Australia is a common law country, with an English legal heritage, and a federal system of government. The sources of laws governing construction projects include a substantial body of case law (there are state and federal courts) together with state and federal legislation. There are no readily identifiable compendia of construction laws in Australia.

The law governing construction contracts, and contract law generally, is chiefly found in case law. The courts generally uphold “freedom of contract” and, subject to some limitations and some legislation, will interpret contracts commercially and will enforce agreements according to their terms.

Relevant legislation includes laws for the planning and development of infrastructure and buildings, securing payment for contractors and subcontractors, licence requirements of tradespeople, and legislation dealing with residential building works, warranties and consumer rights. Some key legislation that applies in the construction industry includes:

• National Construction Code (with planned changes to occur from about July 2022), which sets out the technical requirements for buildings;
• security of payment legislation such as the Building and Construction Industry Security of Payment Act 1999 (NSW);
• environmental planning legislation such as the Environmental Planning and Assessment Act 1979 (NSW);
• regulation of building work  such as the Home Building Act 1989 (NSW), the Design and Building Practitioners Act 2020 (NSW) and the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW); and
• Australian Consumer Law (set out in Schedule 2 of the Competition and Consumer Act 2010 (Cth)).

Standard form contracts are commonly used throughout Australia but are not mandatory. Contracts for larger energy and infrastructure projects (including PPP projects) tend to use non-standard contracts.

Standard form contracts are regularly amended. Standard form contracts include:

• contracts published by Standards Australia, including:
1. AS4000 – construct only contract;
2. AS2124 – construct only contract;
3. AS4902 – design and construct contract;
4. AS4300 – design and construct contract; and
5. AS4906 – minor works contract.

There are accompanying forms of subcontracts and also contracts for other construction-related activities:

• government contracts such as the New South Wales state government GC21 form of contract and the Commonwealth Department of Defence Suite of Contracts;
• industry association contracts such as the suite of contracts jointly published by Master Builders Australia and the Royal Australian Institute of Architects known as the Australian Building Industry Contracts (ABIC) and other contracts such as those published by the Housing Industry Association or state Master Builders’ Associations; and
• forms of contract published by the International Federation of Consulting Engineers (FIDIC). FIDIC contracts are not commonly used, but where they are used, this is ordinarily for large engineering and construction projects, often where there are international parties involved.

The COVID-19 pandemic has had a significant impact on the construction market in Australia. Such impacts have mainly been in the form of labour shortages, supply chain disruptions and increased materials costs. The effects are ongoing.

During the height of the COVID-19 pandemic, public health orders were issued by state and territory governments, which restricted the movement and gathering of people. Construction sites were exempted from some restrictions as governments were concerned to maintain the viability of the construction industry. Work hours were sometimes extended to ameliorate the effects of delays. Health and safety rules were applied to construction projects in some circumstances (eg, workforce density restrictions and mask-wearing). The movement of personnel was impeded by international border, and sometimes state and territory border, closures.

COVID-19-related disruptions reduced the capacity of the supply chain, led to a severe shortage of labour, generally increased the industry’s costs and led to delays in construction projects across Australia. Contractors have suffered and a number have entered into liquidation or administration. The impacts are ongoing.

There are no particular legal requirements to act as an employer on a construction project in Australia. Commonly, public entities act as employers in their own right for construction and infrastructure projects. In the case of private employers it is relatively common to establish and use special purpose vehicles for individual construction projects to isolate risk and to ease the investment and realisation process of a project.

Generally, the obligations of the employer include obligations:

• to pay the contract price (generally by progress payments);
• to give possession of, and/or access to, the site;
• to co-operate appropriately with the contractor and not to hinder the contractor;
• to document properly and otherwise make known what is required in terms of the work to be carried out by the contractor; and
• to appoint a contract administrator (sometimes called a “Superintendent”, “Architect” or “Engineer”), where the contract provides for such a person. Sometimes such a contract administrator acts entirely as agent for the employer or sometimes the contract administrator exercises independent functions (eg, in certifying payments, extensions of time or whether completion has been achieved). It is important that the nature of the function be properly set out in the construction contract.

