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10 things to consider in Build and Supplier Contracts

Recourse to security | Contractors should limit the principal’s recourse to the security to when a debt is due and payable, or preferably, to only when the debt is undisputed.  Whilst the QBCC Act requires notice to be given, ideally the principal should also be required to give a specified period of notice to the contractor prior to having recourse to the security.

Latent Conditions | A latent condition is one that is not reasonably anticipated at the time of the site inspection, contract or tender.  The contract sets out who bears the risk of the Latent Conditions and the standard definition is often narrowed and limited so that liability rests with the contractor or limits a contractor’s ability to claim in certain circumstances.

Practical Completion | It is important this date is achievable, not ambitious and is clear. This helps to avoid extensive liquidated damages at a later date if the contractor fails to reach practical completion, notwithstanding the date was always unachievable or ambitious. Christmas periods should also be considered.

Liquidated damages | These are standard in construction contracts but the timing, amounts and how they are claimed should be reviewed as that can’t be amended later. It is also important to consider whether consequential damages have been considered in the calculation and ultimately whether the fixed amount is a reasonable estimate of anticipated losses if practical completion is not achieved on time.

Delay costs | These are agreed rates which are only recoverable if allowed for in the contract (not common law). Care is needed in the language and practical operation. For example, the delay costs clause may exclude a contractor from recovering its damages liability from a subcontractor where the contractor’s breach was caused by the principal. They may also operate as caps on liability.

Rise and fall | Fixed price contracts often contain rise and fall provisions allowing for the ‘fixed’ price to be amended if materials, labour or other costs increase during the period of the contract. Without this clause the contractor will bear those increased costs.

Timeframes | The standard 28 day notice period in contracts is often amended to a shorter period, sometimes as short as 5 days.  The notice timeframes should be reasonable. This helps to maintain contractual rights for longer, including for extensions of time or latent conditions and allow time for important decisions to be made.

Warranties | A contractor will be required to warrant a number of things to the principal. Avoid warranting things outside of your control, for example, in construct only contracts, warranting that the design is adequate or that you are responsible for any defects in the design, when you haven’t been engaged for the design.

Retention of security | Under the QBCC Act the maximum retention amount is 5%. Its also important to understand the terms of the retention and timing for return of the retention monies.

Extensions of time | Consideration should be giving to ensuring a principal must act reasonably when granting extensions of time requests. This will better protect the rights of the contractor in a range of scenarios and avoid situations where the principal leverages the request to their advantage elsewhere.