Building and Construction and Dispute Resolution Special Counsel, Daniel Morris, and Director, Murray Thornhill’s series on commonly used, often misunderstood and potentially harmful civil and construction clauses end on a more positive note. We consider how simple clauses that create a back-to-back flow between head and subcontracts, make better use of the Personal Property Securities Act, modify standard payment regimes and preserve proportionate liability, can improve contractual management and outcomes for all concerned.
Head contracts and subcontracts should provide for payments, notifications, contractual claims, insurance claims, and assignments of warranty, in ways that fit seamlessly together. This will ensure the smooth and undisrupted flow of cash down the contracting chain, and of works, supplies, and information up the contracting chain. Smooth, efficient workflows, cashflows, and information flows serve the project as a whole and benefit all who participate in it.
Maximising Personal Property Securities Act (PPSA) protections
With careful, bespoke drafting (as opposed to over-reliance on templates or standard forms), everyone can benefit from PPSA protections:
- principals, to secure proper and complete performance of works and supplies of materials, according to the contractual scope and standard;
- contractors, to secure their right to be paid; and
- hirers of plant and equipment, not only to secure rent payments but also and more importantly, to protect their property from being seized and sold by the liquidators of an insolvent customer, to pay out its debts to lenders and secured suppliers. You read this correctly: the plant and equipment that you own can be taken away from you and sold, in order to pay out your customer’s creditors, just because your customer had possession of your property when it became insolvent and you did not register under the PPSA.
Everyone involved in civil and construction contracting should take our advice about PPSA. No exceptions.
Confining contractors’ payment rights to the contract
Principals will want to avoid having to make any payments to contractors and suppliers that are not expressly required by the contract. However, despite recent challenges in the courts, there are still circumstances in which civil and construction contractors can try and claim payments for their work outside of the contract. It is difficult to make out such a claim, but it is not impossible. With some careful drafting, however, you can close the door altogether on the right to claim payments outside of the contractual payment regime.
These are contractual mechanisms for principals to avoid making payments that are otherwise due under a civil or construction contract.
Set-offs involve reducing a contractor’s progress payment by the amount that the principal believes the contractor might owe on account of alleged defects or delays. Much like a principal’s right of recourse to security, set-off provisions can effectively allow principals to withhold monies earned by contractors for years, while the parties fight about the defect and delay claims that have been set off against the contractor’s payments. Some contracts go a step further and allow principals to set off any amount that they claim under any one of their contracts with the same contractor, against the contractor’s payments.
Where several wrongdoers have contributed to the one-loss, proportionate liability legislation around Australia limits each wrongdoer’s liability to the extent of their contribution. So, for example, a 30% contributor to a principal’s losses will only have to compensate for 30% of those losses.
This is a common scenario in civil and construction projects, where the one-loss may have been contributed to by any one or more of:
- negligent workmanship;
- negligent design;
- negligent certification;
- defects in materials supplied (pointing to supplier or manufacturer negligence);
- negligence by the owner; and/or
- negligence by the user.
A recent example was the Lacrosse Towers combustible cladding case, where the architect, building surveyor, fire safety consultant, and apartment occupant were all found to have negligently contributed to the one-loss (by fire).
Under proportionate liability legislation, no such party will be liable to compensate for more than they individually contributed to the overall loss. In Western Australia, however, a contract can exclude proportionate liability legislation. Where a civil or construction contract does this, it may expose the contractor to the whole of the liability for losses caused by the concurrent negligence of several wrongdoers.
Our team is highly skilled and experienced in advising on all aspects of civil and construction. Contact us today if you need advice or representation in this area.