Head Contract (Hc-1 2003)

HEAD CONTRACT (HC-1 2003)

CONTRACT MANUAL

VOLUME 3:

CLAUSE BY CLAUSE GUIDANCE

[LAST AMENDED: 16 AUGUST2011]

DISCLAIMER:

This Manual has been prepared solely for the purpose of providing internal guidance to Defence personnel. Any use by non-Defence personnel is unauthorised. No responsibility will be taken by the Commonwealth of Australia or the advisers assisting in the preparation of the Manual, for any such use, including any purported reliance on the guidance provided by the Manual. The Manual is not intended to be a substitute for legal advice, and unless expressly agreed in writing by the Commonwealth of Australia, nothing in the Manual will alter or affect the respective rights, obligations and liabilities of the parties under any contract.

Legal\30994758.17

Department of Defence - Head Contract (HC-1 2003) Contract Manual - Volume 3

Table of Contents

SECTION 1 - INTRODUCTION

1.GENERAL INFORMATION ABOUT THE MANUAL

2.BACKGROUND TO THE CLAUSE BY CLAUSE GUIDANCE

SECTION 2 - CLAUSE BY CLAUSE GUIDANCE

CLAUSE 1 - GLOSSARY OF TERMS, INTERPRETATION AND MISCELLANEOUS

Clause 1.1 - Glossary of Terms

Clause 1.2 - Interpretation

Clause 1.3 - Miscellaneous

CLAUSE 2 - COMMENCEMENT

Clause 2.1 - Contractor's Obligations

Clause 2.2 - Commonwealth's Obligations

Clause 2.3 - Delayed Access

CLAUSE 3 - PERSONNEL

Clause 3.1 - Contract Administrator

Clause 3.2 - Replacement of Contract Administrator

Clause 3.3 - Parties' Conduct

Clause 3.4 - Contract Administrator's Representative

Clause 3.5 - Contractor's Representative

Clause 3.6 - Key People

Clause 3.7 - Removal of Persons

Clause 3.8 - Industrial Relations

Clause 3.9 - Project Review

CLAUSE 4 - SECURITY

Clause 4.1 - Form

Clause 4.2 - Release

Clause 4.3 - Interest

Clause 4.4 - Related Company Guarantee

CLAUSE 5 - RISKS AND INSURANCE

Clause 5.1 - Risk of Works

Clause 5.2 - Other Risks

Clause 5.3 - Reinstatement

Clause 5.4 - Contractor Insurance Obligations

Clause 5.5 - Failure to Insure

Clause 5.6 - Period of Insurance

Clause 5.7 - Notice of Potential Claim

Clause 5.8 - Procedure upon Loss or Damage

Clause 5.9 - Cross Liability

CLAUSE 6 - DESIGN AND DOCUMENTATION

Clause 6.1 - Commonwealth's Documents

Clause 6.2 - Contractor's Design

Clause 6.3 - Contract Administrator may Review Design Documentation

Clause 6.4 - No Obligation to Review

Clause 6.5 - Copies of Design Documentation

Clause 6.6 - Fitness For Purpose

Clause 6.7 - Availability

Clause 6.8 - Licence over Project Documents

Clause 6.9 - Intellectual Property Warranties

Clause 6.10 - Intellectual Property Rights

Clause 6.11 - Resolution of Ambiguities

Clause 6.12 - Access to Premises and Project Documents

Clause 6.13 - Commonwealth's Novated Design Consultants

Clause 6.14 - Warranties Unaffected

Clause 6.15 - Design Certification

Clause 6.16 - Samples

CLAUSE 7 - THE SITE

Clause 7.1 - Contractor to Inform Itself

Clause 7.2 - Site Information

Clause 7.3 - Notice of Latent Conditions

Clause 7.4 - Contractor's Entitlement

Clause 7.5 - Site Access

Clause 7.6 - Contractor's Obligation to Provide Access

Clause 7.7 - Non-Reliance

CLAUSE 8 - CONSTRUCTION

Clause 8.1 - Description of Works

Clause 8.2 - All Work Included

Clause 8.3 - Statutory Requirements

Clause 8.4 - Change in Statutory Requirements or Variance with Contract

Clause 8.5 - Subcontracting

Clause 8.6 - Subcontractor Warranties

Clause 8.7 - Provisional Sum Work

Clause 8.8 - Design for Provisional Sum Work to be Prepared by either the Commonwealth or the Contractor (Option 1 and Option 2)