Depending on the terms of the construction contract, the employer may also be obliged to obtain necessary planning and building approvals, effect insurances, etc.

Contractors range in size from very small to very large. Significant engineering and construction projects in Australia generally require contractors to be very large, with substantial balance sheets. Sometimes even the largest contractors form joint ventures with other contractors (often with complimentary skill sets).

The nature of the contractor’s obligations depends upon the relevant construction contract and the relevant delivery model used – such as construct only, design and construct, construction management, public-private partnerships, alliance contracting and joint ventures.

In the Australian market, contractors regularly take on “hard” construction risks of time, cost and quality. That is, the contractor is obliged to complete the works by a particular time, for a particular cost and to a particular standard. Any changes to the contractor’s obligations are only permissible in accordance with, and subject to the mechanisms under, the construction contract.

Subcontractors generally have particular trade capabilities. Some subcontractors may be highly specialised. It is usual in Australia for contractors to enter into various subcontracts with subcontractors for the execution of different components of the works. Indeed, most of the work is likely to be executed by subcontractors rather than by the head contractor.

Subcontract packages are normally determined by the specialisation of the subcontractors required. Subcontract terms are generally modelled on head contract terms and employ similar language so that contractors can pass through risk and liability to subcontractors.

The subcontractor will be obliged to complete the subcontract work, within a specified time and for a specific price. The subcontractor will have to co-ordinate its work with the work of others on site and the subcontractor will be obliged to manage its own workforce.

Under a traditional contracting model, there is normally no direct relationship between subcontractors and the employer or subcontractors and the financier. Sometimes contracts provide for “nomination” of subcontractors by the employer or pre-approval of subcontractors by the employer. This is generally where the employer is particularly concerned about quality issues with respect to a part of the works, or where the pricing arrangements under a construction contract require the contractor to conduct tenders with respect to components of the works.

In limited circumstances, employers and/or financiers require subcontractors to enter into collateral contracts or warranties whereby the subcontractors assume direct responsibilities to employers and/or financiers. Sometimes contracting arrangements allow employers or financiers or their nominees “step-in” rights in the event of contractor default.

Financiers provide a range of financing options for construction projects including equity, debt and subordinated debt financing. For large engineering and construction projects involving government bodies, government funding may be offered.

Ordinarily, financiers are not a direct party to the construction contract. Financiers may, however, have interests in special purpose vehicles, which are used to enter into construction contracts with contractors. Financiers may also enter into tripartite agreements with an employer and contractor, which may confer rights on the financier.

The approach taken to the scope of works depends on the project delivery strategy used and the nature of the project. In a traditional, lump sum contract, the scope of works and full documentation, including drawings and specifications, are prepared by or on behalf of the employer. The contractor is then required to price and construct the project accepting the hard risks of time, cost and quality.

Where a design and construct project delivery structure is used, the employer usually provides the contractor with a statement of the employer’s project requirements. The contractor then uses its own technical expertise, or engages a design team, to prepare a scope of work, including drawings and specifications, to meet those requirements. The employer’s project requirements are often not specific but rather are intended to convey the intent and proposed use of the construction project. Of course, an employer may include specific requirements and may choose to include its own design of part of the works within its requirements.

There are a range of “hybrid” models that are often used and which may alter the above arrangements. For example, sometimes there may be “early contractor involvement” in the design, whereby the contractor assists in the preparation of the design and the pricing of the works, and while ultimately accepting the hard time, cost and quality obligations of a traditional contractor, also accepts design risk. Another non-standard model may involve a contractor accepting the prior design risk even where it was not involved in the preparation of that design. In such arrangements, the contractor will often accept a novation to it of the employer’s design team.

Construction contracts in Australia invariably permit variations to the works and generally include detailed provisions dealing with determining the scope and price of variations – whether directed by or on behalf of the employer or requested by the contractor.

