Question 1 (45 marks)
Charlie has succeeded in persuading the planning authority to approve his application for 50 holiday apartments to be built on his Cape Catastrophe property and has signed up Ernie on an AS4000 contract with a practical completion date of 1 December 2016. Charlie has been able to sell 49 apartments off the plan and has promised his buyers that they will have their apartments for Christmas. He is looking forward to spending Christmas in the 50th apartment which is of course the penthouse.
Under the contract liquidated damages of $10,000 per day will apply to late completion. Ernie is part way through construction when some events start to delay the progress. The construction program has 10 days of float built into it. The following events occur in sequence.
(i) Charlie is overdue in making the first monthly payment – it is 24 days late. (ii) While he is still waiting for the payment, Ernie’s electrical subcontractor lets him down and fails to install several conduits in the ground floor slab. Ernie delays installation of some of the tilt up panels while this is rectified. The delay extends for 4 days and during this period, there is a strike by the tilt up panel delivery contractor which extends for 7 days. Charlie’s payment arrives on the same day as the tilt-up panels arrive on site. (iii) There is a severe rainstorm and it rains incessantly for three days making it impossible for any work to proceed on site. (iv) Ernie realises that he has omitted to order the tiles that Charlie specified for the entrance and living areas of the apartments. They were to be black granite that Charlie had seen in his overseas travels and were to be imported from Italy. They are now out of stock. Charlie is refusing to select any different tiles and is insisting that
Ernie air freights them from Italy. This is likely to cost Ernie $50,000 in freight. Bringing them by ship will take at least 4 weeks.
Assuming that each delaying event is on the critical path, answer the following question:
What would you recommend to Ernie if he asked you for advice about each of the above? Your advice should include any rights or entitlements Ernie has under the contract (especially in relation to time and costs), and any contract administration procedures Ernie should follow under the contract in order to avail himself of his rights (if any).
The marks allocation for Question 1 is as follows: