June 27, 2013

Tough times call for tough decisions. 

The current stagnant construction market has resulted in contractors, subcontractors and suppliers finding themselves tendering against an increasing number of competitors on any given project.

Tenderers may feel that if they want a fighting chance to win the work, they cannot qualify or negotiate contract terms.   

This article provides some tips for navigating through these tough times, including when faced with a “take it or leave it” contract. 

Tip 1: Try to negotiate anyway

It is of course more difficult to achieve changes to a contract when your bid is being compared with a large number of other tenderers, who may not qualify the contract at all, or worse, may be trying to “buy the job”.

Conversely, it is impossible to achieve changes to a contract if you never seek reasonable amendments.

In a competitive market, it will be critical that you keep the requested changes smart, relevant and realistic.  Focus on the key risk areas with practical and commercial implications for the successful delivery of the project.  

What does this mean in practice?  Before negotiating the contract terms, spend time considering how the job will be delivered and the circumstances which may put your profits at risk.  No project will be the same. 

Tip 2: Know the contract

Once the contract is signed, it will be critical that you know and understand its terms.  Read the contract – the whole contract – and identify the risks that may affect your ability to make a reasonable return in a reasonable time.

Failing to read and understand a contract is no excuse.

Where there is no fraud or other special circumstance, a person who signs a document which is known by that person to contain contractual terms, and to affect legal relations, is bound by those terms.[1] It is irrelevant that the person has not read the document.

If you are not successful in obtaining the changes to the contract you require, then shift your focus to managing the contract.

Tip 3: Manage the contract

A bad contract managed well can be better than a good contract managed poorly.

At the 2012 Society of Construction Law Annual Conference, the Honourable David Byrne QC[2] said:

“In my experience, much of the disputation which characterised the construction cases that I saw it both as counsel and judge seemed to have arisen from the manner in which the issues were dealt with by the parties and the contract administrator when they arose in the execution of the project.”

(emphasis added)

Managing a contract well includes the following key steps:

(1) Educate the team on the key rights and obligations in the contract. 

Arguably, the most important contractual risk of them all is the time bar.

A time bar is a mandatory time frame in which a prescribed notice must be provided as a ‘condition precedent’ to any entitlement for an additional claim (including for variations, extensions of time, delay costs, or acceleration or re-sequencing costs).

A properly worded time bar is likely to be enforceable,[3] unless it can be avoided for some other reason.[4] This means that if you fail to comply with a notice or claim obligation, you may have no entitlement at all to recover your claim.

The construction industry battleground is littered with wounded contractors, subcontractors and suppliers that have disregarded time bars at their peril and lost significant amounts of money.

(2) Communicate all notices and claims properly, in accordance with the contract. 

(3) Keep a detailed document trail. Don’t rely on verbal agreements and handshakes.  People change jobs and verbal deals get forgotten.  Confirm discussions in writing.  Take good minutes.  Take pictures.

Armed with these tools, and the right mix of attitude and experience, common mistakes can be avoided.

The authors would like to thank Jean Hamilton-Smith and Alana Allard for their contributions to this update.

[1] Toll (FGCT) P/L V Alphapharm P/L (2004) 219 CLR 165 at [57]

[2] Arbitrator and Mediator, formerly a Justice of the Supreme Court of Victoria, 1991-2010.

[3] Classic examples of where time bars were held to be enforceable include Jennings Construction Ltd v QH & M Birt Pty Ltd (1986) 8 NSWLR 18; Opat Decorating Service (Aust) Pty Ltd v Hansen Yuncken (SA) Pty Ltd (1995) 11 BCL 360; and John Goss Projects v Leighton Contractors & Anor [2006] NSWSC 798.

[4] Such as by establishing that the legal doctrines of waiver, election and/or estoppel apply, for example in the recent case of Miccon Hire Pty Ltd (in liq) v Birla Mt Gordon Pty Ltd [2013] QSC 139, per de Jersey CJ at [32].