SRQ780

Strategic Construction
Procurement
Week 9
Critical Clauses of Standard Forms
of Contract

Dr Nilupa Udawatta
Level 4 - John Hay Building
Deakin University, Geelong
Tel: +613 524 79388
E-mail: nilupa.udawatta@deakin.edu.au
 Teaching Team

Unit Chair, Lecturer & Tutor – Dr Nilupa Udawatta

 E-mail: nilupa.udawatta@deakin.edu.au
 Discussion Board on CloudDeakin
 By appointment - in person

Lecturer & Tutor - Dr Xin Hu

 E-mail: xin.hu@deakin.edu.au
 Discussion Board on CloudDeakin
 By appointment - in person

Tutor - Dr Dominic Doe Ahiaga-Dagbui

 E-mail: dominic.ahiagadagbui@deakin.edu.au
 Discussion Board on CloudDeakin
 By appointment - in person
Deakin University CRICOS Provider Code: 00113B
 Unit Timeline

Week Commencing Class Topic Delivered by Bb Collaborate Sessions Assignments Due Dates
1 9 March Introduction to the unit and overview of Nilupa
construction procurement
2 16 March Procurement Methods – Part A Xin Session 1 - Thursday, 19
March 2020 at 6.30pm
3 23 March Procurement Methods – Part B Xin
4 30 March Procurement Methods – Part C Xin A1 (Individual) – Strategic
Procurement Report (20%)
5 6 April Contract Payment Options and Tendering Xin Session 2 - Thursday, 9
Process April 2020 at 6.30pm
6 20 April Subcontracting Practices and Construction Nilupa
Contract Risk

7 27 April Guest Lecture Guest Session 3 - Thursday, 30

Lecturer April 2020 at 6.30pm
8 4 May Introduction to Standard Forms of Contract in Nilupa A2 (Individual) – Tender
the Australian Construction Industry and Evaluation Report (30%)
Variations
9 11 May Critical Clauses of Standard Forms of Contract Nilupa Session 4 - Thursday, 14
May 2020 at 6.30pm

10 18 May Alternative Dispute Resolution Methods Xin

11 25 May Innovation in Strategic Construction Nilupa Session 5 - Thursday, 28
Procurement and Review May 2020 at 6.30pm
12 1 June A3 (Group) – Critical Analysis
3
(50%)
Deakin University CRICOS Provider Code: 00113B
 Procurement Strategy - Elements

– A statement of objectives
– A summary and analysis of project objectives, requirements, characteristics, risks,
client capabilities etc.
– Analysis and recommendation of procurement/delivery routes: Procurement
 Traditional route
 Design and construct route
method
 Management routes determines
 Collaborative routes such as partnering who carries
 Integrated routes such as PPP what risks…..
– Analysis and recommendation of contract pricing options:
 Lump-sum contracts
 Measurement contracts
 Reimbursement contracts
– Analysis and recommendation of tendering methods:
 Open tendering
 Selective tendering
 Etc…
– Procurement approaches
– Analysis and recommendation of form of contract and contract administration
4  Forms of contracts
Deakin University CRICOS Provider Code: 00113B  Contract administration arrangement
 Assessments

No Deliverable Mark (%) Format Submission Date

Strategic procurement Thursday, 02 April 2020 by 3.00pm

1 20 Individual
report (Week 4)

Thursday, 07 May 2020 by 3.00pm

2 Tender evaluation 30 Individual
(Week 8)

Thursday, 04 June 2020 by 3.00pm

3 Critical Analysis 50 Group
(Week 12)

Refer to assessment brief for further information on assignments

Deakin University CRICOS Provider Code: 00113B

Outline

 Extension of Time

 Contract Sum Adjustment

 Progress Claim

 Security of Payment (SOP)

6
Extension of
Time (EOT)

7
Extension of Time (EOT) - Outline

 Construction delay
Causes, Effects, types

 Provisions for construction delay

8
Causes of Construction Delay

 An event or a condition that results in finishing project later

than stipulated in the contract

Environmental

Project
Resources
Management

Causes of
Delay

Contractual
Regulation
relationship

9
Financial
Effects of Construction Delay

Time
overrun
Productivity
Cost
and Efficiency
Overrun
loss

Late Effects of
Disputes
Payment Delay

Company Total
Reputation abandonment

Rescheduling
10
Types of Construction Delay

Non-compensable
(Time)
Excusable delays
Compensable
(Time +cost)
Non-excusable
Types
delays

Concurrent delays

11
Provisions for Construction Delay

AS 4000- Cl. 34: Time and Progress

A party becoming aware of
anything which will probably
cause delay to WUC shall
promptly give the
superintendent and the
other party written notice of
that cause and the
estimated delay.
12
When to Notify – Cl 34

