Regulation of Building Contracts in Australia - Essay Example

The Construction industry has seen a boom in the past few years, and therefore proper and good regulations are needed to be adopted to effectively deal with any potential disputes that might arise. A building contract does have the essential elements of a contract and any breach whether anticipatory or not, does give rise to potential legal issues. The legal framework that informs the regulation of building contracts in Australia is quite exhaustive to give the guidelines and rules to be followed. These include the Australian Standard 4000-1997 (AS4000), the Construction Industry Reform and Development Act, the Building Industry Act, all authoritative in the principles that do apply in building or in constructions. It is clear to note that each construction contractual agreement can give rise to different disputes and each case presents different scenarios and potential areas of conflict or disputes. It is of crucial importance to note that contractual agreement can provide for a dispute resolution clauses, however where this is the case it ought to be given broadly in its construction to give effect to business purpose. Parties are not to give different or multiple venues or occasions for resolution of disputes as stated in Lipman Pty Ltd v Emergency Services Superannuation Board [2011] NSWCA 1631.A dispute resolution clause must however provide for the potential issues that are to be considered as well as grounds for appeals. Any contractual agreement is due to be faced with certain challenges such as frustration, the change in law or statute prohibiting the performance of the contract, change in circumstances or even “acts of God” can be considered as all leading to the non-performance of a contract. Variations in a lay man’s language mainly imply the changes that can be initiated by a contractor, a builder, the principal or the superintendent in relation to the construction agreement. Variations therefore can potentially change the contractual terms and does have an effect on the contractual agreement. Variations, according to the provisions of the law ought to be duly authorized by either the Superintendent or the Principal and all need to be attached to the original contractual agreement. A variation therefore is considered to be part of the contract, and it is legally binding to the parties that do sign it. The other area of dispute is what kinds of work can be implied or varied or whether it is necessary in performance of the contract. A particular work that is carried out can be considered as a variation on the basis that it comes within the general scope of the contract however some works are implied as was the case in Williams v Fitzmaurice2. In this case it was held that even though flooring was not mentioned, it was part of the contract as it included all the works in the contract. Moreover in Walker v Randwick Municipal Council3it was stated that the contract is not to perform the work set out in any plan; all work necessarily required for the construction must be done whether set out in the plan or not. Variation clauses are essential to ensure that contractors can recover payments for variations done as directed (Knight Gilbert Partners v Knight (1968) All ER 248) and that the proprietor is not entitled as of right to direct variations (Ashwell Nesbitt v Allan & Co (1912). In any effect any kind of variation is affected by a contractor, then section 36.4 provides for pricing, where the Superintendent is entitled to price each variation using the precedence set out. This would be based on; prior agreement, applicable rates of the contract, rates or prices, reasonable rates of prices with the price not to be added or deducted from the contract sum. Generally AS4000 gives the Superintendent powers to authorize variations, provide and spend money on the variations and therefore a dispute might arise where the budget money ends before a complete performance of the contractual agreement is affected. In Sir Lindsay Parkinson & Co Ltd v Commissioners of his Majesty’s Work and Public Buildings4where under the contract the contractor had spent more money than contemplated in the contractual agreement, and the court in this instance held that the principal was entitled to pay the contractor reasonable remuneration but it was not clear whether the contractor was entitled to any given additional remuneration. The formalities required in the enforcement of the contract is that there must be written directions. In District Board of Broadmeadows v Mitchell (1867) 5 Lord Blackburn stated that no extra work shall be paid for unless it is ordered in writing by the engineer, and if such conditions are properly made, and there is no fraudulent or iniquitous in the way they are carried out, these conditions would be quite sufficient and effectual6. The written documentation must be signed and authorized to do the works as held in Bedford v Borough of Cudgegong7 The contractual agreement at times does provide that the contractor is not entitled to payment for any given variations unless the Principal or the Superintendent has given the Contractor a written instruction. This