ABIC Simple Works Contract: Terms and Conditions

Contract Terminology and Introduction to ABIC

• Focuses on terms and conditions in standard construction contracts, using the ABIC Simple Works Contract as an example
• Explains the relevance of contract schedules
• Covers key terms and conditions in the Simple Works Contract

Presenters

• Ashleigh Vumbaca is a Senior Associate at Bradbury Legal
• Brendan Hoffman is a Director at Bradbury Legal

Learning Outcomes

• Understand the principles and details in lump sum building contracts
• Understand and apply common contractual terms
• Understand the role as the Architect in administering the Contract

NSCA 2015 Performance Criteria

• Relates to competencies from the National Standard of Competency for Architects 2015
• Project Delivery Procurement: Knowledge and application of administration and principles for the selected procurement method and associated contracts
• Project Delivery: Construction Stage: Recommendation regarding contractor selection and specifics of the project contract

NSCA 2021 Performance Criteria

• Relates to competencies from the National Standard of Competency for Architects 2021
• Design Delivery and Construction Phase Services: Ability to select and implement project administration systems based on assessment of procurement methods
• Ability to advise clients and lead the process of selecting a qualified contractor according to the agreed procurement method and construction contract

Australian Building Industry Contracts (ABIC)

• A suite of construction contracts by Master Builders Australia Ltd and the Australian Institute of Architects
• Provides a contract in plain English that balances the rights and interests of contractors and principals
• Aims for a fair, workable contract for certainty in dispute resolution and efficient project delivery

The Contracts

• Updated suite of contracts released in 2018 to replace the 2008 contracts
• The focus is the Simple Works Contract
• Covers residential and non-residential projects
• Includes contracts for Basic Works, Early Works, Simple Works, and Major Works
• Can be used when projects are intended to be administered by an architect

Simple Works Contract – ABIC SW-2018

• Used for simpler projects where the architect is the contract administrator
• A good 'basic' contract to understand provisions in construction contracts and how they operate
• Best for less complex works with total contract value less than roughly $3 million
• Project complexity and circumstances determine if a simple works contract is appropriate

Major Works Contract - ABIC MW-2018

• Similar to simple works contracts, but includes provisions on issues such as:
• The need for urgent instructions
• Encroachments
• Multiple contractors or subcontractors
• Dispute resolution processes
• The only standard form major works construction contract also compliant with domestic building legislative requirements
• Does not apply to residential building works where the owner will reside once complete

User Guides

• Developed to assist with the interpretation of ABIC contracts
• Assist parties in understanding terms and clauses and the administration of the contract
• Drafted in plain English with flow charts and step-by-step instructions
• The architect will likely be familiar with the contract itself, the terms and clauses within the contract and the way in which the contract is applied to the project, it should not be assumed that the principal, or the owner will have the same understanding
• Particularly helpful for Simple Works Contract projects like single residential dwellings
• Explain contract administration in practice with instructions on handling issues
• Breakdown sections of the contract, highlighting key points and clauses
• Should be read in conjunction with the contract itself

Simple Works Contract structure – ABIC SW-2018

• A legally binding document outlining rights and obligations at the project's start
• Parties and project details
• Contract documents and special conditions
• Obligations of parties prior to the works commencing
• Obligations of parties throughout the works
• Variations to the works
• Payment for the works
• Dispute resolution processes
• Termination of the engagement

Construction Contract Terminology

• Each contract has a dedicated definitions section within the substantive agreement
• Definitions clauses contain key terms or phrases used throughout the contract
• Terms are given a specific meaning within the contract, to avoid disputes arising in the course of the project
• Simple Works Contract definitions are page 61
• A word that is defined within the definitions section will be italicized when used in the contract
• Practical completion is a key reference date but what constitutes practical completion will be different in each contract

Terms in Schedule 1

• Contract document: includes the contract, schedules, drawings, specifications, and tender documents
• Contract price or contract sum: the price the principal pays the contractor, may be varied
• Official document: approvals or certificates needed for the works to be completed
• Practical completion: the stage where works are substantially complete except for defects
• Prime cost sum: payment to the contractor for specific items
• Security: money or promise of money from the contractor to secure performance (cash retention or guarantee)
• Works: work to be executed in accordance with the contract

Preliminary Information

• The owner or principal under the Simple Works Contract has a statutory right to 'cool off' or cancel the contract within five clear business days
• The 'time' on this right begins to 'run' when the earlier of the following events occurs:
• The owner receives a copy of the executed contract, or
• The owner becomes aware that they are entitled to a copy of the executed contract
• A clear business day is a full business day, not including the day the contract was signed
• If rescinding, the owner prepares a written notice, provides it to the contractor, the contractor may keep incurred expenses and must returns payments, and the owner is not liable

Contract Schedules

• Vital for standard form contracts like ABIC Contracts
• Contain essential information for the contract's execution and specifics of the project
• Allow parties to modify the contract and specify personal preferences
• Schedules give effect to the clauses of the contract
• Parties are bound by terms in the contract and schedule at the time or signing or cannot retroactively apply the term or seek to rely on it later if missed