Identify
cause for
delay

Notify it to
Superintendent
(34.2)

Within 28
days submit
the claim
(34.3)

Within 28
days grant
EOT
13
(34.5)
Case: Gaymark Inv. -Vs-
Walter Const. (1999)
 Construction of a Hotel in Australia, Walter claimed $4,900,341 on a
number of bases, principally for variations, prolongation and
disruption/acceleration.
 Gaymark counter-claimed for $1,554,059, principally arising through the
application of liquidated damages in accordance with the contract.
 Employer delayed work for 77 days
 Contract requires Contractor to give notice. But Contractor failed to do so
 No contractual authority for EoT without notice
 Since no EoT notice, would contractor recover damage?

A delay by the Principal or the failure of the

Superintendent to grant a reasonable extension of time or
to grant an extension of time within 28 days shall not
cause the Date for Practical Completion to be set at large
but nothing in this shall prejudice any right of the 14

Contractor to damages.
Qualifying Cause of Delay –
Excusable
Events whether occurring before or on - Date for Practical Completion;

 Delays caused by;

 the Principal;
 the Superintendent;
 the Principal’s employees, consultants, other contractors or agents;

 Variations & deemed variations

 Variations directed under Clause 36;
 Adjustment for actual quantities – deemed variations
 Latent conditions - deemed variations

 Beyond the reasonable control of the Contractor;

 industrial conditions;
 inclement weather;
 Changes in the law
 Directions by municipal, public or statutory authorities 15

 Delays by municipal, public or statutory authorities

 Breach of the Contract by the Principal;
Excusable & Compensable
Delays
Delays caused by the Principal
 Lack of timely access or restriction to the site
 Inadequate /defective drawings or
specifications
 Delay in approval drawings , instructions
 Defective owner -furnished materials or
supplies
 Failure of the owner to make required
payments
 Owner directed changes - changed conditions 16
Excusable & Compensable
Delays
AS 4000 - Cl. 34.9: Delay damages

EOT for a compensable cause and for which the

Contractor gives the Superintendent a claim for
delay damages pursuant to subclause 41.1,
damages certified by the Superintendent under
subclause 41.3 shall be due and payable to the
Contractor.

Clause 41 – Notifications of claims

17
Latent Conditions – Cl.25

Physical conditions on, underlying or adjacent to the

site that could not be identified by the contractor by
reasonable observations or investigations of the site
or the site information provided in the tender
documentation at the time that the tender for the
works was being prepared.

18
Latent Conditions – Cl.25

If a Latent Condition causes the Contractor to

(a) Carry out additional work;
(b) Use additional Constructional Plant;
(c) Incur extra cost

Contractor could not reasonably have anticipated at the time of

tendering, a pricing shall be made under Clause 36 - variation.

Shall not be add to the value of additional work carried out,

additional Constructional Plant used or extra cost incurred
more than 28 days before the date on which the Contractor
gives the written notice 19
Excusable & Non -
Compensable Delays
Beyond the reasonable control of the Contractor;
- industrial conditions;
- inclement weather;

20
Non - Excusable Delays

Delays caused by contractors or his subcontractors or his

materials suppliers and those are not due to fault of the
owner.

 Late performance - contractor, subcontractors, suppliers

 Faulty workmanship-contractor, subcontractors , suppliers
 Contractor cash flow problems
 Accidents on the site caused by the contractor’s negligence
 A project specific labour strike

21
Concurrent Delays – 34.4

 Two or more independent critical delays

 Each having the ability to delay the time for
completion
 Occur at the same time period

May include qualifying and non-qualifying causes

By employer and contractor

22
Concurrent Delays

Concurrent: Employer + Contractor delays - (1)

Delay 2 days A
(employer’s fault)
C

Delay 4 days B
(Contractor’s
fault)

23
Concurrent Delays

Concurrent: Employer + Contractor delays - (2)

Delay 4 days A
(employer’s fault)
C

Delay 2 days B
(Contractor’s
fault)

24
Concurrent Delays

Concurrent: Employer + Contractor delays - (3)

Delay 3 days A
(employer’s fault)
C

Delay 3 days B
(Contractor’s
fault)

25
Concurrent Delays

Concurrent: Employer + Contractor delays - (4)

Delay 3 days A
(employer’s fault)
C

Delay 3 days B
(Contractor’s
fault)

26
Concurrent Delays – 34.4

Where both non-qualifying and qualifying causes of

delay overlap, superintendent allocate the resulting
delay to WUC according to the respective cause
contribution.

