Navigating an AS 4902-2000 Contract - legal traps and safeguards

In this article, we provide an in-depth review of the standard form AS4902-2000 Contract.

We will highlight six key provisions and how contractors and principals alike may navigate such provisions to mitigate their risk exposure.

The AS suite

Standards Australia (AS) provide a sample design and construct contract called the ‘AS4902-2000’. This contract is a standard form contract adopted for thousands of construction projects across Australia. If you operate in the construction industry, you are almost certain to have come across the AS4902-2000.  

This contract is ordinarily used for projects which contain both a design and construction scope, meaning that the Contractor is taking on both design and buildability risk. Whilst the AS4902-2000 is designed to be adaptable, we know that every project is different.

This article is intended to be a cheat sheet for building and construction professionals when looking at the standard form AS4902-2000 Contract.

Six key provisions of the AS4902-2000

1. Contract Sum

Since the COVID-19 pandemic, we are seeing a shift in what constitutes the ‘Contract Sum’. In particular, rise and fall costs (otherwise known as escalation costs) are becoming increasingly common in lump sum contracts.

From a strategic standpoint, it is critical that these clauses are drafted properly so that cost exposure and the administrative burden of issuing and receiving escalation cost claims, are managed effectively.

For professionals, a reasonable compromise should be struck between managing costs without jeopardising the project/tender negotiations. Professionals may wish to consider aligning the escalation cost provision with a particular trade, or in accordance with the consumer price index (CPI).

2. Variations

It is human nature to communicate verbally. Practically speaking, we acknowledge that during the course of works, instructions, directions or variations may be given verbally, despite the terms of the contract.

When negotiating the contract terms, it is critical to assess the variation procedure and to determine whether there are: 

a. claim bars; and/or

b. time bars.

This is critical to managing risk on projects because in the event that a variation is directed verbally, the contract may require written confirmation within a specified period, failing which you may contractually waive your entitlement to any future claim for that variation work.

To avoid these situations, it is important to carefully review the terms of the Contract and to determine:

a. the trigger date for the claim (i.e whether there is a date of knowledge which triggers the requirement for the builder to put on a variation notice); 

b. the timeframe to put on the claim (e.g does the variation notice need to be submitted within a specified timeframe from the trigger date?); 

c. the consequences of non-compliance (i.e whether you are barred from submitting variation claims due to a failure to comply with the timeframes).

3. Extension of Time (EOT)

Similar to variation provisions, EOT provisions are heavily litigated. A common dispute that arises is as to whether or not a “qualifying cause of delay” exists, and as such, whether the contractor ought to be entitled to extend the date for practical completion. The standard form AS4902-2000 is fairly balanced in respect of EOT provisions. However, it is common for amendments to be made which:

a. Narrow the “qualifying causes of delay”; and

b. Provide that a contractor is barred / not entitled to extend the date for practical completion (and thereby potentially subjecting the contractor to liquidated damages) should it fail to comply strictly with the EOT provisions.

There can be significant consequences for both parties should works under contract be delayed. For the principal, that may involve the construction program and practical completion not being met in accordance with the contract and associated damages that flow, and for the contractor, liability for liquidated damages or lost opportunity on other projects.

For these reasons, it is important that careful consideration is had to the EOT provisions, and where appropriate, advice is sought on amendments to same. 

4. Liquidated Damages

A contractor may be liable to pay liquidated damages to the principal if it fails to bring the works to completion by the Date of Practical Completion (as adjusted by EOTs).

Liquidated damages are a pre-determined amount of loss a principal will suffer for each day of delay beyond the Date for Completion. Importantly, if the amount of liquidated damages is not proportionate to the actual loss suffered by the principal then it may be considered a penalty, and therefore void. If that occurs, the principal must claim “general damages” – which requires the principal to prove the loss it has actually suffered by the delay.

5. Payment – Clause 37

The AS4902-2000 provides that the contractor is entitled to claim progress payments progressively throughout the project (“Progress Claims”). Item 33 must be completed to determine at what stages the contractor is entitled to make a Progress Claim.

A principal must issue a progress certificate within 14 days after receipt of a Progress Claim certifying the amount it says is payable and providing reasons for any differences.

The AS4902-2000 also makes provision for final payment claims following the expiry of the defect’s liability period.

Clause 37 should be read in conjunction with the Building and Construction Industry Security of Payments Act 1999 (NSW) (“SOP Act). The SOP Act may alter or amend the operation of the AS4902-2000 and we suggest legal advice is obtained to determine how the two interact.

Dispute Resolution – Clause 42

The AS4902-2000 provides that if a difference or dispute (“dispute”) arises in connection with the contract, including in respect of a direction, or a potential claim, then either party “shall” give written notice of the dispute (41.2). The parties must meet to attempt to resolve the dispute within 14 days of the dispute notice. If not resolved within 28 days, the dispute may be referred to an arbitrator for determination.

Dispute resolution clauses are commonly overlooked by the parties. A Court will often decline to hear a matter until after the parties have partaken in alternate dispute resolution. They may “stay” (i.e. pause) proceedings until after, for example, arbitration has occurred. In respect of the AS4902-2000, clause 42.4 provides that a party can circumvent the need to participate in alternate dispute resolution to enforce payment. For example, a party may lodge an adjudication application to recover payment under the SOP Act.

If a dispute has arisen on your project, legal advice should be sought to ensure proceedings are not delayed by operation of a dispute resolution clause. 

How we can help

The AS4902-2000 is a versatile contract, but every project has its unique challenges. We regularly assist developers, principals, contractors, and subcontractors in tailoring this standard form to suit specific needs. This often involves incorporating special conditions or creating a practical Contract Memorandum to simplify contract management and address key areas like time limitations.

Our aim is to ensure your contract is well-suited to your project's requirements, helping you navigate its complexities with confidence.

Authors: Nicholas Kallipolitis, Breitil Sulaiman and James Duff