Contracts & Legal

Adjudication is a fast, statutory process under Australian security of payment laws in which an independent adjudicator decides how much of a disputed payment claim must be paid. The decision is binding for now and enforceable as a debt, but the parties can still argue the final amount later under the contract.

A bank guarantee is a written undertaking from a bank to pay the principal up to a set amount on demand, given as security for the contractor's performance under a construction contract. It is the most common alternative to cash retention on Australian commercial projects.

A cost plus contract is a construction contract where the principal pays the contractor's actual costs of doing the work, plus an agreed margin or fee for overheads and profit. It is used when the scope is too uncertain to fix a price, and it shifts most cost risk to the principal.

A defects liability period (DLP) is a set period after practical completion, commonly 12 months, during which the contractor must return to fix defects in the works when directed. The principal usually keeps part of the contractor's security until the period ends and outstanding defects are rectified.

Design and construct (D&C) is a delivery method where one contractor is responsible for both designing and building the project under a single contract with the principal. The principal provides a brief or concept design, and the contractor develops the design, engages the consultants and carries the design risk.

An extension of time (EOT) is extra time added to the date for practical completion because of a delay the contractor is not responsible for, such as a variation, a latent condition or a principal-caused delay. A granted EOT protects the contractor from liquidated damages for that period.

Latent conditions are physical conditions on or near a construction site that could not reasonably have been anticipated at the time of tender, such as unexpected rock, contaminated soil or uncharted buried services. Most Australian construction contracts set out who carries the cost and time impact when they are found.

A letter of intent (LOI) is a letter from a client to its preferred tenderer stating that it intends to award the contract, often authorising limited work to start before the formal contract is signed. Depending on its wording, an LOI can be non-binding or can create a binding interim contract.

Liquidated damages (LDs) are a fixed amount, usually a daily or weekly rate stated in the contract, that the contractor pays the principal for each day the works are late past the date for practical completion. They replace the need for the principal to prove its actual loss from the delay.

A lump sum contract is a construction contract where the contractor agrees to complete a defined scope of work for a single fixed price. The price only changes through mechanisms the contract allows, such as variations, provisional sum adjustments or latent conditions, so the contractor carries the risk of its own costs.

A notice of delay is a written notice from the contractor telling the superintendent or principal that something has caused, or is likely to cause, a delay to the works. Most Australian construction contracts require it promptly, and it is usually the first step towards a claim for an extension of time.

An occupation certificate is the NSW approval that allows a new building, or a changed part of one, to be occupied and used. It is issued by the principal certifier under the Environmental Planning and Assessment Act 1979 once the building is suitable for occupation and fire safety requirements are met.

Practical completion is the stage when the works are complete except for minor defects and omissions that do not stop the building being used for its intended purpose, and any tests and documents the contract requires have been completed. The superintendent certifies the date, which triggers handover and several contract milestones.

A prime cost item (PC item) is an allowance in a construction contract for the supply of a specific item that has not been selected at the time of contract, such as tapware, appliances or tiles. Once the item is chosen, the contract price is adjusted for the difference between the allowance and the actual cost.

A progress claim is a contractor's periodic request for payment for work completed during a period, usually monthly, under a construction contract. In Australia a progress claim can also be a payment claim under the state security of payment Act, which triggers strict deadlines for the respondent to reply and pay.

A provisional sum is an allowance included in the contract price for work or items that cannot be accurately priced at tender, usually because the design or scope is not yet settled. When the work is done, the allowance is replaced by the actual cost, plus any agreed margin, and the contract sum is adjusted up or down.

Retention is a portion of each progress payment that the principal or head contractor holds back as security for the contractor's performance, usually until practical completion and the end of the defects liability period. In Australian construction it is typically capped at around 5% of the contract sum.

An RFI (request for information) is a formal written question a contractor sends to the design team or superintendent to clarify drawings, specifications or contract documents. It records the query, the answer and the date of each, so gaps or conflicts in the design are resolved before work proceeds.

A scope of works is the document that defines exactly what work a contractor or subcontractor must carry out, including inclusions, exclusions, standards, interfaces and deliverables. In Australian construction it forms part of the tender and contract documents and sets the baseline for pricing and for assessing variations.

Security of payment is the set of state and territory laws that give anyone who carries out construction work or supplies related goods and services a statutory right to progress payments, strict deadlines for responding to payment claims, and fast adjudication of disputes. Every Australian state and territory has its own Act.

A site diary is the daily record kept by the site manager of what happened on a construction site: weather, labour and trades on site, plant, deliveries, work done, delays, instructions, visitors and incidents. It is one of the strongest pieces of evidence for extension of time and variation claims.

A subcontractor statement is a NSW form in which a subcontractor declares that, for a set period, it has paid its workers' wages, workers compensation premiums and payroll tax. Holding a valid statement protects the principal contractor from becoming liable for those unpaid amounts.

A variation is a change to the work under a construction contract, such as adding, removing or altering work, or changing how or when it is done. Most Australian contracts let the principal, through the superintendent, direct variations and set out how the contract sum and time are adjusted.