27
Henry Boot Construction (UK) Limited Vs
Malmaison Hotel (Manchester) Limited
[1999]
Henry Boot contracted with Malmaison for the construction of a hotel in
Piccadilly, Manchester. The contractor claimed an extension of time as a
result of delay caused by variations and late information. The employer
argued that the alleged variations did not cause any delay because they
were not on the critical path and that the true cause of the delay was other
matters which were contractor-risk events.

The Judge rejected the argument of

the owner and held that:
“It is agreed that if there are two
concurrent causes of delay, one of
which is a relevant and the other is
not, then the contractor is entitled to
an extension of time for the period of
delay caused by the relevant event 28
notwithstanding the concurrent effect
of the other event”.
Good Contract Administration
Practice

 Know the terms of any given

standard form contract:
Always check terms of contract
 Follow the procedure as
required by the terms of the
contract for extension of time,
and act in timely manner
 Keep a register of claims for
extension of time: Record
proposed, pending and
approved
29
Extension of
Time Register

30
Contract Sum
Adjustment

31
Provisions for CSA

AS 4000 - Sub Cl. 2.1: Performance & Payment

 The Contractor shall carry out and complete WUC.

 The Principal shall pay the Contractor for work for which
the Principal accepted a lump sum and …. accepted
rates, adjusted by any additions or deductions made
pursuant to the Contract.

32
Circumstance of CSA

 Variations - Alteration of scope of work in a construction

contract in the form of addition, substitution or omission
 Errors - Mistakes, inaccuracy, omissions or discrepancies in
materials, pricing, works or documents pertaining to the
contract
 Latent conditions - Physical conditions that effect the site,
that are unforeseen prior to the commencement of
construction, even following reasonable investigation
 Provisional cost - Refers to the allowance made within the
contract to cover work that are not yet defined at
tendering stage
 Other- legal requirements, liquidated damages, protection
of people and property, interest on overdue payments, etc
 Contractual claims – Extension of Time (EOT) 33
Pricing Methods

 Adjustment priced under Clause 36.4 - Variations

 Adjustment priced in the Annexure
 Adjustment priced by Incurred Costs or Negotiation

 Incurred Costs: Producing evidence for work and

materials paid for by the Principal and Contractor

 Negotiation: Discussed agreement between both parties

on the value of the adjustment
34
Variations – Cl 36

 Superintendent request for variation

 Contractor advises whether the variation can be
carried out, providing information of effects on cost
and time
 Contractor may submit detailed quotation with
supporting data.
 Variation approved and certified as moneys due to
the Contractor
 Contractor may proceed
35
Variations – Clause 36.2

Contractor is to advise anticipated effects as to time and cost

36
Components Of Variation Claim

 Scope of Work
 Pricing of variation
 Direct costs: actual performance (labour, plant,
materials)
 Indirect costs: overheads, administration, and profit
 Consequential costs: result of disruption, delay or
inefficiency
 Evidence
Quotations, Quantities and rates, Sketches, drawings and
specifications, Photographs, Correspondence
Variation order instruction
 Extension of Time (EOT) 37

Any effect on the construction program

Pricing – Cl 36.4

 Contract prescribes specific rates or prices - prior

agreement

 Rates or prices in a Priced Bill of Quantities or Schedule of

Rates – in the contract

 Reasonable rates or prices made – not in the contract

 Reasonable rates or prices made – profit and overhead

 Deduction shall include a reasonable amount for profit but

not overheads
38
Legislative requirements – Cl 11

 a) necessitates a change:
I. to the Works

II. WUC – As identified in Item 19(b )

III. municipal, public or other statutory authority in

connection with WUC

IV. Fee or charge of a new fee or charge;

39
Provisional Sum (PS) – Cl.3

 An estimate at the time the contract was entered into, which

could not provide an accurate costing for the work

40

Excavation for the pool

Adjustment for actual Quantities
Sub Cl.- 2.5

 Incorrect quantity in relation to any item

 Item which should have not been included
 Omit an item which should have been included

Where the correct quantity of an item is greater or less than

shown in the BOQ or SOR for any reason other than a
variation direction, the difference may be considered a
‘deemed variation’ where correction is $400 or greater

41
Progress
Claim

42
 Progress Claim

 Progress claim is progressively increasing value of

work completed up to date
 Contracts regulate progress payment for works
completed in the project

 Periodic payments
 Milestone payments
 Single or one-off
payments

Deakin University CRICOS Provider Code: 00113B

Periodic Payments
Milestone Payments

The deposit: 5%
The slab or base stage: 15%
Frame stage: 20%
Lockup stage: 20%
Fit-out or fixing stage: 30%
Practical completion stage: 10%
Single Payments
Progress Claims

Principal

Contractor
Stakeholders

Progress claim

Subcontractor
Superintendent
Provisions for Progress Claims
& Payments
AS 4000– Cl. 37: Payment

Each progress claim shall be

given in writing to the
Superintendent and shall
include details of the value
of WUC done and may
include details of other
moneys then due to the
Contractor pursuant to
provisions of the Contract.