In practice, if an employer proposes a variation to the contractor, the contractor will be required to provide an assessment of whether the variation can be effected and, if so, an estimate of any impact on the construction programme and the cost of the proposed variation. Contracts generally provide a mechanism for pricing and delay consequences of a variation. Failing agreement, the contract administrator (Superintendent/Engineer/Architect) will determine price and time consequences of a variation. Such determination may be subject to challenge via the dispute procedures under the contract.

Contractors may be able to request that an employer direct a variation for the convenience of the contractor. Contractor-initiated variation provisions often remain at the discretion of the employer and there is not ordinarily an entitlement of the contractor to time or payment unless permitted by the employer.

Disputes commonly arise where the parties do not agree whether particular work required to be done constitutes a variation. In such cases, disputes will be resolved pursuant to dispute resolution procedures and in accordance with the contract.

Any entitlement of the contractor in respect of a variation will normally require the contractor to comply with notice and pricing provisions. Where the contractor has carried out extra work but has failed to comply with the contractual provisions relating to claiming variations, the contractor may make claims pursuant to legal principles outside the terms of the construction contract.

How responsibility for design is dealt with is entirely dependent on what contractual arrangements are in place.

In a traditional construct only model the employer engages a designer, or design team, which is separate from the contractor. The designer or design team is usually then entirely responsible for the design, and the contractor is responsible for the construction of the works. Sometimes the contractor’s responsibilities may extend to preparing detailed designs and the contractor may be liable to ensure the “buildability” of the design.

Where an employer engages with a contractor on a design and construct basis, the employer is responsible for ensuring its project requirements are adequately communicated to the contractor, and the contractor is then responsible for the design and construction of the project. The employer may still be involved in approving designs.

In alliance contracting models, risk is often shared between the employer, designer and contractor and parties work collaboratively, as the design proceeds, to minimise cost and delays to the project.

Contractors are ultimately responsible to the employer for the construction process including programming, scheduling of labour, procuring materials and equipment and management of subcontractors. It is often the case that subcontractors undertake the actual construction activities on site at the direction of the contractor. Contractors regularly pass the risk of construction activity to the subcontractors, but, as between the employer and the contractor, the contractor remains liable for the work of its subcontractors.

During the course of construction, designers may be required by the employer to attend the site to undertake inspections and certify that works are being completed in accordance with the designs.

Employers are typically required to give contractors possession of and/or access to the site sufficient to enable the contractor to commence and carry out their work. In cases where access to adjoining properties is required in order to undertake construction, employers are ordinarily responsible for arranging access.

As between employers and contractors, at common law, the general position is that contractors are responsible for, and adopt the risk of, any pollution, underground obstacles, geotechnical conditions or archaeological finds. However, these risks are regularly the subject of negotiations between employers and contractors, and contractual terms may change the risk allocation.

Standard form contracts in Australia generally give contractors a right to claim time and/or costs where there are latent site conditions that could not reasonably have been foreseen by an experienced contractor. This “standard” contractual risk allocation is sometimes changed so that the contractor accepts liability for site conditions, particularly where the contractor is given an opportunity to investigate the site and where the contractor is provided with geotechnical or other information. There may be scope for contractors to make claims outside the contract where there are latent site conditions.

Heritage protection laws apply throughout Australia. Protection of cultural heritage is primarily the responsibility of state and territory governments (for instance, see the Heritage Act 1977 (NSW) and the National Parks and Wildlife Act 1974 (NSW)). Commonwealth laws also may apply to protect areas and objects (for instance, see the Aboriginal and Torres Strait Islander Heritage Protection Act 1984 (Cth), the Environment Protection and Biodiversity Conservation Act 1999 (Cth) and the Protection of Movable Cultural Heritage Act 1986 (Cth)).

Employers are usually responsible for obtaining approval from local, state and Commonwealth authorities to develop their land. Contractors ordinarily are provided with copies of any approvals obtained by the employer and are responsible for ensuring that the construction, once completed, meets with all requirements and approvals required.

