Following public feedback on the release of a draft proposal for controversial new standard AS 11000, Standards Australia says the revised standard for conditions of contracts is expected to be published early next year.
In January, Standards Australia released a draft of AS 11000, which was compiled by technical Committee MB-010 General Conditions of Contract and is intended to supersede the current standards related to general conditions of contract: AS 2124 and AS 4000.
Committee Chair Ian H Bailey says the group expects to complete and publish the standard in early 2016.
“The committee has worked diligently to complete the standard within the project time-frames and ensured to engage with all relevant stakeholders and members of the public to provide an accurate and updated standard,” Bailey says.
“The technical committee received a significant amount of comments and input to all clauses of the standard.”
AS 11000 differs from AS 2124 and AS 4000 in a number of ways.
Bailey pointed to the following changes as the most notable:
- An obligation of good faith consistent with such provisions across the world;
- An early warning provision to assist in the identification and management of issues;
- More precise provision for provisional sums and quantities;
- Identification of the need for honesty on the part of superintendents and differentiating between the separate aspects of their role;
- A broader range of alternative approaches to dealing with non-compliant work;
- A better defined provision for as to programming;
- Clarification of how to address what is referred to as concurrent delay;
- Recognising the application of security of payment legislation; and
- Introduction of provisions for dispute avoidance and management.
The draft of the standard created much discussion – while some commentators have applauded the introduction of an early warning provision, others raised concerns that the good faith clause would add uncertainty and increase the scope for dispute.
Bailey, who represents the Society of Construction Law and the Australasian Procurement and Construction Council within the committee, says these fears are a “misconception of what the obligation entails and a failure to recognise the existing impositions upon the common law of contract by equitable doctrines and consumer legislation”.
“An obligation of good faith applies throughout civil law jurisdictions,” Bailey continues. “An implied term of good faith during the performance of the contract is part of the law in NSW and WA at least. The obligation does not add to or diminish the party’s rights and obligations but merely requires the exercise of those rights to be honest.”
Corrs Chambers Westgarth partner Andrew Chew says the concept of good faith is often used in contracts to impose a certain standard of behaviour on the parties when performing their obligations.
Chew, who is also a qualified engineer, explains good faith clauses are prevalent in long term contracts, contracts which include an agreement for the parties to agree on a certain matter in the future, and also alliance or other relationship-style contracts.
Chew continues to say that the content of an obligation to act in good faith has not been exhaustively defined. However, it has been held to mean the parties must cooperate to achieve contractual objectives, compliance with honest standards of conduct, and compliance with standards of conduct that are reasonable, while having regard to the interests of the parties.
But, the obligation does not require one party to subordinate its own legitimate interests to the other party’s interest, Chew says.
Chew says some contracts are better suited to a good faith clause than others.
“Alliancing contracts are well-suited to the good faith concept, as remuneration is based on a cost-plus performance structure with the parties agreeing to adhere to alliance objectives which benefit both parties,” he explains. “It is similarly applicable to longer term contracts, where pricing is subject to adjustment.
“However, in ‘hard dollar’ construction contracts, the parties generally go through a competitive bidding process with risk premiums intrinsically linked to the risk allocation under the contract. They are based on a commercial ‘adversarial’ approach to contracting and procurement. Here, an express duty of good faith poses risks and consequences for the parties.”
While the draft AS 11000 does not provide a definition of good faith, Chew says this should not be cause for concern.
“While there have been some cases in which courts have found an implied obligation of good faith, that conclusion has not been universally accepted, with courts in different states and territories taking varying positions,” Chew explains. “The High Court has declined the opportunity to clarify the issue.”
“Internationally, the position varies. The United States’ Uniform Commercial Code expressly imposes an obligation of good faith on parties to contracts, defined as ‘honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade’.
“Similarly, the Supreme Court of Canada recently held that parties have a duty to act in good faith in contracts, requiring parties not to ‘lie or mislead’ or engage in ‘active dishonesty’.
"In Australia, the Australian Consumer Law already provides that parties should not engage in misleading and deceptive conduct.
“But in England, there is no general doctrine of good faith in English contract law and one of the UK’s most progressive judges, Lord Steyn, wrote, ‘I have no heroic suggestion for the introduction of a general duty of good faith in our contract law. It is not necessary'.
"Singapore’s Court of Appeal has refused to imply a duty of good faith in contracts.”