Deakin University CRICOS Provider Code: 00113B

Progress Claim Procedure –
Cl.37
Submit progress Issue progress Pay progress
14 days 7 days
claim payment payment
certificate
• Contractor • Superintendent • Principal
• In writing
• With evidence
Progress Payments – AS 4000
Progress Payments – AS 2124
Progress Payments – FIDIC
Data for Progress Claims– AS
4000
 Valuation of work executed
 Valuation of any unfixed material (if any)
 Variations
 Retention amount
 Amount currently being claimed
 Amount previously certified
 Total amount previously paid
53
Contractor
Payment
Claim Sheet
Progress payment claim
See sample…….
Data for Progress Claims– AS 4000

Sub Cl. 37.3 - Unfixed Plant and Materials

Cl. 5 – Security
 Ensure contractor performs its obligations
 Protection against consequence of inability to perform

Cl. 4 – Retention
 A percentage deducted from the amount due and retained by the
client
 To be held as a set off in the event the contractor does not honour the
contract in regards to defects

E.g.: Half released on certification of practical completion, remaining

released upon final payment
Money: withholding a portion of money due
Security Bond: banker’s undertaking
58
Progress Payment Assessment

 Work done so badly may not be accepted: No

payment certified
 After remedial work to satisfactory, partial
payment can be made
 Quantities can be taken from drawings if no
variation
 Some may need measurement on site, with joint
measurement
 If only partly done, negotiate an estimate of the
proportion
 For minor unfinished work: certify in full, with a
note to complete
Progress Payment
Certificate

Progress payment certificate

See sample…….
Zamperoni Decorators Pty Ltd Vs Lo Presti
[1983] 1 Vr 338

 A painting contractor agreed to paint the principal's premises for $1200.

 Upon 'completion' of the work, the principal refused to pay alleging that
the standard of the work was not good.
 The contractor sued and the court held that the work was sub-standard
and treated the case as one where the work had been 'finished' but was
not satisfactory in all respects.
 The court reduced the claim by the amount required to rectify the
defective work and ordered the principal to pay the contractor $600.
 The contractor appealed this decision

The court upheld the decision and found that whether or not there had
been substantial performance of the work or such substantial defects that
the work was not carried out, was essentially a question of fact to be
determined on the evidence and circumstances of each case.
Final payment claim - AS4000 1997

 The final payment claim still has to be given within 28 days

after the last defects liability period – in writing.
 The superintendent has 42 days after the expiry of the last
defects liability period to issue to both the contractor and
the principal a final certificate of all payments due to each
party.
 Any dispute over the final certificate - notice of dispute
must be issued within 7days of the certificate. 14 days
under AS2124
 Security of
Payment
(SOP)

63
Security of Payment (SOP)

 To ensure that contractors and sub-contractors get paid for the work
that they have performed.
 The Building and Construction Industry Security of Payment Act 2002
 Provides a fast and inexpensive process to recover payments due under
a construction contract
 Saves time and cost to engage lawyers
 The VBA monitors the operation of the SOP Act. It does not nominate
adjudicators or take part in payment disputes. This is the role of
Authorised Nominating Authorities (ANAs), who are authorised by the
VBA to perform this service.
https://www.vba.vic.gov.au/building/security-of-payment
 Despite the laws, SOP is an on-going issue in the Construction Industry
in AU.

55
Security of Payment (SOP)

Construction Contracts Building and Construction

(Security of Payments) Industry Payments Act
Act 2004 (NT) 2004 (Qld)

Construction Contracts Building and Construction

Act 2004 (WA) Industry Security of Payment Act 1999 (NSW)
Building and Construction
Industry Payments Act
2009 (SA)
Building and Construction
Industry Security of
Payment Act 2002 (Vic)
Adjudicatio
n process in
Victoria
Reading 5
Drivers for Security of Payment

 Insolvency in the contractual chain that leave subcontractors unpaid for

work they have already completed. This is a problem for both large
scale head contractors and smaller businesses

 The operation of ‘rogue’ builders, who deliberately delay or avoid the

payment of subcontractors

 Protracted and unjustified delays in payment for work done

 Builders who are in financial difficulty and do not have the cash flow to
pay subcontractors.

 Retention money being used as cash flow by contractors and head

contractors, instead of being kept aside for defects

 a lack of financial management skills in the industry

Security of payment

Introduction to the SOP Act 2002 by VBA

https://www.youtube.com/watch?v=TQnD1AV5F3M