Legislative requirements – the most underused claim in construction

In the absence of the contract addressing the issue, the risk of complying with a change in a legislative requirement is usually borne by the contractor. This means that unless your contract specifically entitles you to claim for a change to an act, regulation, by-law, etc. then the contractor has to foot the bill for complying with the change.

This is because, the contractor must carry out the works in accordance with the current state of the law.

Fortunately, most modern contracts allow the contractor to claim for any costs incurred as a result of a change to a legislative requirement – and the definition of ‘legislative requirement’ is broad.

For example, the Australian Standard 4000 series contracts defines a legislative requirement as:

“a) Acts, Ordinances, regulations, by-laws, orders, awards and proclamations of the jurisdiction where WUC or the particular part thereof is being carried out;

b) certificates, licences, consents, permits, approvals and requirements of organisations having jurisdiction in connection with the carrying out of WUC; and

c) fees and charges payable in connection with the foregoing.”

A similar definition is included in the still popular AS2124, but under the definition: “Statutory Requirement”. The above definitions are so broad that contractors can claim for the costs of practically anything a government institution does, so long as it increases the costs to carry out the works.

Remember though, there is usually no common law entitlement to claim any costs incurred as a result of a legislative change – so it’s crucial to ensure that you have an entitlement to do so in any contract before signing it!

Standard form unamended AS4000/4902 and AS2124 contracts do not contain a time bar for claiming the increased costs to comply with a legislative requirement.

For example, clause 11.1 of the AS4000/4902 contracts only require that:

“The Contractor, upon finding that a legislative requirement is at variance with the Contract, shall promptly give the Superintendent written notice thereof.”

It is unlikely that the use of the word ‘promptly’ would create a valid time bar, except in the most extreme of cases.

Pursuant to clause 11.2, once the notice is provided, if certain preconditions are satisfied (such as the change to the legislative requirement causing the contractor to incur additional cost), the Superintendent shall assess the difference and add it to or deduct it from the contract sum.

While there is no time bar for claiming the costs for complying with a legislative change under the AS2124 contract, there is a subtle difference in that once the claim is made under clause 14.1 of that contract: “the Superintendent shall direct a variation under Clause 40.1.”

As we’ll see later on, this is a crucial distinction when it comes time to claim any EOTs which flow from a change to a legislative requirement.

Obviously, each bespoke contract is different and has to be considered individually. That being said, it is now very common for bespoke contracts to contain time bars for claiming costs following a change in a legislative requirement.

Further, it is now rare for parties to agree to work from an unamended Australian Standard contract. Even the most easy-going principals who choose to work from an unamended Australian Standard contract still insist on various amendments – including the addition of time bars.

As failing to comply with a time bar can be fatal to a claim, each contract should be double checked for time bars prior to execution.

Both AS2124 and AS4000/4902 require the contractor to provide a notice with certain details before becoming entitled to claim the costs incurred as a result of a legislative change.

The biggest risk for those making claims exists at 14.2(a) of AS2124 and 11.2(b) of AS4000/4902. Basically, those clauses only entitle the contractor to claim the costs incurred as a result of a change in a legislative requirement if the changes came into effect 28/14 days after the closing of tenders and “could not reasonably then have been anticipated by a competent Contractor”.

Basically, this clause forces the contractor to take into account any changes in legislative requirements which should have been known when tendering for the contract. Accordingly, it’s important for contractors to specifically consider whether any products, hours of access or construction methodologies are likely to change between the time of tender and starting work.

If in doubt about whether a change in a legislative requirement is likely to affect the costs of the job, look to amend these clauses at the time of tender.

Whilst the requisite notice is contract specific, contractors will satisfy most notice requirements if they address the following questions in their notices:

1. What was the original legislative requirement? (Identify the original legislation or government requirement)
2. How did the legislative requirement change? (Identify the new legislation or government requirement)
3. How does the change in the legislative requirement cause the contractor to incur more cost than would have been incurred but for the the change to the legislative requirement?
4. Substantiate those costs by providing a breakdown of the originally estimated costs compared to the new costs with supporting evidence (i.e. quotes, invoices, daily costs run reports etc.).

Obtaining the costs to comply with a legislative change is one thing, but it’s of little benefit if you’re subsequently delayed and then up for an offsetting (or large) amount of liquidated damages because you were late.

In order to be entitled to an extension of time, a contractor must be delayed from achieving practical completion by a qualifying cause of delay. Usually, a change to a legislative requirement is not identified as an express qualifying cause of delay.

Under the AS4000 and AS4902 contracts, a qualifying cause of delay includes

“any act, default or omission of the Superintendent, the Principal or its consultants, agents or other contractors (not being employed by the Contractor); or

other than:

a breach or omission by the Contractor;

industrial conditions or inclement weather occurring after the date for practical completion; and

stated in Item 23.”

There is some debate about the interpretation of qualifying cause of delay in the AS4000 series contracts. On first reading, you may think that there is no right to an extension of time following a change to a legislative requirement.

However, on a closer reading, the words ‘other than’ arguably imply that if a cause listed below is NOT excluded – then it is a qualifying cause of delay, so long as it delays contractor in reaching practical completion.

This interpretation is supported by the AS4000 – 1997 Administration Manual which states:

“All other causes of delay except those specifically stated in (b) of the definition also entitle the Contractor to an EOT, if the conditions for an EOT under subclauses 34.3 and 34.4 are satisfied.”

The safer option for contractors is to simply amend the definition of qualifying cause of delay to include the following:

“additional work required to be carried out to comply with a change in a legislative requirement”.

It’s unlikely that a contractor would also be able to claim any delay costs in this scenario, as complying with a change in a legislative requirement is rarely a compensable cause of delay. Instead, the contractor should look to claim any delay costs under the same clause that allows it to recover the costs for complying with the legislative change in the first place.

The other alternative is to expressly identify “complying with a change in a legislative requirement” as a compensable cause of delay, however, it’s unlikely many principals would agree to such an amendment.

Under AS2124, the contractor obtains an automatic right to a variation after a change to a legislative requirement and if a variation is directed under clause 40, the contractor is entitled to claim an extension of time.

The only guarantees in life are death, taxes and Government meddling in the construction industry.

The modern commercial builder rarely does ‘on the tools’ building work anymore. Instead, they have become master managers. Managers of subcontractors, programs and timing, costs, client expectations, quality of work and – changes in legislative requirements.

At the end of the day, principals obtain the benefit of the project and should therefore bear most of the risk of any changes in a legislative requirement. That being said, the burden falls on the contractor to identify these changes and ensure they are properly claimed and substantiated.

All too often, contractors adopt a ‘grin and bear’ policy when a legislative change affects their project. After reading this article, hopefully they won’t do so anymore.

Tuhtan, A. (2020, 20 November). The most underused claim during construction projects (and how to draft it perfectly!) LinkedIn. Retrieved from www.linkedin.com/pulse/most-underused-claim-during-construction-projects-how-tuhtan/