Choosing the right standard form involves more than comparing who bears particular risks. The greater differences may lie in what the contract requires the parties to do when those risks materialise.
In How bespoke does your construction contract really need to be?, I argue that project owners should resist the temptation to start every procurement with a familiar standard form and then extensively amend it with their law firm’s house amendments and/or special conditions without ensuring each amendment is earned.
There is, of course, a prior question:
Which standard form is best suited to the contract in the first place?
To explore that question, I compared four forms that take different approaches to construction contracting:
Standards Australia’s AS 4000 and AS 4902;
NSW Government’s GC21;
the NEC4 Engineering and Construction Contract;
FIDIC’s 2017 Yellow Book.
The comparison began as preparation for a panel discussion and became a more extensive exercise, covering pricing models, design responsibility, early warning, programs, variations, extensions of time, compensation, time bars, concurrent delay, liability, contract administration and dispute resolution.
Two conclusions stand out for owners choosing a contract.
First, the four forms are closer in their allocation of many familiar construction risks than their different reputations might suggest.
Second, and perhaps more importantly, they differ far more in the machinery they use to manage those risks once they materialise.
Risk allocation is only part of the story
Construction lawyers naturally compare contracts by asking where risks sit. Who bears the risk of:
late access to the site;
unexpected ground conditions;
exceptionally adverse weather;
a change in law; or
an event outside either party’s control?
Those questions matter. But a detailed comparison suggests that differences in risk allocation can be overstated.
All four provide relief for many common owner-caused events. They use different language and structure, and the precise extent of the entitlement varies, but the broad allocation is often recognisable across all four.
More pronounced differences emerge in relation to neutral risks, and in whether an event that relieves the contractor of delay liability also entitles it to additional money.
Time risk and money risk are different questions
AS 4000 and GC21 provide very broad time relief
AS 4000 and GC21 each contain a broad catch-all that can give the contractor an extension of time for delay caused by events beyond its control, subject to the qualifications in each form. That gives considerably broader protection against delay damages than a comparison of specifically listed delay events might suggest.
But it does not follow that the owner bears the financial consequences of every event that entitles the contractor to additional time and relief from delay liquidated damages.
GC21 illustrates the distinction particularly well. Its EOT regime is broad, while its entitlement to Delay Costs is much more tightly controlled.
In other words, an event can be the owner’s risk for time without being the owner’s risk for money.
That distinction is easy to lose when contracts are casually described as owner-friendly or contractor-friendly.
NEC takes a different approach
NEC does not contain the same broad delay catch-all found in AS4000 and GC21. Instead, entitlement needs to arise through one of its specified Compensation Events.
That can make NEC less generous for some delay events.
But when an event is a Compensation Event, NEC takes a more integrated approach. It assesses its effect on the Prices, Completion Date, and Key Dates through the same machinery, with the monetary assessment ordinarily based on reimbursement of the Contractor’s additional costs (Defined Costs in NEC) and a profit margin on those costs (the Fee in NEC).
FIDIC takes a third approach. It lists particular events and specifies the remedy for each, which may be:
an extension of time (EOT);
Cost; or
Cost Plus Profit.
So asking which contract is “most contractor-friendly” does not get us very far. A better question is:
For each material risk, who bears the time consequence, who bears the cost consequence, and can the contractor generate profit on the additional costs?
The answers are not necessarily the same.
The greater differences may be in the machinery
The more striking differences emerged when I stopped asking who bears the risk and instead asked:
What does the contract require the project team to do when that risk materialises?
Consider five aspects of contract administration.
1. Early warning
All four contracts contain mechanisms for bringing emerging delay or risk issues to the parties’ attention, but with markedly different levels of prescription.
NEC goes furthest. Early warning is integrated into a structured process for identifying risks, discussing how to avoid or reduce them, and keeping them under review. A failure to give an early warning that should have been given can also affect the Contractor’s entitlement to additional time and/or money when the Compensation Event is subsequently assessed.
GC21 and FIDIC also contain early or advance-warning obligations, but without NEC’s risk-management machinery or any express sanction for failing to warn. AS4000 requires notice of probable delay but has no structured early-warning or risk-reduction regime.
The distinction is therefore not simply between contracts that do and do not require early warnings. It is between an obligation to warn and a contractual system for doing something about the warning.
2. The program
The four forms also give the construction program quite different contractual roles.
At one end, AS 4000/4902 does not require a program unless the Superintendent directs one (in which case the contractor’s additional costs are added to the contract sum).
GC21 and FIDIC both require a detailed program showing the sequence and logic of activities and the critical path, which must be regularly updated and serves as an important progress-management tool. GC21 goes further than FIDIC in using the program to assess EOT claims: entitlement expressly depends on whether the delay affects an activity on the critical path of the then-current program and whether the work is proceeding in accordance with that program.
NEC goes further again. The program is not simply evidence produced later to substantiate an EOT claim; NEC uses it to determine the EOT. The EOT is the period by which, due to the Compensation Event, planned Completion is later than planned Completion “as shown on the Accepted Programme current at the dividing date”.
3. Time and money
The Australian forms, and to a considerable extent FIDIC, retain the familiar distinction between:
entitlement to an EOT;
entitlement to additional costs; and
valuation of a variation.
NEC substantially collapses those distinctions into the Compensation Event process, assessing time and financial consequences together.
