A genuine industry standard form should be a document that has been developed by representatives across an industry, including principals, contractors and advisors. Such a form will normally deal with contentious areas by either reaching a compromise position or by specifying options within the relevant contract schedule so that the parties can adopt the appropriately negotiated position for their contract.
The Abrahamson Principles of risk allocation have been prominent in this debate, in particular the following statement:
“A Principal should not ask a Contractor to price an unquantifiable risk which is within the control of the Principal.”
No Dispute – Strategies for improvement in the Australian building and construction industry, May 1990
In 2015 Standards Australia announced that technical committee of industry representatives for a proposed new General Conditions of Contract standard had adopted this principle.[1] However the work of that committee on the proposed new AS 11000 stalled in 2017 with no draft recommended as it “was not supported by the full spectrum of interests”.[2] There is no consensus and there is no ‘standard’ risk allocation for construction contracts. Similar projects are often governed by fundamentally different contractual obligations. Contrary to the simplicity offered by the Abrahamson Principles, in practice many construction risks are both beyond the control of either party and uninsurable. Even something as simple as providing site access to start the project, at first blush wholly within the control of the principal, is often dependent on regulatory compliance and approvals.
The first benefit of an industry contract is certainty. The most common construction industry forms such as the relevant Australian Standards, there is both a high level of industry knowledge and a high level of precedent available to aid understanding. For those already familiar with the relevant precedent, there are reduced transaction costs as each clause has been considered before. The second benefit, though almost universally challenged when stated, is that industry standard forms are meant to reflect the acceptable middle ground where. Risk allocations ought to be more appropriate and fairly balanced than would arise from a contract prepared solely from the perspective of either the contractor or principal.
The third benefit, often overlooked, is brevity. Industry standard forms are substantially less verbose than bespoke contracts, and therefore are easier to understand for a casual reader. Provided that material amendments are not made by special conditions, the process to be followed tends to be eminently readable. This is a material for parties managing a construction contract without a team of contract administrators.
However, using such contracts does not come without risk. Industry standard forms tend to resolve uncertainty by imposing substantial process requirements on both parties. In relation to the Australian Standard construction contracts, there is the perception that they are contractor friendly due to the lack of limits on the ability of contractors to make claims. While that characterisation is perhaps not fair, they do assume a particular kind of contract management will be in place involving independent determination of critical issues around quality, completion, delay and variations by a superintendent. Using such a contract without ensuring the superintendent fully understands their contractual role will lead to problems for the principal. In addition, principals may also consider the wording is unsuitable as it permits claims to be submitted for evaluation before the contractor has done sufficient work to demonstrate the factual and legal basis or the exact impact anticipated.
Another material risk with industry standard forms is that read in isolation they can lead administrators into error, as they fail to deal with various processes as may be imposed by statute. While construction contract specific legislation immediately comes to mind, a more bespoke contract will also consider a range of other statutory issues specific to the work being undertaken which might include environmental, planning, heritage or industry-specific matters. In practice even when using an industry standard form it can be expected that there will need to be substantial negotiations between the parties. Even putting special conditions and amendments to the primary text to one side, the options available in the schedules leave open a large number of risk and cost matters to be determined.
[1] Standards Australia, “Explanatory notes on proposed AS 11000: General Conditions of Contract”, attached as Annex II to the statement ‘AS 11000: General Conditions of Contract’ dated 23 January 2015.
[2] McCormack, A., Stroes, S., “Standards Australia abandons AS 11000: General Conditions of Contract”, www.mondaq.com, 17 April 2022.