therefore means that a variation to qualify for any given kind of payment there ought to be due authorization, through a written instruction. The case in point would be that the court would most likely not enforce an oral agreement for variation. In Wright v Foresight Constructions Pty Ltd8 where it was stated that the Tribunal was not bound by any oral variation of the residential building contract based on the fact that the contractual agreement at clause 14 had provided that the contract be in the form of a written agreement. In some instances, the contractual agreement might provide that the work be varied in particular ways as in Wright v Foresight Constructions Pty Ltd9where the contractual agreement stated that the works might be varied in certain ways, it was not restrictive as well as it required the builders to consent to a variation which consent was not to be unreasonably withheld. The ruling of the Court was that a contract in writing that is varied informally ceases to be “a contract in writing”. The contract that was varied was not enforceable by the builder, and the informal variation may have prevented him from enforcing the original formal written contract because the contract was no longer in writing. However a contract was still in existence that is enforceable by the owner. This therefore presents that an area of dispute arising is in the view of an oral contract as opposed to a written notice to do any variation for any building under construction. This depends on the intention of the parties even though AS4000 provides that the contract ought to be in written format as opposed to having an oral contract of variation. Recovery for money to be paid for variation under an oral or written contract also does provide an area of disputes. The statute law generally provides that there can be no recovery given to any party in the contractual agreement where the work carried out or varied was not duly authorized. AS4000 provides that variation of work can be done through a proposal, a direction or with notice by the Contractor that variations ought to be done all with a written notice. No any other person is authorized to undergo or permit any variation without the proper consent of the contracting parties, the principle or the superintendent. The law even though strict on the wordings about the enforcement of a written contract, legal doctrines or principles such as estoppel, unjust enrichment, implied promise to work outside the contract and waiver can be grounds for which a court may order for the payment of work done under variation. In Liebe v Molloy10 where the courts provided that an implied promise to pay for any given variation , however this must be accompanied by a proof from the contractor, that the principal had implied on the contract that the price would be paid for any extra work that is undertaken by them. A variation generally is not a work outside a contract and cannot be considered as “extra work”. However, extra work can encompass even work outside a contractual agreement. A potential area of dispute as regards extra work or variation is where the contract states that the variation is not subject to any form of extra payment. AS4000 provides that the pricing for any variation should not be deducted from the overall sum in the contractual lump sum payment. However in Trimis v Mina(1880) it was stated that he was not entitled to pay any sum of money for any kind of contractual work undertaken, even though the principal had acknowledged that indeed the desired extra work had been undertaken. The court held that it was not in dispute that the contractor had indeed carried out the work and had gone to an extent of finishing it, and therefore the principal was entitled to pay the contractor for the extra work that was carried out. The doctrine of estoppel as established in equity provides that no person should claim to be estopped from giving due to what was provided in a form of contract. A contractor or a principal should not claim that the work was carried outside the contract and therefore is not entitled to pay. In Update Constructions Pty Ltd v Rozelle Child Care Centre11 is that a principal could estoppel by the reason that there was no written agreement through the conduct of the contractor to pay for the variations. This therefore means that where the conduct of the contractor in carrying out the variation was not done in good faith or there was unconscionable conduct on the part of the contractor, therefore the principal would not be entitled to pay. The potential areas of dispute as regards the construction contractual agreement does arise in areas where the variations are carried out by the contractor, and there is an additional need of payment for the variation or extra work that has been carried out. AS4000 provides for the various grounds in which the law can grant payment for any kinds of variations that are carried out. The common law principles that are adapted to these provisions are quite strict except with the exceptions provided such as unjust enrichment where the courts would have to overlook the strict observance of the law. The Act provides the main persons authorized to carry out any variations are the Superintendent with a written notice to accompany the order for variations as well as the reasons for the variation. A written notice as contemplated by AS4000 is that it must have the adequate details of the variation; the wording of the notice must be clear and concise with no ambiguities and should be attached to the contractual agreement. The variations provided for under the AS4000 are; direct variations, proposed variations, variations for convenience of contractor and the aspects of pricings for any variations that are done. Contract variations a provided by AS4000 at section 36. 