Clause 8.9 - Tendering Provisional Sum Work

Clause 8.10 - Price Adjustment for Tendered Provisional Sum Work

Clause 8.11 - Price Adjustment for Other Provisional Sum Work

Clause 8.12 - Further Allowance for Provisional Sum Work

Clause 8.13 - Co-operation with Other Contractors

Clause 8.14 - Setting Out

Clause 8.15 - Survey

Clause 8.16 - Safety

Clause 8.17 - Occupational Health, Safety and Rehabilitation Management

Clause 8.18 - Plant, Equipment and Work

Clause 8.19 - Cleaning Up

Clause 8.20 - The Environment

Clause 8.21 - Urgent Protection

Clause 8.22 - Valuable Objects Found on Site

Clause 8.23 - The Commonwealth May Act

Clause 8.24 - Access Hours

Clause 8.25 - Imported Items

Clause 8.26 - Salvaged Materials

Clause 8.27 - Contract Administrator's Office

Clause 8.28 - Project Signboards

Clause 8.29 - Measurements and Dimensions

CLAUSE 9 - QUALITY

Clause 9.1 - Construction

Clause 9.2 - Project Plans

Clause 9.3 - Contract Administrator's Right to Inspect

Clause 9.4 - Testing

Clause 9.5 - Costs of Testing

Clause 9.6 - Defects

Clause 9.7 - Correction of Defect or Variation

Clause 9.8 - Claim for Correction of Defect; Clause 9.9 - Claim for Variation; Clause 9.10 - Acceptance of Work; Clause 9.11 - Extension of Defects Liability Period

Clause 9.12 - Common Law Rights not Affected

Clause 9.13 - Commissioning and Handover

Clause 9.14 - Maintenance during Defects Liability Period

Clause 9.15 - Defects Liability Period Review and Report

CLAUSE 10 - TIME

Clause 10.1 - Progress and Time for Completion

Clause 10.2 - Programming; Clause 10.3 - Contractor Not Relieved

Clause 10.4 - Acceleration by Contractor

Clause 10.5 - Delays Entitling Claim; Clause 10.6 - Claim; Clause 10.7 - Conditions Precedent to Extension

Clause 10.8 - Extension of Time

Clause 10.9 - Reduction in Extension of Time

Clause 10.10 - Unilateral Extensions

Clause 10.11 - Agreed Damages

Clause 10.12 - Suspension

Clause 10.13 - Instruction to Accelerate

Clause 10.14 - Partial Acceleration

Clause 10.15 - Acceleration

Clause 10.16 - Commonwealth's Right to Liquidated Damages not Affected

CLAUSE 11 - VARIATIONS

Clause 11.1 - Variation Price Request

Clause 11.2 - Variation Order

Clause 11.3 - Cost of Variation

Clause 11.4 - Omissions

Clause 11.5 - Daywork

Clause 11.6 - Valuation of Daywork

Clause 11.7 - Variations Requested by the Contractor

Clause 11.8 - Contract Administrator's Determination

Clause 11.9 - Variation Approved by Contract Administrator

CLAUSE 12 - PAYMENT

Clause 12.1 - Payment Obligation

Clause 12.2 - Payment Claims

Clause 12.3 - Conditions Precedent

Clause 12.4 - Payment Statements

Clause 12.5 - Payment

Clause 12.6 - Payment on Account

Clause 12.7 - Unfixed Goods and Materials

Clause 12.8 - Release of Additional Approved Security

Clause 12.9 - Completion Payment Claim and Notice; Clause 12.10 - Release after Completion Payment Claim and Notice

Clause 12.11 - Final Payment Claim and Notice; Clause 12.12 - Release after Final Payment Claim and Notice

Clause 12.13 - Interest

Clause 12.14 - Correction of Payment Statements

Clause 12.15 - Right of Set-Off

Clause 12.16 - Payment of Workers and Subcontractors

Clause 12.17 - GST

Clause 12.18 - Quantities in Schedule of Rates; Clause 12.19 - Limits of Accuracy

