Construction Risk Management and Contractual Disputes

Question 1:

The construction industry is notorious for cost overruns. By reference to the Abrahamson principles and at least two risks covered during the course, discuss methods that Principals may use to reduce the chance of cost overruns.

Question 2.

Jos Demolition and Construction Pty Ltd (Jos Construction) enters into a contract to construct a battery manufacturing facility for Acme Batteries Pty Ltd (Acme Batteries). Whilst Jos Construction has designed the earthwork and structural elements, Acme Batteries has prepared the design for the process, including all of the electrical and mechanical components within the facility. The contract is based on AS4902 and the contract price is $10 million. The defects liability period is 12 months, with no extensions (and this is stated at Item 32 in Annexure 1). During the course of the project, Acme Batteries discovers a problem with the manufacturing process and directs a variation to Jos Construction for additional work to develop the design of the manufacturing process. The value of the variation is $2 million, and this valuation is acceptable to Jos Construction. However, Jo, the managing director of Jos Construction seeks your advice on the following matters: 1. As Jos Construction is just a builder, they dont normally take responsibility for process design. But they are happy to do additional work given fair value for the variation. Are there any additional risks if they agree to perform this variation? 2. Do they have to perform the variation? 3. Jo thinks that there is little risk performing the variation because their liability will end at the end of the defects liability period. Is this correct? Answer Jos queries and explain your answer in each case.

Question 3

The State of NSW wishes to engage Beltway Civil Limited, a tier one major contractor, to design and construct a new freeway to a new airport in Western Sydney. The contract will be based on AS4902, and the contract value is $500 million. Part A However, the State of NSW is particularly risk averse, and adds an indemnity to the conditions as follows: Notwithstanding anything in clause 25, Beltway Civil shall indemnify the State of NSW from and against all actions, claims, demands, losses, damages, proceedings, compensation costs etc for which the State of NSW shall or any be or become liable in respect of or arising from the occurrence or existence of contamination of any kind, regardless of source, and regardless of whether the contamination was present before the date of this contract. Beltway Civil is concerned that this is not a fair allocation of risk of contamination. They seek your advice on the following matters: 1. What are the risks to Beltway Civil in agreeing to indemnities of this nature? 2. Please propose some drafting amendments to the above clause, and provide reasons to Beltway Civil as to why your changes are a fairer allocation of risk. Part B As an AS4902, there is no drafting excluding consequential loss. Beltway Civil usually insists on a clause that states: Beltway Civil will bear no liability for losses that do not arise in the ordinary course of things. Advise Beltway Civil as to whether this clause should be proposed to the State of NSW, and if applicable, draft a new clause that will limit Beltway Civils exposure to consequential losses.

Question 4

Betty the Builder Pty Ltd (Betty) is building some homes on a new development site for a major developer, Egregious House and Land Pty Limited (Egregious). The site was previously used as farmland and is completely undeveloped. Betty engages a subcontractor she has used in the past, Danny the Digger Pty Ltd (Danny), who will dig trenches for utility access to the site (ie. water, electricity and NBN). Part A Betty is concerned that Danny has had some financial issues. She knows Danny did some work for another developer that became insolvent, and Danny was not paid. Betty seeks your advice about what to do about Danny. Advise Betty about two things that she can do to reduce the risk to Betty if Danny becomes insolvent. Part B Betty is building the houses under an unamended GC21 contract. At the end of the project, an occupancy certificate is granted, and Betty approaches Egregious and seeks practical completion. Egregious agrees that the project is nearly finished, but raises two issues: 1. The grass that Betty put in the back yards of the houses has grown more quickly than expected and has grown too high (in relation to grass, the specification says that grass in the front and back yards must be green, watered and alive at Practical Completion.). 2. In some cases, the painters have missed a few patches, particularly in the bathrooms of the houses. Is Betty entitled to practical completion?

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