prove than a failure to proceed with due expedition and without delay.

8.

Superintendent's role (clause 20) Under AS 4000, the principal has to ensure that at all times there is a superintendent, and that the superintendent fulfills all aspects of the role reasonably and in good faith. It is possible these words will make the superintendent more independent than under AS 2124, where the superintendent was required to act honestly and fairly, although reasonableness was required under AS 2124 for measuring or valuing work, quantities or time. The intended aim of this amendment is to ensure that principals appoint superintendents who act professionally in exercising their duties under the contract.

Based on an article in Minter Eliison's On Site newsletter. Sonya Burchell-Weekes, Partner 02 9921 4390 Nicole Green, Senior Associate 02 9921 4739

These Notes are issued by the RAIA for general guidance only. No responsibility for their accuracy or currency is accepted by the RAIA, its office-bearers, members or staff or by the author.