How are standard forms of contract used in the construction industry across Australia?

The Melbourne Law School conducted a research report looking into the use of standard forms of contract in the construction industry, and the initial findings were published in a report entitled, Standard Forms of Contract in the Australian Construction Industry (Report).[1] The purpose of the Report was to gauge how standard forms of contracts were used and the effectiveness of such standard forms – especially in relation to the ability of such contracts to balance risk, while facilitating efficient project administration.

The Report found that while the industry showed strong support for the use of standard forms, 54% of respondents still believed that there were no forms that would be considered as suitable to be used within the industry without significant amendments being made.[2]

Research methodology

The survey was conducted online from 3 December 2013 to 14 February 2014 and attracted 295 respondents, relating to 379 projects.[3] Respondents were able to report on the contracts of up to three projects undertaken within Australia over a five year period prior to the Report in which they had direct knowledge either as a participant, or as an adviser.

Comments were solicited for projects across eight bands of value starting from less than $100,000 to over $500 million.[4] The projects encompassed residential buildings, which included either commercial developers or private individuals as principals, commercial buildings, process engineering, mining and resources infrastructures, and infrastructures other than mining and resources, that included private and public sector individuals.[5]

Survey participants: roughly half of respondents self identified as lawyers; approximately a quarter were drawn from within the primary contracting parties; and a little over a quarter of respondents identified themselves as consultants, and within that category, over half were contract administrators and independent reviewers. Although the survey did not elicit responses stating the geographic location of the projects, the researchers were still able to conclude that the survey incorporated projects in every State and Territory, and the projects were based both in major cities, as well as regional Australia.[6]

Research participants: researchers conducted 47 interviews between January and March 2014, with 83% (39) of the interviews conducted by phone, and 17% (8) completed face-to-face. The interviewees ranged from those who were prompted to undertake an interview within the survey, and others who were approached directly by the researchers who were known to be experienced in the area of standard forms of contract. The interviewees also demonstrated considerable experience within the industry, with 81% having at least 10 years experience within construction, and a further 51% had at least 20 years of experience.[7]

The findings

How standard forms of contract were used

Sixty eight percent of the contracts reported upon were standard forms. Delving deeper into the findings, the rates of usage of standard forms varied depending on a number of factors that included the following:

• the value of the contract: the use of standard forms was almost unanimous on contracts valued less than $100,000. The percentage of standard forms used for contracts valued between $100,000 and $500 million, ranged between 66% and 78%. However, the use of standard forms dropped for contracts valued over $500 million, at 28%;[8]
• the position of the contract within the “contracting chain”: in relation to head contracts, 75% used standard forms as a basis, while in contrast, 33% of subcontracts and trade contracts used standard forms as a basis;[9]
• the contracting sector: standard forms were most prominently used within the residential building sector, and remained high in both the commercial building, and process engineering sectors. However, the use of standard forms began to drop in the public and private infrastructure sectors, with the lowest rates of usage seen in the sector of mining and resources infrastructure.[10]

The researchers found that in States and Territories where mining and resources had a significant presence (Northern Territory, Queensland and Western Australia), standard forms were found to be utilised in 43%-58% of contracts, compared with the rest of Australia where standard forms were used 65%-100% of the time.[11]

When were standard forms amended?

According to the findings of the Report, 84% of standard form contracts were amended, with the need to shift risk cited as the major factor for making amendments. Delving further into the results, the types of clauses that were amended related to the following areas:

• extension of time (76%);
• delay damages (71%);
• site conditions (68%);
• payment (65%);
• variations (63%).[12]

Concluding remarks

The Report found that respondents used standard forms to minimise transaction and legal costs. However, instances where amendments were made, the perception was that any efficiency gains were offset by the amending standard forms, leading to increases in the “seeking of legal advice, project outturn cost and disputation.”[13]

This article or the information contained therein does not purport to provide a full explanation of the law, give advice or any guidance to anyone in connection with the use of standard form contracts or drafting of construction contracts or any other issue and this article is not to be used by anyone to support their legal position or otherwise. For clarification purposes and further to the above this article does not purport to be advice in any regard. This firm cannot take responsibility for any action readers take based on this information. We would be happy to assist you with any property, real estate, development, building, construction and engineering related legal issues you may have, please get in touch via [email protected] or telephone our Brisbane office on (07) 3087 3463, Sydney office on (02) 9293 2546 or Sunshine Coast office on (07) 5413 9270 and one of our experienced lawyers will respond to you.

[1] Standard Forms of Contract in the Australian Construction Industry (The University of Melbourne, 2014), https://law.unimelb.edu.au/__data/assets/pdf_file/0007/1686265/Research-Report-Standard-forms-of-contract-in-the-Australian-construction-industry.pdf

[2] Ibid 4.

[3] Ibid 14.

[4] Ibid 21.

[5] Ibid 15.

[6] …

[7] …

[8] Ibid 4.

[9] …

[10] ….

[11] Ibid 22.

[12] Ibid 11.

[13] Ibid 34.