Apart from development approvals, contractors are typically responsible for ensuring they hold all relevant authorisations, permits and licences required by law to complete the work prior to commencing work. Those licences generally fall within one of four categories: general building work, other building work, specialist work or trade work. In NSW, for instance, all construction workers are required to have a "white card", or general construction induction card, in order to carry out construction work.

It is becoming more common in Australia for workers to carry digitised licences. Permits may also be required to be obtained during the course of construction, such as permits for temporary road closures to enable works to be undertaken.

Contractors are responsible for the site and the construction works until the project has reached practical completion and the site is handed back from the contractor to the employer. To the extent that any maintenance is required during the course of the construction works, the contractor is responsible for that maintenance.

The responsibility to maintain the works after they have been handed back to the employer will become the responsibility of the employer. The employer may enter into an operation and maintenance contract with another party.

In general, other functions in the construction process such as operation, finance and transfer, are not the responsibility of the contractor and are instructed by the employer to third parties.

Responsibility for any testing, either during the project or at completion, is determined by the terms of the construction contract.

Ordinarily, the employer directs the contractor that testing is to be undertaken and may require that parts of the works not be covered up or be made inaccessible without prior written direction. In those cases, usually the employer is responsible for the costs of any testing and may engage third parties such as superintendents or independent reviewers to carry out tests or observe testing by others. The contractor is obliged to give assistance, make the works accessible for testing by the employer and make good the works.

Where test requirements are not satisfactorily met and there is a requirement to re-test after some further work is done by the contractor, the contractor may be required to bear the costs of the re-testing.

If the contract calls for specific tests to determine whether particular technical engineering requirements have been met – for instance, in the case of projects involving mechanical plant and equipment, power or water infrastructure or transport – there may be a series of tests to be undertaken including testing by the contractor. The procedures and responsibility for such tests need to be properly and adequately described in the contract.

The issues of completion, handover and delivery are dealt with in accordance with the terms of the construction contract and there can be a great deal of flexibility, particularly where there are multi-stage projects or where there may be testing, commissioning and operating regimes.

Generally, the works are handed back by the contractor to the employer once “practical completion” is achieved. This term is ordinarily defined in the contract as the stage when the works are complete except for minor defects that do not prevent the works from being used by the employer for their stated purpose. Where an employer might start to use the works, even where it has not formally granted practical completion, there may be “deemed practical completion”.

During the negotiation of the contract, it is relatively common for employers to press for the inclusion of a number of prerequisites that must be met in order for the contractor to achieve practical completion.

The employer may wish to sever parts of the works and require the contractor to complete the works in separable portions. This can be provided for before the construction contract is executed or, where the contract permits, during the course of the works.

The usual limitation period for defective work under the relevant limitation statutes has historically been six years for a breach of contract or in tort. Where there is a breach of deed, the period is 12 years. Such limitation periods commence from when the cause of action “first accrues” and that may differ depending on whether the action is in contract or tort and may depend on when the defect becomes reasonably discoverable.

Specific legislation now operates in respect of some construction defects to set different limitation periods in different states depending on the nature of the work (eg, residential work) and the nature of the defect (eg, minor or structural).

Construction contracts normally provide for “defects liability periods” following completion. Such periods are usually 12 months but a different period may be prescribed. During the defects liability period, a contract ordinarily empowers the employer who discovers a defect to give a direction to the contractor identifying the defect and the date for completion of its rectification. Contractors are then responsible for carrying out the rectification in a manner that causes as little inconvenience as possible to the employer.

Where a contract prescribes a procedure for how defects discovered during the course of the works are to be rectified, this procedure may form a “code” and it may be important that the employer follows the procedure strictly in order to preserve its rights.

The contract price for construction contracts in Australia is generally the subject of negotiation following an estimation/quote process by the contractor. There is commonly a competitive tender process.

The contract price is generally a fixed lump sum price although there may be other pricing structures such as guaranteed maximum price or cost-plus. The price generally comprises the cost of works and materials together with the contractor’s onsite and offsite overheads and profit margin.

