Comparison Of GC21 (Edition 2) Construction Contract And ABIC MW-1 2003 Major Works Essay.

GC21 (Edition 2)

Question:

Discuss about the Procurement & Contract Management for General Conditions.

GC21 (Edition 2) Construction Contract is a document that was developed based on project success and experience obtained from Edition 1, which mainly focused on co-operative contracting and improvement communication between stakeholders. The main focus on Edition 2 is on restructuring, improving and modernizing contract operations so as to reflect practice and experience. The basic principles of GC21 Construction Contract are: co-operative contracting, clear role definition, enhanced communication, promoting best practice and responsibility for outcomes (New South Wales Construction Consultative Committee, 2012). According to this edition, a contract can be delivered successfully (within schedule and budget, and to the required quality and standards) if the aforementioned principles are adhered to. Thus the main objectives of this document is to keep all parties updated on the best practices for successful execution of construction contracts. ABIC MW-1 2003 Major Works Contract is a document that was developed to provide general guidance on various issues related to execution of construction contracts. The document contains basic information on the responsibilities of various parties, expected conduct during the project period and how different issues should be resolved whenever they arise. The general approach of this document is that the owner and the contractor should cooperate at all times and avoid obstructing each other when performing their roles as stipulated in the contract. The document aims at providing guidance on details of various elements of the contract, how each party should conduct itself, what documents should be prepared and shared, and how issues arising among parties should be resolved. In general, ABIC MW-1 2003 Major Works Contract provides a general guidance on what should be done so as to execute a construction contract successfully whereas GC21 (Edition 2) Construction Contract uses practice and experience from the preceding Edition to provide useful information on how to streamline and update operations and practices so as to ensure successful execution of construction contracts.

The client in GC21 (Edition 2) is referred to as the principal and his agent/representative or superintendent is referred to as the principal’s authorized person whereas the client in ABIC MW-1 2003 is referred to as the owner and his agent/representative or superintendent is referred to as the architect. Both the principal’s authorized person and the architect administers the contract on behalf of the client. In GC21 (Edition 2), the principal’s authorized person certifies all works done by the contractor before any payment can be made. He only acts as the principal’s agent but not as an independent assessor, certifier or valuer. The principal’s authorized person is also allowed to delegate its contractual powers and functions to others but must notify the contractor on the same through a written notice. In ABIC MW-1 2003, the architect works as an agent of the owner and is responsible for giving the contractor all necessary information. He also acts as an independent assessor, certifier or valuer but not as the owner’s agent, but the owner must ensure that his acts are impartial, fair and in compliance with the contract.

ABIC MW-1 2003

GC21 (Edition 2) Contract allows contractors to nominate subcontractors and suppliers, and subcontract part of the works. Before engaging any subcontractor or supplier, the contractor must provide nominated subcontractors’ or suppliers’ details to the principal. The principal is entitled to reject nominated subcontractors or suppliers on reasonable grounds. The contractor is required to start by nominating subcontractors or suppliers from preferred list. Under this Contract, the contractor takes responsibility of all subcontractors and suppliers, and their omissions or acts. The subcontracts must contain all the relevant requirements outlined in this Contract. Some of these include: obligations of the contractor, termination rights, payment methods, dispute resolution methods, etc.

In ABIC MW-1 2003 Contract, the contractor is allowed to subcontract part of the works but not the whole of it. Even if the work is subcontracted, the contractor still remains responsible for any omissions or acts of its subcontractors and suppliers. It is also mandatory for pertinent provisions contained in this Contract to be included in contracts made between the contractor and subcontractors or suppliers. This Contract also requires the contractor to fully notify potential subcontractors or suppliers about relevant obligations of the contractor under this contract.

In GC21 (Edition 2), the contract price (with all adjustments – lump sums, rates, rate items, provisional sum and provisional quantities) must be stated in the contract, together with the basis upon which the payments will be made. According to this document, it is mandatory for all parties to register with Goods and Services Tax (GST). All suns, rates and prices paid then attract GST. All taxable supply that is made by the principal to the contractor shall have an invoice tax. Reimbursable expenses also attract tax. In this contract, the contractor is also allowed to claim prepayment before completing the works. If a prepayment is claimed, the principal should make payment within 14 days. The prepayment is repaid through progressive deductions from the contractor’s payments. This Contract also allows the contractor to claim payments for milestone completion of works. The contractor can submit a payment claim monthly, on the date specified in the contract. After receiving a payment claim from the contractor, the principal should provide the contractor with a payment schedule within 10 business days and make payments electronically to the contractor’s account as per the schedule within 15 days after receiving the payment claim. The contractor is also allowed to claim the completion amount after completing all works stipulated in the contract. After completing all works, the final payment claim must be submitted by the contractor within 13 weeks then after receiving this claim, the principal must give the contractor a final payment schedule within 10 business days. After providing this schedule, the principal is expected to make the payments within 14 days. The principal can set-off, deduct or withhold money if he is claiming money from the contractor in connection with the existing or any other contract. Late payments also attract interest, at a predetermined interest rate (usually 8% p.a.).