That is more than a drafting difference. It changes the conversation the project team has. Instead of asking first “Does the contractor get an EOT?” and considerably later “What, if anything, does the owner have to pay?”, the parties address the consequences together, and the Project Manager can trade time against cost by instructing alternative quotations.
4. Prospective assessment
NEC also places considerably greater emphasis on assessing change prospectively.
The objective is to determine what an event is forecast to do to time and cost while the consequences can still be understood and managed, rather than waiting until the work is complete and reconstructing its actual consequences.
That does not eliminate uncertainty, and forecasting carries its own risks. But it changes when uncertainty is confronted.
That difference can be commercially important. A project team dealing with the consequences of a change as they arise has different information, incentives and opportunities for mitigation from the lawyers and experts reconstructing the same event two years later.
5. What happens if the contract administrator does not decide?
The contracts also take different approaches to administrative inaction.
AS 4000/4902 deems an EOT accepted if the Superintendent does not respond within the prescribed period.
GC21 does not deem the EOT accepted. Instead, an unresolved claim becomes eligible for escalation through the contract’s issue-resolution process.
NEC contains several mechanisms under which continued failure by the Project Manager to respond, generally after a further notice, can result in deemed contractual consequences.
FIDIC takes a more mixed approach depending upon the particular decision.
It would be easy to dismiss these provisions as procedural, but that would be a mistake. They govern how long uncertainty can remain unresolved and, just as importantly, what administrative resources the owner must have in place for the contract to operate as intended.
Choosing a contract is therefore also choosing an administrative model
This deserves more attention during contract selection, because a sophisticated contract-management system has limited value if the owner cannot operate it. NEC is the clearest example.
An owner selecting NEC needs a project team capable of maintaining and interrogating the program, running the early-warning process, responding within relatively short contractual periods and assessing Compensation Events contemporaneously.
That is a feature, not a defect, if the owner wants that style of project management and is resourced for it. It may be a poor fit if the owner expects the contract to sit in the bottom drawer until a significant claim arises.
Similar questions arise under the other forms. GC21 places the owner directly in charge of the contract's administration. AS 4000 retains the familiar Superintendent structure. FIDIC uses a sophisticated Engineer-administered model supported by detailed programming, claims and determination procedures.
The relevant question is therefore not merely which risk allocation do we prefer but also which contract-management system can this owner and project team operate effectively?
The commercial model matters too
There is another major difference that can be obscured by clause-by-clause risk comparisons.
NEC4 ECC begins by requiring selection of a commercial model. Its main option clauses accommodate priced contracts (using an activity schedule or bill of quantities), target-cost contracts, cost reimbursement and management contracting, with secondary option clauses adding further functionality.
AS 4000/4902, GC21 and the FIDIC Yellow Book are built principally around lump sum and schedule of rates pricing. That matters if an owner wants something else.
If the desired transaction is an incentivised target-cost arrangement, a management contract or another model designed to better align the contractor’s commercial interests with the owner’s project objectives, there is an obvious question to ask before taking a familiar lump sum form and then amending the commercial model:
Is there already an established form that provides the commercial model we are about to draft?
That brings us back to the problem of unnecessary bespoke drafting.
So which contract should an owner select?
There is no league table, nor should there be.
The Standards Australia suite may be a sensible starting point for a conventional lump sum Australian construct-only (AS 4000) or design and construct (AS 4902) project where market familiarity and relatively straightforward administration are priorities.
GC21 offers a different, government-developed Australian approach that combines broad EOT relief with tighter control of the owner's exposure to delay costs.
NEC4 ECC offers unusually broad commercial optionality and a highly developed project-management system, but needs a capable, properly resourced project team to operate it.
FIDIC brings detailed, internationally recognised machinery that may be particularly valuable where the project or contracting market is international, or the works involve significant plant. Its wider suite also includes forms for owner-designed works (Red Book) and underground works (Emerald Book).
These are not the only choices. Defence, transport agencies, and other government bodies have developed their own suites, and specialist forms (for example, Orgalim, IChemE, and MF/1) may better suit particular transactions, such as supplying and installing industrial plant and equipment.
So the objective is not to identify the best standard form, but rather the best starting point for the particular project.
Start with the project, not the preferred form
In my earlier article, I suggested that construction contracts are often made more bespoke than they need to be. There is an important corollary:
The way to reduce unnecessary bespoke drafting is not simply to amend contracts less. It is to choose the contract you start with more carefully.
That requires looking beyond familiar clause wording and asking:
Does the form support the commercial model we want?
Does its design allocation fit the procurement strategy?
How does it allocate the project's genuinely material risks?
Does it distinguish appropriately between time and financial relief?
What does it require the parties to do when risk materialises?
What role does the program play?
How quickly must decisions be made?
Does the owner have the people and systems needed to administer it?
Does the dispute machinery suit the project?
And how much surgery will be required before the form actually fits the transaction?
The detailed comparison of the Standards Australia contracts (AS 4000 and AS 4902), GC21, NEC4 ECC and FIDIC’s 2017 Yellow Book that informed this article is available via the link below.
The comparison is deliberately not exhaustive, but I think it demonstrates something important:
Choosing a construction contract is not simply choosing a risk allocation. It is choosing a commercial model and a system for managing the project when those risks materialise.
And that choice should be made before, not after, the bespoke drafting begins.