Parts of the contract price may comprise “provisional sum items” that are yet to be determined. Not commonly, part of the contract price may be subject to a pricing mechanism using a schedule of rates or bill of quantities.

Milestone payments are sometimes used although, more commonly, payment is made via progress payments made “on account” (usually monthly) based on value of work performed.

In Australia, security of payments legislation applies in each state and territory. Such legislation operates alongside contractual rights and remedies and provides for an effective, fast-track adjudication procedure in respect of progress payments.

In the case of late or non-payment by the employer, dissatisfied contractors may have rights under the construction contract to commence the dispute resolution process or commence court proceedings. Contractors may have a right to suspend part of the works until payment is received and in the case of continuing non-payment, contractors may have a right to terminate. A separate right to suspend may also arise from security of payment legislation.

Advanced payments are sometimes used, particularly for offsite materials and plant. Delayed payments are not common although some contracts may entitle the employer to withhold a percentage of payments otherwise due (retention monies) by way of security for performance. Interim payments, by way of monthly progress payments, are common.

The typical means of invoicing for construction contracts in Australia usually involves the contractor submitting to the employer a progress claim (usually each month) comprising a detailed written claim for payment for the value of work performed up to the date of the claim.

The employer (or the contract administrator or an independent certifier) then issues a written certification of the payment to be made to the contractor, including any reasons for the difference if the amount is more or less than the amount claimed. Payment is then made by the employer within the time specified by the contract.

The contractor is responsible for the programming of its construction activities. Some construction contracts in Australia may require contractors to update regularly the employer with the status of the construction works by providing an updated programme detailing the sequencing and duration of construction activities. In those cases, contractors are held to account in terms of their progress and employers are kept up to date with any difficulties or delays occurring on site.

Subject to the specific terms of a contract, when a contractor becomes aware that there may be a delay to the construction works, the contractor is responsible for notifying the employer of the possible delay and the reason for the delay. If delay does occur, or will occur, the contractor may be entitled to claim an extension of time for practical completion.

Parties ordinarily negotiate a daily rate for liquidated damages to be paid by the contractor to the employer in the event of delays. In practice, the employer will calculate the amount of liquidated damages owing and may seek to set off payments otherwise due to the contractor by that amount. Where delays are significant such that there is seen to be a failure by the contractor to proceed with due diligence, there may be a contractual right to terminate the contractor’s employment.

Whether a contractor is entitled to an extension of time depends on the specific terms of a contract. Construction contracts in Australia often contain strict conditions that must be satisfied in order for an entitlement to arise. Those conditions may include written notices being provided in prescribed forms containing prescribed information, documents being provided and strict time bars.

As a general rule, courts in Australia seek to give effect to the terms of the contract and will interpret the contract strictly especially where the language used is clear and unambiguous. In addition to an entitlement to an extension of time, contracts may also give contractors an entitlement to be paid delay damages by the employer.

Force majeure is a civil law concept and does not apply in Anglo-Australian law. Events that might in other jurisdictions be considered force majeure events will normally be dealt with in the context of contractual delay provisions or might, in limited circumstances, give rise to the common law concept of frustration.

While no Australian standard form contracts include force majeure provisions, parties may themselves choose to include such provisions. In those circumstances, because there is no common law definition of force majeure applicable in Australia, the contract will need to include a clear definition of force majeure and specify precisely what the consequences of the force majeure will be.

“Unforeseen circumstances” may be the subject of contractual agreement between the parties.

“Unforeseen circumstances”, if dealt with at all in the contract, will normally only apply to unforeseen latent site conditions. Such conditions are generally limited to physical conditions on the site and its near surrounds, which differ materially from the conditions that should reasonably have been anticipated by a competent contractor at the time of the contract or tender. 

In order to limit contractual risk, parties sometimes seek to exclude liabilities that might otherwise apply.

Some liabilities may not be excluded, even by agreement between the parties. For instance, parties are not generally able to contract out of liabilities under certain legislation, including security of payments legislation and residential building works legislation. Parties are also generally not permitted to contract out of liability under the Australian Consumer Law (eg, where there is “misleading or deceptive conduct”).