Clause 12.20 - Security of Payment Legislation

Clause 12.21 - Accounting Records

Clause 12.22 - Cost Allocation Advice

Clause 12.23 - Facilities and Infrastructure Accounting

Clause 12.24 - DEMS and GFIS

CLAUSE 13 - COMPLETION

Clause 13.1 - Contractor to Notify

Clause 13.2 - Contract Administrator to Inspect

Clause 13.3 - Unilateral Issue of Completion Notice

Clause 13.4 - Take Over Upon Completion

Clause 13.5 - Part of the Works or a Stage

Clause 13.6 - Effect of Notice of Completion

Clause 13.7 - Liquidated Damages

Clause 13.8 - Incentive

CLAUSE 14 - TERMINATION

Clause 14.1 - Preservation of Rights

Clause 14.2 - Contractor Default; Clause 14.3 - Contents of Notice of Default

Clause 14.4 - Termination for Insolvency or Breach

Clause 14.5 - Commonwealth's Entitlements after Termination

Clause 14.6 - Contractor's Entitlements after Termination

Clause 14.7 - Termination for Convenience; Clause 14.8 - Costs

CLAUSE 15 - DISPUTES

Clause 15.1 - Notice of Dispute

Clause 15.2 - Expert Determination

Clause 15.3 - The Expert; Clause 15.4 - Not Arbitration; Clause 15.5 - Procedure for Determination; Clause 15.6 - Disclosure of Interest; Clause 15.7 - Costs; Clause 15.8 - Conclusion of Expert Determination; Clause 15.9 - Agreement with Expert

Clause 15.10 - Determination of Expert

Clause 15.11 - Executive Negotiation

Clause 15.12 - Arbitration Agreement

Clause 15.13 - Arbitration

Clause 15.14 - Proportional Liability

Clause 15.15 - Continuation of Contractor's Activities

CLAUSE 16 - NOTICES

Clause 16.1 - Notice of Variation

Clause 16.2 - Notices of Other Claims

Clause 16.3 - Prescribed Notices

Clause 16.4 - Continuing Events

Clause 16.5 - Time Bar

Clause 16.6 - Other Provisions Unaffected

Clause 16.7 - Address for Service

Clause 16.8 - Receipt of Notices

CLAUSE 17 - WOL

Clause 17.1 - Design and Construction

Clause 17.2 - Consultation

Clause 17.3 - WOL Proposals

Clause 17.4 - Reporting

Clause 17.5 - Post Occupancy Evaluation

Clause 17.6 - Rights and Obligations Not Affected

CLAUSE 18 - GENERAL

Clause 18.1 - Equal Opportunity for Women

Clause 18.2 - Indigenous Opportunities

Clause 18.3 - Safe Base Alert State System

Clause 18.4 - IT Equipment

Clause 18.5 - Protection of Personal Information

Clause 18.6 - Moral Rights

Clause 18.7 - Freedom of Information

Clause 18.8 - Long Service Leave

Clause 18.9 - Assignment

Clause 18.10 - Publicity

Clause 18.11 - Classified Information

Clause 18.12 - Manual of Fire Protection Engineering and Building Code of Australia Certification

CLAUSE 19 - NATIONAL CODE OF PRACTICE FOR THE CONSTRUCTION INDUSTRY

Clause 19.1 - General

Clause 19.2 - Responsibility not Affected

Clause 19.3 - Notice of Effect on Compliance with National Code and Guidelines

Clause 19.4 - Records

Clause 19.5 - Access and Documents

Clause 19.6 - Project Agreements

CLAUSE 20 - COMMERCIAL-IN-CONFIDENCE INFORMATION

Clause 20.1 - General

Clause 20.2 - Commercial-in-Confidence Information

CLAUSE 21 - FAIR WORK PRINCIPLES

Clause 21.1 - General

Clause 21.2 - Responsibility not Affected

ANNEXURE A - CONTRACT ADMINISTRATOR'S FUNCTIONS

Legal\30994758.17

Department of Defence - Head Contract (HC-1 2003) Contract Manual - Volume 3

SECTION 1 - INTRODUCTION

1.GENERAL INFORMATION ABOUT THE MANUAL

1.1General

The Department of Defence Head Contract (HC-1 2003) Contract Manual (Manual) comprises six volumes being:

(a)Volume 1: Introduction to HC-1 2003;

(b)Volume 2: Completing the Tender and Contract Documents;

(c)Volume 3: Clause-by-clause Guidance (for the Conditions of Contract);

(d)Volume 4: Flowcharts (for the Conditions of Contract);

(e)Volume 5: Proforma Notices (for the Conditions of Contract); and

(f)Volume 6: Clausebyclause Guidance for the Special Conditions.