1 provides that direct variations of WUC should not be varied by a contractor except as provided in writing. This can be done under the direction of the Superintendent before the date of practical completion that may allow the contractor to vary WUC but in consideration of various provisions. This include the variations whose character and extent are contemplated by, and capable of being carried out under, the provisions of the contract and they include: increase, decrease or omit any part, change the character or quality, change the levels, line positions or dimensions, carry out additional work and demolish or remove material or work no longer required by the principal. The courts have however in the previous past authorized the variations of an oral contract where the contractor had reasonably relied on the oral contractual agreement to his detriment as provided in Wright v Foresight Constructions Pty Ltd12. Another kind of variation provided for by AS4000 is proposed variations at section 36.2 and this need to be given to the Contractor via a written notice by the Superintendent. Once received by the contractor, then he has a duty to notify the Superintendent whether the proposed variation can be effected. To accompany the notification an estimate of the; effect of the construction program (date of completion), cost of the proposed variation. The Contractor’s cost for each compliance with this sub clause shall be certified by the Superintendent as money’s due to the contractor. Section 36.3 of AS4000 anticipates the variation for convenience of contractor. This is usually considered on the basis that the Contractor makes a request to the Superintendent to direct variation for the convenience of the contractor. This direction need to be given in writing and may be conditional but once it is given a Contractor is not entitled to an extra time or extra money. In conclusion, it is important to have regulations or laws that govern contractual agreements that relate to construction work as well as those that relate to relationships of the principal and the contractor. The main potential areas of disputes that might arise are where the contracting parties have modified the agreement subject to an oral agreement. In this case the courts have created the rules of considering the wordings of the oral agreement, the intention of the parties as well as using certain grounds in order to effect payment of work done. Concepts such as estoppel, unjust enrichment, implied payment for the work done, seek to provide relief either to the contractor or the principal for the costs that are incurred as a result of any variations that are undertaken. Pricing of variations, delay of work under a variations are also potential areas of conflict and a change in the work can also lead to the change and modification of the contemplated agreement. The AS4000 has sought to remedy the law where it provides for the process of variation, which is duly authorized to carry out any variations of the contract as well as the pricing of the contractual agreement. Variations are mainly to be given under a written notice and this therefore would give a leeway for the Superintendent to make orders as to costs or the pricing for the variations. List of References Australian Standard 4000-1997 Bailey Julian, Construction Law, 1st edition, LLP Professional, 2011. Cooke JR, Architects , Engineers and the Law,4th edition, Thomas Reuters, 2011. Cremean, DJ , Brooking on Building Contracts, 3rd edition, Butterworths, 1995. Dorter JB and Sharkey JB, Building and Construction Contracts in Australia : Law and Practice, Law Book Company, 1990. Furst J and Ramsey B, Kaeting on Construction Contracts, 9th edition, Sweet and Maxweell, 2012. Ian Bailey and Mathew Bell, Construction Law in Australia, 3rd edition, Law Book 6, 2011 Knowles Roger J, 200 Contractual Problems and Their Solutions Law Book Company, 2012. Marcus Jacobs, Security of Payment in the Australian Building and Construction Industry, 4th edition, Law Book Co. , 2011. Philip Davenport and Uher Thomas, Fundamentals of Building Contract Management, UNSW Press, 2010. Philip Loots and Donald Charrett, Practical Guide to Engineering and Construction Contracts, Law Book Co., 2009. Phillip Davenport , Construction Claims, 2nd editions, Lexis Nexis, 2006. Richard Wilmot-Smith, Construction Contracts: Law and Practice, 2nd edition, Oxford University Press, 2010. Turner C, Australian Commercial Law, Law Book Company, 1997. Wallace IND, Hudson’s Building and Engineering Contracts, 10th edition, Sweet and Maxwell, 1970. Read More