The concepts of wilful misconduct and gross negligence are not established legal concepts in Australian law. On that basis, in contracts that use terms such as “gross negligence” or “wilful misconduct”, it is necessary that those terms are defined.

Contractors sometimes seek to negotiate contractual limits on their liability.

Contractors sometimes seek to negotiate a percentage of the total contract sum as a total aggregate liability cap to manage their risk exposure. Contractors may also seek to negotiate limitation period caps that shorten the duration of the contractor’s exposure to liability.

Limitation of liability clauses may include “carve-outs” such as carve-outs for wilful misconduct, for defective or incomplete design or workmanship or for personal injury, including death, caused by the contractor. Carve-outs would also normally apply to risks where there is insurance in place.

Indemnities are commonly used in Australia. Contractors are regularly required to provide the employer with indemnities against loss of or damage to the employer’s property and claims for personal injury or death arising from the works. Contractors who prepare designs often provide indemnities to the employer as to the fitness for purpose of those designs. Parties are also commonly required to indemnify each other against infringements of intellectual property rights.

Where there is an issue about the financial capacity of a contracting party, it is common for that party to be required to provide a parent company guarantee (or other third-party guarantee) in favour of the other party. Such guarantees are governed by normal contractual principles and generally provide for the parent company (or other third party) guaranteeing entirely to obligations of the original contracting party in the event of default by that party.

Additionally, it is common in Australian construction contracts for the contractor to procure, for the benefit of the employer, an unconditional bank guarantee (or other unconditional undertaking such as an insurance bond), which operates as a performance security. By such bank guarantee, in the event of default by the contractor, the employer may encash the guarantee up to the monetary value of the security. 

Construction contracts in Australia generally oblige one of the parties to take out various insurances, including insurance of the works, public liability insurance and insurance of employees. Where the contractor has design obligations, it will normally be obliged to take out professional indemnity insurance. Bespoke forms of insurance may also be required depending on the nature of the construction project.

Legislation may also require contractors to take out insurance such as for workers’ compensation or home warranty insurance.

In the case of insolvency on the part of a contractor, employers ordinarily can exercise certain contractual rights such as taking work out of the contractor’s hands, suspending payment, terminating the contract or having recourse to security. Where employers become insolvent during the course of a construction project, contractors generally are empowered to suspend the works and subsequently terminate the contract.

It is worth noting that depending on when the parties entered into the contract, a party’s rights may be restricted by the so-called ipso facto reforms to the Corporations Act 2001 (Cth) (such as in sections 343J and 451E), which are intended to provide parties with greater opportunities to restructure their failing businesses. Those reforms generally impose a stay on a counterparties’ automatic or discretionary rights triggered by a party entering into voluntary administration, receivership or a scheme of arrangement.

In Australia, the allocation of risk in a contract is ordinarily directed to the party best able to manage the risk at the least cost. In traditional contracting relationships, construction risk is ordinarily the responsibility of the contractor and, if appropriate, passed through from the contractor to subcontractors.

Some relationship contracting models, such as alliance contracting, allow the parties to share risks especially where projects are complex and may be subject to change and development. In the case of alliance contracting, risks of time, cost and project outcomes may be shared by use of gain-share and pain-share mechanisms.

Construction contracts may oblige contractors to ensure that they have sufficient labour on site to progress construction activities in a timely manner. Contracts may also contain provisions requiring contractors to ensure site staff are adequately supervised and are following strict quality control and safety regimes.

Generally, contractors who are in control of the site are designated by the employer as the principal contractor in accordance with the requirements of the relevant state or territory’s work health and safety legislation and are responsible for the safety of all persons on site. Depending on the circumstances, the contractors may have the power to remove persons from site.

Contracts often contain detailed provisions relating to subcontracting arrangements.

Employers may have a shortlist of preferred subcontractors or may require that the contractors engage certain subcontractors to undertake aspects of the works. Contractors are generally liable to the employer for all subcontractors, whether they were initially preferred by the employer or otherwise.

