Australia: Construction force majeure and alternative relief

What is the most commonly used standard form construction contract used in the country? 

The standard form construction contracts most commonly used in the Australian market are the Australian Standards (AS) general forms of contract. This suite of contracts has been issued by Standards Australia and prepared by drafting committees of industry groups. The suite covers design and construction, construction only and small works procurements. 

The AS standard forms dominate the Australian construction industry – where a standard form is used, 70 per cent of the time it is an AS standard form, and specifically one of the main four:

• AS 2124 - 1992 – general conditions of contract for construct only (old suite)
• AS 4300 - 1995 – general conditions of contract for design and construct (old suite)
• AS 4000 - 1997 – general conditions of contract for construct only (new suite)
• AS 4902 - 2000 – general conditions of contract for design and construct (new suite)

Subcontracts and extremely high value contracts (over AUD500M) are less likely to be based on the AS standard form contracts.

A license from Standards Australia is required to amend the AS form contracts. 

Clause references and capitalized terms in this section refer to those used in the AS general forms of contract, unless specifically stated otherwise.

Does the contract include provisions on force majeure?  

The AS general forms of contact do not include provisions on force majeure. 

Does the contract include provisions for alternative relief that may be relevant to projects impacted by COVID-19?  

While the AS general forms of contract do not include a force majeure clause, the contractor will be entitled to an extension of time for ‘”qualifying causes of delay”.

By way of example, Clause 34.3 of AS4000 – 1997 provides as follows:

“The Contractor shall be entitled to such extension of time for carrying out WUC (including reaching practical completion) as the Superintendent assesses (‘EOT’), if … the Contractor is or will be delayed in reaching practical completion by a qualifying cause of delay …”

Clause 34.9 of AS4000 – 1997 also provides for delay damages in the event of a “compensable cause” as follows:

“For every day the subject of an 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.”

Furthermore, the contractor would be entitled to claim additional cost in the event of changes in the law arising from the COVID-19 pandemic.  Clause 11.2 of AS4000 – 1997 provides as follows:

“If a legislative requirement:

• necessitates a change:
  • to the Works;
  • to so much of WUC as identified in Item 19(b);
  • being the provision of services by a municipal, public or other statutory authority in connection with WUC; or
  • in a fee or charge or payment of a new fee or charge;
• comes into effect after the 14^th day before the closing of tenders but could not reasonably then have been anticipated by a competent Contractor; and
• causes the Contractor to incur more or less cost than otherwise would have been incurred,

the difference shall be assessed by the Superintendent and added to or deducted from the Contract Sum”.

A “qualifying cause of delay” is defined as follows:

• “any act, default or omission of the Superintendent, the Principal or its consultants, agents or other contractors (not being employed by the Contractor); or
• other than:
• a breach or omission by the Contractor;
• industrial conditions or inclement weather occurring after the date for practical completion; and
• stated in Item 23.”

The “qualifying cause of delay” described in (a) will entitle the contractor to an extension of time, whereas the events in (b) will not.   If, however, the relevant event is not referred to in either (a) or (b), then it is not entirely clear whether a Contractor will be entitled to time relief.   The official AS4000 – 1997 Administration Manual states, however, that: “All other causes of delay except those specifically stated in (b) of the definition also entitle the Contractor to an EOT, if the conditions for an EOT under subclauses 34.3 and 34.4 are satisfied.” 

Therefore, assuming no amendments were made to clause 34.3 of AS4000 – 1997 and there are no additional causes set out in Item 23 which provided otherwise (and the relevant pre-conditions were met), the COVID-19 pandemic would entitle a contractor to claim an extension of time. 

A “compensable cause” is defined as follows:

• “any act, default or omission of the Superintendent, the Principal or its consultants, agents or other contractors (not being employed by the Contractor); or
• those listed in Item 26”.

A ”compensable cause” described in both (a) and (b) will entitle the contractor to delay damages.

Assuming no amendments were made to clause 34.9 of AS4000 – 1997 and there are no additional causes set out in Item 26, then the COVID-19 pandemic would be unlikely, of itself and in the absence of an act by the Superintendent and the Principal, to entitle a contractor to claim delay damages. 

If, however, the Principal, for example, directs the closure of a site or the suspension of the works as a result of the COVID-19 pandemic, then the contractor may be entitled to claim delay damages.

Do the laws of the country provide for force majeure relief?

Force majeure is not a recognised legal doctrine in Australia. 

Force majeure is relevant in a contractual context only, meaning that whether a “force majeure event” excuses performance of obligations is wholly dependent on the wording of the relevant clause(s) of the contract. 

Do the laws of the country provide for alternative relief that may be relevant to projects impacted by COVID-19?

If a contract does not include a force majeure clause, then a party may look to the common law doctrine of frustration.

Frustration will be established where it is impossible to perform an obligation, however frustration will not apply in certain circumstances, including where the parties have included a force majeure clause in their construction contract which covers the relevant circumstances. 

The doctrine of frustration applies in very limited circumstances and a high threshold will have to be met before a contract will be considered to be frustrated.

A contract is not frustrated if it merely becomes more difficult or expensive to perform. Because the parties’ precise arrangements and communications are highly relevant, the same incident could frustrate some contracts but not others.

If, however, a court agrees that a construction contract is frustrated, the parties will no longer be required to perform their contractual obligations and the contract will be terminated at the moment of frustration.

In some states of Australia, legislation has been introduced to address some of the harsher implications of the common law doctrine of frustration.