Schedule 1

• Sets out key information for the contract, including party details, site information, and financial details
• Schedule identifies the contract specifics and establishes how and when the contract will be executed
• Terms cannot be retrospectively inserted if left blank
• Consequences of missing schedule items:
• Date for practical completion: determines when risk for damage to the property transfers from the builder to the owner (C6) and determines when the owner may impose liquidated damages for delay
• Court may review 'what is reasonable in the circumstances' for the date if not specified
• Liquidated damages: financial consequence of not meeting obligations to bring the works to completion by the date for practical completion

Contract Sections: Section A – Overview

• Section A sets the tone and provides guidelines on conducting throughout the contract, directed to act reasonably and cooperate on the project and to work through disputes
• Sets out obligations and warranties of the parties
• Section A requires the contractor to work diligently (A2. 1.b.) and to maintain a clean and tidy workplace (A2.1.c.) and relevant legislation (A2.1.g.), and to give warranties
• The owner confirms they will give the contractor possession of the site, appoint an architect, and pay the contract price (A4 3.g.)
• The contractor warrants they have the capacity to pay
• Section A sets out the obligations of the architect:
• The architect represents the owners (A6.2), except when acting as the independent valuer or assessor (A6.3)
• Section A provides for circumstances when the architect does not comply with provisions or when the architect's decision is disputed

Section B - Documents

• Details how the parties are to deal with any problems as to the contract documents in clear and plain English
• The architect is required to prepare two copies of each document
• Parties must advise the architect of any discrepancy, who then makes a binding decision in writing to resolve it (B1)
• Sets out the order in which contract documents will be read (B2)
• The parties are to provide the architect with copies of the official documents (B3)

Section C - Security

• Provides financial protection if the contractor fails to fulfil obligations
• Security is provided by the contractor in the form nominated by the parties and held by the principal until project completion or failure to comply + architect determination
• MUST nominate that security to be provided in Schedule 1 item 7a
• Must then nominate the form of security in item 7b of Schedule 1

Types of Security under the Simple Works Contract

• Cash retention: the principal withholds a portion of each progress payment until retaining the specified percentage of the contract price
• Should nominate ‘cash retention' as the security option under schedule 1, item 7a, and nominate the price percentage to be withheld under item 8
• Default if parties ail to nominate an option under item 8 is 5%

Clause C2

• Determines how the parties will deal with the cash retention
• The principal may retain up to 10% of each progress payment, up to the amount shown in item 8 of Schedule 1 of the contract price or usually 5%
• The principal must retain any cash retention in a separate single bank account, as trustee for the contractor, including any interest earned and excluding any fees or bank charges
• The principal cannot ask their lawyer or accountant to hold money on trust for the contractor

Unconditional Guarantees

• A 'promise' from the contractor's bank or financial institution to make a payment to the principal for a specified sum of money when a 'specified event' occurs'
• Must specifically choose this under item 7a of schedule 1 and specify the percentage of the 'contract price' covered by each guarantee
• Contract presumes 2.5% per guarantee if parties do not fill in this section
• Unconditional guarantees are to be provided within 10 days of the contract being executed.
• The guarantee must be of a 'type' approved by the principal or owner as detailed in schedule 5
• Bank guarantee is to be provided exclusive of the GST component if the owner is a business registered for tax purposes

Owner's Right to Draw Security

• Principal can only draw on the security where the architect issues a certificate when the contractor fails to meet obligations' to make payments within the relevant timeframe under-
• N4: Stage payment claims
• N11: Final certificate
• Q9: Amount payable on termination
• Q17: Amount payable
• Contactor does not dispute the architect's certificate
• The owner has complied with the procedure set out within the contract at clause C5, including giving notice when relevant

Release of Security

• The security will be returned to the contractor when the project comes to an end if there is no need for the owner to draw on it
• Security is returned in stages: at practical completion, and the balance with the issue of the final certificates
• Under clause C6, the contractor is automatically entitled to the release of 50% of the amount of security provided at commencement when the certificate for practical completion is issued by the architect, under the following process:
• Cash retention: The architect will provide the contractor a certificate equal to the amount held by the principal for security
• Unconditional guarantee: The owner is obliged under clause C6.3 to return one of the two bank guarantees held to the contractor within the relevant timeframe

Security and the Final Certificate

• Clause C7 of the contract deals with the way in which the security is dealt with when the final certificate is provided by the architect
• Release the remainder of the security back to the contractor once the architect issues the final certificate stating the entirety of the works has been completed, less any sum still owing to the owner under the contract
• The architect is to include these figures in the final certificate if the security provided is a cash retention
• Unconditional guarantee: If the architect has found the certificate is in favor of the contractor, the owner is to provide the contractor with the unconditional guarantee in accordance with the contract and vice versa

Security and the Architect's Role

• The providing and maintaining security under the contract is to reflect the risk borne by the principal, and to return it gradually as the risk is reduced
• Must bear this in mind when making decisions that will affect the security, including the issue of the release of the security
• Administrator is required to be across the implications of various notices under the contract, and when the Contractor can ask for security back or the owner can call on the security for a default

Concluding Summary

• The architect fills in the specifics of the project in standard building contracts
• The terms become part of the contract, some of these terms cannot be filled out after the contracts are signed
• Terms set out the processes surrounding the handling of security in the Simple Works Contract, which the architect must administer as an independent assessor