Contractors are sometimes contractually required to obtain approval from the employer before engaging subcontractors. Approval may be provided on a conditional basis by the employer. 

Intellectual property rights ordinarily vest in the party that created the relevant design. Construction contracts will provide for assignment of those rights or a licence to use those rights to allow the construction contract to proceed and be altered if necessary.

Parties provide cross-warranties and indemnities to each other that materials, documents and designs that are provided by one to the other do not infringe intellectual property rights.

The key remedy for breach of contract in Australia is damages.

Parties may have available to them a range of other remedies through the courts, for example equitable remedies such as specific performance, injunction, declaration or rescission.

It is not common practice to contractually limit the remedies available to a party to a construction contract in Australia. Contracts may provide for sole remedies (see 9.3 Sole Remedy Clauses) or seek to limit liability (see 6.3 Limitation of Liability) or exclude damages (see 9.4 Excluded Damages).

Sometimes, in relation to an employer’s right to have recourse to a performance security, a contract may provide that a contractor is not entitled to seek an injunction to restrain the employer from having such recourse.

Sole remedy clauses may be included in construction contracts. Sometimes, we see sole remedy clauses in respect of:

• agreed rates of liquidated damages where the contractor is in delay;
• agreed rates of prolongation damages payable to contractors;
• agreed performance liquidated damages in respect of process plants, etc that fail to meet output requirements; and
• rights in respect of having defective work rectified.

It is not common practice for construction contracts to exclude particular forms of damages from liability in Australia. The extent of recoverability of damages depends on usual common law principles.

Sometimes, particularly where an engineering project involves construction of a significant income-producing facility, a contractor may seek to exclude liability for loss of revenue suffered by the employer or other end user. Sometimes parties seek to exclude “consequential loss”. In such cases, it is important to define what is meant by that term, as the courts may interpret that term differently in the absence of a definition.

“Retention and suspension rights”, as such terminology is used in some civil law jurisdictions, do not generally apply in Australia and so there is no need to seek contractually to exclude those rights.

Indeed, if any comparable rights do exist on a project, they will be conferred by the contract or separately by statute where it is generally not possible to exclude the right (eg, Security of Payments legislation – see 4.2 Payment).

It should be noted that the term “retention right” as referred to in some civil law jurisdictions, is, in Australia, called a “lien”. In Australia, the term “retention” generally applies to a is a common form of performance security by way of cash retention. By such security, the employer may have an entitlement under the contract to withhold a percentage of progress payments as security for the contractor’s performance. Such retention may be an alternative to provision of security by way of bank guarantee, performance bond or other unconditional undertaking.

There are a number of courts, both state and federal, which are competent to decide construction disputes. The determination of which court has jurisdiction generally depends on the amount in dispute and sometimes on the relief that is sought. Some state courts have specialist “lists” and rules that deal specifically with construction disputes. Australian courts use an adversarial, rather than an inquisitorial, approach. 

Various state tribunals, such as local civil and administrative tribunals, set up by statute may also have jurisdiction to determine disputes concerning construction contracts. Such tribunals may deal specifically with residential building disputes or consumer claims.

Security of payments legislation in each of the states provides for the adjudication of disputes under the legislation. Adjudicators make interim determinations. Procedures and determinations under the security of payments legislation are subject to the courts.

The use of the full range of alternative dispute resolution procedures is common in Australia.

Alternative dispute resolution procedures – including senior executive negotiation, expert determination, expert appraisal, mediation and arbitration – may be provided for in construction contracts. Often, a multi-tiered approach is used. Large projects often have arbitration provisions included in their contracts.

Parties may also agree, outside the contract, to use dispute resolution procedures. Courts often encourage and may direct alternative dispute resolution procedures, particularly mediation.

While most alternative dispute resolution procedures are governed by agreement between the parties or may be subject to court rules, arbitration is subject to state and federal legislation – eg, Commercial Arbitration Acts and the International Arbitration Act.