This Volume 3 provides clausebyclause guidance on the Conditions of Contract.

This Manual has been prepared solely for the purpose of providing internal guidance to Defence personnel. Any use by non-Defence personnel is unauthorised. No responsibility will be taken by the Commonwealth of Australia or the advisers assisting in the preparation of the Manual, for any such use, including any purported reliance on the guidance provided by the Manual. The Manual is not intended to be a substitute for legal advice, and unless expressly agreed in writing by the Commonwealth of Australia, nothing in the Manual will alter or affect the respective rights, obligations and liabilities of the parties under any contract.

This Manual is structured as an on-line reference tool located on the Defence Infrastructure Management website (see A printable version of each volume of the Manual is also available on the Defence Infrastructure Management website. However, it is anticipated that the Manual will be updated and supplemented from time to time. For this reason, if personnel have printed a version of the Manual, they should refer regularly to the Defence Infrastructure Management website to ensure that they are referring to the latest release. The release reference is printed on the front page of each volume of the Manual. Personnel should also be aware that legal and policy changes will impact on the content of this Manual from time to time. Personnel are responsible for ensuring that they understand how such changes may impact on their project.

The Contract identifies defined terms (generally, these are defined in clause 1.1 of the Conditions of Contract) by using a capital letter – e.g."Completion", "Commonwealth Risks" etc. The Manual follows this convention.

1.2No substitute for reading the Contract

The Manual does not attempt to discuss all aspects of tender and contract administration in detail, so it is no substitute for reading the Contract and – if necessary – obtaining policy, legal or other specialist guidance.

Further, the Manual does not provide detailed advice in relation to matters not expected to arise in the day-to-day administration of the Contract, such as termination of the Contract or dealing with disputes. The need to seek specialist advice in extraordinary circumstances such as these is flagged throughout the Manual. If such circumstances arise, Defence and the Contract Administrator will need to seek specialist advice. If in doubt, contact the Directorate of Construction Contracts.

2.BACKGROUND TO THE CLAUSE BY CLAUSE GUIDANCE

This Volume 3 provides guidance on each clause of the Conditions of Contract, explaining the purpose of the clause within the Contract and matters of which personnel should be aware in relation to it. Interspersed throughout the clausebyclause guidance is general advice about issues likely to be encountered in the administration of the Contract, such as:

(a)communication and meetings with Contractor personnel; and

(b)dealing with claims made by the Contractor, including those in respect of the primary risk areas of time, cost (including variations) and quality.

It also provides a general discussion of the major themes within the Contract, including quality and defects, time and progress, variations and payment procedures.

Note that guidance on each clause in the Invitation to Register Interest and the Tender Documents is set out in Volume 2 and that guidance on each clause of the Special Conditions is set out in Volume6.

SECTION 2 - CLAUSE BY CLAUSE GUIDANCE

CLAUSE 1 - GLOSSARY OF TERMS, INTERPRETATION AND MISCELLANEOUS

Clause 1.1 - Glossary of Terms

This clause contains definitions of important terms used throughout the Contract. All defined terms are identifiable as their first letter is in uppercase.

Clause 1.2 - Interpretation

This clause contains a number of provisions relating to how the Contract should be read and interpreted.

Of particular relevance to the Contract Administrator will be the provisions in paragraphs (k), (l), (m) and (n) of clause 1.2 of the Conditions of Contract which define "day" in relation to particular clauses of the Conditions of Contract.

Clause 1.3 - Miscellaneous

(a)Governing Law: The governing law of the Contract is set out in the Contract Particulars. This is usually the law of the State or Territory in which the Site is located. If the Site is located in one or more States or Territories, a decision needs to be made by Defence about the appropriate governing law for the Contract. As different jurisdictions’ laws may impact differently upon the Contractor’s Activities, if there is any doubt as to which jurisdiction is to apply, legal advice should be sought.

