Standards Australia’s 2024 update to AS 4000: a missed opportunity
Standards Australia has just released for public consultation its proposed update to AS 4000, but the update is very minimalist – to ensure no change to the contract’s 1997 risk allocation.
The ‘no change to risk allocation’ mandate was the only basis on which the update could proceed after the last attempt at an update involving changes to the risk allocation – the AS 11,000 contract – imploded.
Overview of changes
Consequently, despite a significant volume of edits, the changes of substance are limited to the following:
the addition of a Formal Instrument of Agreement within the published standard;
inclusion of alternative dispute resolution mechanisms that the parties can select;
the addition of a GST clause that includes provision for Recipient Created Tax Invoices; and
the addition of a PPSA clause dealing with the registration of Personal Property Security Interests created under the contract;
aligning the insolvency provisions with current legislation;
inclusion of a template deed of novation (to give effect to clause 9.4) as Annexure Part D, based on the equivalent in the AS 4902 template;
provision for formal contract notices to be sent by email or an electronic document exchange system;
the addition of some usual exemptions to the confidentiality obligations in clause 8.5; and
the threshold for a deemed Variation when the actual quantities are greater or less than the quantities shown in a Bill of Quantities or Schedule of Rates has been increased from $400 to $1000.
The first two substantive changes are further discussed below.
The edits that are intended to be non-substantive include:
requiring the principal to ensure that the superintendent performs its functions “fairly and reasonably”, rather than “reasonably and in good faith”;
changing the terminology for the compensation payable to the contractor when the date for practical completion is extended for a compensable cause, and clarifying how such compensation is to be calculated;
replacing references “shall” with “must” or other more modern language;
conforming all references to “promptly”, “forthwith”, “immediately”, “as soon as possible” and the like with “as soon as practicable”;
capitalising and removing the application of italics to all defined terms;
defining terms like “Latent Condition, “Defect” and “Variation” within clause 1.1, rather than within the relevant operative clause;
modernising the clause references by getting rid of the distinction between clauses and subclauses; and
greater use of plain English drafting.
Formal Instrument of Agreement
The new standard will incorporate a Formal Instrument of Agreement – a short document that lists all of the other documents that, together, comprise the contract, and provides a signing page. This addition recognises that most users of the standard now prefer to create the contract by having both parties execute a Formal Instrument of Agreement, and removes the need for such users to develop their own Formal Instrument of Agreement, or to separately purchase the Formal Instrument of Agreement from Standards Australia. Parties can, of course, continue to use other methods to create the contract, such as issuing a letter of acceptance in response to an offer received from the other party.
Alternative dispute resolution methods
The 1997 standard requires all disputes to be resolved by negotiation, and if a negotiated resolution cannot be achieved within 28 days, then by arbitration.
This is retained as the default dispute resolution procedure in the 2024 update, but the parties can supplement or replace the default procedure with the following additional alternative dispute resolution options:
mediation;
expert determination;
mediation and expert determination; or
dispute avoidance board.
The options and some choices within them are discussed in further detail in a separate article (which you can access via the link at the end of this article).
The missed opportunities
Lack of optionality
The AS4000 contract does not provide users with the optionality that is currently available from other standard form construction contracts. While the 2024 update will provide greater optionality in respect of alternative dispute resolution processes, the ‘no change to risk allocation’ has precluded the addition of other options that would have been welcome additions to the standard form including:
Pricing options such as:
Cost reimbursement plus a fee for profit and contribution to corporate overheads;
Cost reimbursement plus fee, with a target cost and sharing of cost savings or cost overruns;
Cost reimbursement plus fee, with a gainshare/painshare regime that incorporates a target cost and other non-cost KPIs;
Price adjustment for inflation (also known as a rise and fall clause);
Building Information Modelling (BIM) clause;
Termination by the principal for convenience (with compensation for loss of profit);
Advance payment to the contractor;
Design responsibility – to avoid the need for a separate contract form where the contractor is to have design responsibilities;
Low performance damages;
Agreed damages for delays arising from compensable causes;
Principal’s right to direct acceleration, if possible and at the principal’s cost, to overcome an extension of time to which the contractor is otherwise entitled;
Limitation of liability;
Exclusion of liability for consequential loss;
Whole of life cost;
Early contractor involvement;
Multi-party collaboration between parties engaged under separate two-party contracts;
Express obligation to act in good faith;
Early warning mechanism;
Corrupt acts;
Key people.
Known problems remain
Because of the ‘no change to risk allocation’ mandate, the 2024 update also fails to address known problems with AS 4000 such as:
when both non-qualifying and qualifying causes of delay overlap, the superintendent’s obligation to apportion the resulting delay according to the respective causes’ contribution;
the absence of an obligation on the contractor to provide a programme and to update it – the contractor is only obliged to do so if directed by the superintendent, in which event the cost impact of the direction is added to the contract price;
the contractor is prohibited from departing from the programme without reasonable cause – most industry participants now accept that the contractor should be free to adjust its programme as it sees fit, so long as it informs the principal and remains obligated to achieve practical completion by the date for practical completion; and
non-recognition of the dual role of the superintendent.
Conclusion
The proposed 2024 update is a step in the right direction for the Standards Australia suite of construction contracts, but Standards Australia needs to become more ambitious and provide greater optionality if it wants the suite to maintain its market share.
Standards Australia should give its drafting committee a fresh mandate that enables the committee to change the contract’s risk allocation to the extent needed to provide greater optionality and address known problems with the contract.
The market should use the current public consultation process to encourage Standards Australia to provide its drafting committee with such a mandate. Use the link below to do so.
