Business Toolbox

When preparing a tender, most businesses focus on scope, methodology, timelines and pricing. The contract often gets pushed to the bottom of the priority list.

That can be a costly mistake.

The contract determines who carries the risk if something goes wrong during the project. It can affect everything from delays and cost increases to payment disputes, defects, latent conditions and third-party claims.

Reviewing the contract before submitting a tender gives businesses time to identify those risks and decide whether they should be priced into the tender, negotiated, transferred through insurance or rejected altogether.

A standard contract may not be as standard as it looks

Many construction contracts are based on familiar Australian Standards such as AS 4000, AS 4901, AS 4902 and AS 4903.

However, these agreements are often heavily amended through special conditions, schedules and annexures.

In some cases, the amendments significantly alter the way risk is allocated between the parties, particularly in relation to:

• extensions of time
• delay costs
• latent conditions
• variations
• payment and security
• defects liability
• indemnities
• termination rights

Businesses should not assume a contract is low risk simply because it carries the name of a standard form agreement.

Contract risks can affect your profit margin

The risks contained in a contract should be considered alongside the tender price.

For example, a contractor may be required to account for:

• restricted site access or working hours;
• permits, inductions and security clearances;
• shutdown periods and staging requirements;
• coordination with other contractors;
• long-lead procurement items;
• design development obligations;
• acceleration requirements;
• testing and commissioning obligations; or
• operational constraints at an active facility.

If those obligations are not identified early, they may not be reflected in the tender price or project program.

That can quickly turn a profitable project into a difficult one.

Don't overlook the fine print

Many subcontractors receive contracts that incorporate other documents without attaching them.

These documents might include head contract obligations, technical specifications, policies, procedures or project manuals that contain additional requirements and liabilities.

Those requirements can affect issues such as:

• completion dates;
• liquidated damages;
• warranties;
• safety obligations;
• reporting requirements; and
• step-in rights.

Before submitting a tender, businesses should ensure they have access to all documents that form part of the contract and understand how those obligations may impact delivery.

Why early review matters

Once a tender has been accepted, it can be much harder, and some instances impossible, to negotiate contract terms.

At that point, pricing may already be locked in, procurement may have started and principals may be reluctant to amend contractual provisions.

• Reviewing the contract during the tender phase provides an opportunity to:
• identify key risks;
• adjust pricing where necessary;
• negotiate problematic clauses;
• obtain appropriate insurance advice;
• propose qualifications or departures; and
• understand the resources required to administer the contract.

The goal is not to eliminate every risk. It is to ensure the risks being accepted are understood, commercially reasonable and reflected in the tender price and program.

What should businesses do before lodging a tender?

Before submitting a tender, businesses should consider:

• who carries the risk for delays, disruptions and latent conditions;
• whether liability is capped and insurable;
• how variations are managed and approved;
• what notice requirements apply;
• whether payment provisions are clear and workable;
• which documents are incorporated into the contract; and
• whether any unusual or one-sided terms require negotiation.

Investing time in a contract review early can help avoid disputes, unexpected costs and project delivery issues.

How can Business Law WA assist?

Business Law WA helps contractors, subcontractors and suppliers understand and manage contractual risk before a tender is submitted or a contract is signed.

Our team can assist with:

• reviewing construction contracts, subcontracts and consultancy agreements;
• identifying unusual or high-risk contract terms;
• reviewing amendments to Australian Standard contracts;
• identifying missing annexures and incorporated documents;
• assessing head contract and pass-through obligations;
• reviewing tender qualifications and proposed contract departures;
• supporting contract negotiations;
• providing practical guidance on contract administration, variations, claims and payment processes; and
• providing legal peace of mind.

To discuss a construction contract or tender review, contact [email protected] or call 08 9365 7560.

This article is authorised by Business Law WA, an incorporated legal practice and wholly owned subsidiary of CCIWA. The content of this article is general in nature and is not legal or professional advice and should not be relied upon as such.