(b)Waiver: None of the terms of the Contract can be varied, waived, discharged or released unless, to the extent that the term involves a request of one party seeking to waive a term or one party seeking to waive an obligation of the other party, there is written notice to the other party or, otherwise, both parties agree in writing. However, certain statutory obligations and equitable principles cannot be contracted out of and therefore the parties need to remain very careful that they do not act in a way that is inconsistent with the terms of the Contract.

(c)Contract is entire agreement: Both parties acknowledge that the Contract constitutes the entire agreement between them and supersedes all communications, negotiations, arrangements and agreements made between the parties before the Award Date. Only those matters which are contained in the Contract (as defined in clause 1.1 of the Conditions of Contract) constitute the enforceable contract between the parties.

If a dispute arose in relation to the interpretation of the Contract, this clause 1.3(c) of the Conditions of Contract would reinforce the principle that a court or arbitrator will not generally look outside of the "four corners" of a written contract to find out what the parties intended their contract (i.e. agreement) to mean.

Thus, any contract-specific matters which are at variance to, or beyond the scope of, the Contract need to be incorporated within the wording of any one of the documents which comprise the "Contract".

(d)Joint and several liability: This clause is only relevant where a number of separate legal entities make up the Contractor, such as where there is a consortium or joint venture. In such circumstances, this clause seeks to preserve the right of Defence to take action against either or both of the separate entities making up the Contractor. However, given new proportional liability legislation in a number of jurisdictions that affects the traditional approach to joint and several liability, if the Contractor will consist of more than one separate legal entity, legal advice should be obtained.

If proportional liability legislation applies (see commentary under clause 15.14 of the Conditions of Contract), it may allow a person to reduce its liability, including liability under the Contract, to the amount that a Court considers just having regard to the extent of its responsibility for the underlying loss and damage (excluding personal injury), notwithstanding that it may have assumed responsibility for the full amount of that loss and damage under the express terms of the Contract (including by virtue of a 'joint and several liability' clause such as this clause).

The proportional liability legislation is new and complex legislation which is not identical in each State and Territory. As a result, advice concerning its potential or actual impact should be obtained from the Directorate of Construction Contracts.

(e)Severability of invalid terms: This clause provides that any provisions of the Contract which are illegal, void or unenforceable are severable (i.e. removable) to the extent of the illegality, unenforceability or other reason causing the provision to be void and that they will not invalidate any other provisions of the Contract.

(f)Confidentiality: The Contractor must not disclose the Contract or the Project Documents without the prior written consent of Defence, except to the extent that the disclosure is necessary for the Contractor to carry out its obligations under the Contract. Further, the Contractor must ensure that any subcontractor entering into a subcontract in connection with the Contract enters into terms requiring the subcontractor to comply with the Contractor's obligations of confidentiality as if the subcontractor was the Contractor.

(g)Indemnity: The Contractor provides under this clause an indemnity in favour of Defence for breach of the Contract by the Contractor. The purpose of the indemnity is to make it easier for Defence to recover amounts which it claims from the Contractor under the Contract. Legal advice should be sought before taking any action in respect of the indemnity. See also commentary above in respect of the potential impact of proportional liability legislation.

(h)Survival of indemnities: All indemnities provided survive termination of the Contract and may be relied upon and enforced by Defence in the event that the Contract has been terminated.

CLAUSE 2 - COMMENCEMENT

Clause 2.1 - Contractor's Obligations

This clause sets out some basic obligations regarding when the Contractor's Activities and construction of the Works must begin.

The Contractor's Activities, being the entirety of the Contractor's obligations under the Contract (including designing (if applicable) and preparing to construct the Works), must commence on the Award Date. This is to be distinguished from the construction of the Works on Site (which is part of the Contractor's Activities), which must be commenced by the later date set out in the Contract Particulars.

This clause also provides that the Contractor bears the cost of carrying out the Contractor's Activities unless it states otherwise in the Contract.

Clause 2.2 - Commonwealth's Obligations

Clause 2.2(a) of the Conditions of Contract establishes the Contractor's right to access the Site and also contains the limitations on that right. The Contractor is not given sole possession of the Site as it is in some building contracts rather the Contractor is given sufficient access to carry out the Works.