With the latest phase of Project Trust Account legislation again delayed, BIFSOPA reforms in Queensland now in force, and several recent Supreme Court decisions affecting the law regarding extensions of time, delay damages and set-off, principals must update themselves on what contract amendments best protect their risk position.
This article summarises what we see as the most essential amendments principals should implement into their standard form head contracts.
- A warranty that Contractors have complied with Project Trust Account legislation
Does the PTA legislation apply, and if so, do you include a warranty (and perhaps a precondition to commencement) that the contractor has complied with, and has provided documentary evidence of, compliance with the PTA legislation?
Probably not – particularly if security is held rather than retention.
Whilst the contractor has numerous obligations, the principal is only required to deposit any amounts due and payable into the PTA.
The principal must open a retention trust account, only if the contractor provides retention and not security.
2. Conversion of security
In light of recent cases, amend clause 5.2 on recourse to security as follows:
(a) allow recourse to security for any amount “claimed to be” due as distinct from “amounts unpaid after the time for payment”; and
(b) allow recourse to security for unliquidated amounts.
If the contract is drafted in accordance with the above, it will be extremely difficult for a contractor to obtain an injunction to restrain the principal from having recourse to security.
The above amendments will also ensure that a principal can, in effect, immediately convert security under the contract (as distinct from a claim under the Act) after receiving an unfavourable adjudication decision. In Fabtech v Laing O’Rourke, the Court held this strategy was legally acceptable. Principals should set-off monies owing under progress claims and keep the security alive to negate any adverse adjudication decision. To do this, you will need to ensure you have a wide right to set- off.
3. Amend contract so no reference date between PC and FC
This will prevent claims from a contractor after PC and before FC. In Queensland, you can amend the reference date clause in the contract to limit reference dates accruing between PC and FC: Tailored Projects v Jedfire.
4. Ensure your Time Bar is Valid
In Growthbuilt Pty Ltd v Modern Touch Marble, the Supreme Court of New South Wales held that there is no room for a reasonableness or good faith obligation to be imposed on a superintendent in deciding whether to award an EOT in circumstances where the contract expressly states:
(a) that the superintendent’s unilateral power to grant an EOT is in its “sole and absolute discretion”;
(b) that power is only for the benefit of the Principal; and
(c) there is no obligation imposed on the Superintendent to exercise or consider whether to exercise that power.
Growthbuilt has now confirmed that these amendments will ensure that an Adjudicator or Court cannot exercise the superintendent’s discretion (known as the reserve power) in favour of a contractor to award time-barred EOT claims.
5. Liquidated Damages
Exclude the operation of the prevention principle as an additional safeguard of the entitlement to liquidated damages. If a contractor does not lodge an EOT on time and the superintendent rejects that EOT, the principal can apply liquidated damages even if it is alleged that the principal was the cause of the contractor’s delay: CMA Assets v John Holland.
6. Set-off
Amend the set-off clause to:
(a) include amounts “claimed” to be due; and
(b) to survive termination.
This gives a wider right to set off any “amounts due and payable” and is not restricted to a claim certified by the superintendent, as a debt due and payable. This then gives a right to deducted damages and other losses from monies owed to the contractor, and to convert security for that amount due.
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