Well what a year 2019 was for us here at Informed!
The end of a decade saw our Risk Managers hard at work reviewing over 1200 contracts in 2019 over various kinds of projects and clients and throughout all States and Territories around Australia. From all this we have gathered information to more accurately reflect what we at informed are seeing from the contracts that we review.
So where are most of our reviews coming from and what are the main types of contracts we are reviewing? Well, as we usually see, most of contracts reviewed were from New South Wales, ACT (35%) and Victoria (35%). By a good mile, the vast majority of these were client drafted agreements (including standard contracts that have been amended) coming in at a whopping 85% of total contracts reviewed. From this statistic, we can see that many clients are choosing to engage design consultants on their own terms passing on (usually) far more onerous terms and risks onto the design consultant.
As to the kinds of contracts we are reviewing, aligned with our usual statistics, most of the contracts reviewed by informed during 2019 were commercial contracts (72%), followed by Local and State Government contracts, then contracts for Universities with the least amount of reviews for domestic projects. Interestingly, our statistics show that most of the Australian Standard contracts used by Governments (Local and State) are predominantly within Queensland and South Australia, with a few used in Victoria also. Meanwhile New South Wales Governments appear to largely use their own “standard” terms, as do the Victorian and Tasmanian Governments.
Within those Australian Standard contracts reviewed, a large proportion were amended AS4122-2010 contracts, followed but the more onerous AS4122-2000 and AS4904-2009. Almost all the Australian Standard contracts reviewed by us were amended with only 1% of total contract reviews relating to a (more benign) unamended AS4122-2010. It appears that clients are choosing to engage design consultants on what they say is an “industry standard” but often the amendments made to these Australian Standard contracts completely change the risk allocation and liability, taking away many of the benefits for design consultants who were amenable to being engaged under an Australian Standard contract.
At the end of the year, Consult Australia bought in a new standard contract. The Consult Australia Contract dated November 2019 is more ‘consultant friendly’, and replaces the pre-existing Consult Australia Short Form and Long Form Contracts. To date we have not seen many of these contracts for review rolling through our doors, but it is something to keep an eye on and see how the industry takes on this agreement and whether or not it too will come across our desks highly amended. Let’s hope not.
Proportionate Liability Legislation is still being referred to and excluded within more than a quarter of the contracts we see. Anecdotally, it has been intriguing to see the clauses relating to proportionate liability legislation, and its application, appear to be evolving into far more onerous clauses than the simple ‘one liner’ excluding the application of the relevant legislation as was previously seen. Many of the clauses we see now relating to the exclusion of proportionate liability legislation also contain indemnities in favour of the Client akin to the exclusion of proportionate liability, should the exclusion of this legislation not apply. In some instances, we have also seen indemnities to the client for difference in the amounts that the client would have been entitled to recovered if proportionate liability wasn’t applied (ie jointly and severally), and that amount determined by the court as your proportion of the liability. Something to really look out for and delete where possible.
Finally, we are still seeing a number of contracts (almost 40%) containing references to novation and/or including novation terms and deeds. Interestingly, our statistics indicate that Tasmanian contracts have the greatest number of novation terms and/or deeds within them, and given that the amount of contracts reviewed from this state are relatively low, of the contracts we do see from Tasmania, a large proportion of them contain a requirement relating to novation. The contracts from the remaining States and Territories (excluding the Northern Territory and South Australia) appear to indicate that a little more than a third of contracts contain novation clauses and/or deeds. Although novation is meant to be a (somewhat) theoretically simply process of merely replacing the name of the Outgoing Party with the Incoming Party on the same terms as the original agreement, deeds of novation are being drafted in increasingly complex terms, far from the simple one page novation seen in say AS4904 – 2009.
So, at the start of a new decade, we can see that many amended Australian Standard contracts, proportionate liability clauses and novations are being used in the engagement of design professionals, but seemingly in more amended and complex terms then we have seen in the past with briefs that are themselves vague, broad and unclear. To assist in this contract management, informed has a number of Example Documents including a Deed of Novation, which are available by annual subscription, and at a discounted rate for insured clients of Planned Cover.
In addition, one of the key risk areas we see in contracts is defining the client’s requirements that you are undertaking to meet. Does the contract require your design to be “fit for purpose”, even if those purposes were never articulated? Or does the contract require you only to comply with a brief and, if so, is that brief sufficiently developed and clearly identified?
These are some of the questions that Risk Managers Wendy Poulton and Natalie Sullivan will cover in our upcoming webinar Why Briefing Matters on Thursday 20 February. (Discount codes for Planned Cover clients have already been circulated via our mailing list – please contact us at firstname.lastname@example.org if you have not received it.)