Administration of Contracts

In ABIC MW-1 2003, contract price is a lamp sum comprising of prime cost sums, provisional sums, rise and fall, statutory charges and taxes, and all other materials, services and resources needed to carrying out the works. This contract price must be paid by the owner of the contract. The contractor is allowed to submit a payment claim every month, showing value of equipment and materials used to complete the works. Any GST amount should also be indicated in the claim. After submitting the claim, the architect will assess it then issue a payment certificate to the owner and contractor within 19 business days. Any party expecting payment under this contract must also prepare a tax invoice and present it to the party expected to make the payment. The owner should make the approved payment within 7 calendar days, unless stated otherwise. The contractor can also make an adjustment claim for damages, losses or expenses incurred due to uncalled for suspension. A similar procedure is followed when preparing a final certificate after all works have been completed. Late payment also attract an interest at a rate of 10% p.a., unless stated otherwise.

Both GC21 (Edition 2) and ABIC MW-1 2003 Contracts have similar procedures of payments. The Contracts allow contractors to be paid progressively by submitting payment claims monthly, which are assessed by the client’s representative and later issues to the client upon approval. At the end of the contract, a final payment certificate is prepared, together with tax invoice. The client is obligated to make payments within stipulated time in the contract and any lay payments attract an interest at a predetermined rate.

GC21 (Edition 2) Contract requires the contractor to complete milestones and works within stipulated dates. The contractor should put in place appropriate strategies of avoiding potential delays and their associated impacts. However, the stipulated completion dates can be adjusted under certain conditions and the contractor can claim time extensions. The extensions can be as a result of delays caused by the principal or unavoidable circumstances or events such as natural disasters, bad weather, etc. The time extension claim must meet the following requirements: identify the time extensions claimed together with adequate information for assessment by the principal; be issued within 28 days once the delay starts; and be updated after every 28 days throughout the delay period. The time extensions are only awarded for days that the contractor performs contract works and the contractor is required to show how the delay affects the contract program’s critical path. The principal can also extend or reduce/shorten completion dates, for whatever reason, at any time as long as he deems it necessary.

Payment Procedures

This Contract also entitles the contractor to delay costs for disruption or delay caused by the following: variation(s); if the contractor is denied access to the site within stipulated time in the contract; if the principal breaches the contract; if the contract documents had any fault which was notified to the principal; if the principal suspends work; if the site has adverse conditions; and if statutory requirements are changed when the contract is in progress. Calculations of delay costs are done on the basis of applicable rate stated in the Contract for the number of delay days.

ABIC MW-1 2003 Contract requires the contractor to put in place reasonable measures of minimizing delay impacts on works progress. The Contract entitles the contractor for time adjustment claim (with cost) caused by the following: unavoidable damage or loss of equipment, materials or works on site; the contractor being denied access to the site by the owner on time; instruction by the architect; late approval by relevant authorities; dispute(s) with neighbors; lack of adequate information from the owner; rampant industrial unrest, work suspension; breach by the owner; owner’s prevention; an omission or act by another contractor that causes unanticipated interference; and excessive contamination on site. Under this Contract, costs of time adjustment any reasonable damage, expense or cost that the contractor incurs as a result of causes of delays mentioned above. This Contractor also entitles the contractor to make time adjustment claims without costs under the following circumstances: if weather conditions are disruptive beyond anticipated levels; and delays caused by nature of works being carried out. In case of a delay, the contractor must send a written notice to the architect within 2 working days after being aware of the commencement or end of delay. The reasons and number of working days allowed for the delay must be reasonable.

GC21 (Edition 2) Contract provides a mechanism for resolving any disputes that may arise between parties in the process of executing a contract. In case on unresolved claim or dispute, the concerned party should issue a notice to the other party within 28 days after the dispute, and send a copy to the senior executive of the other party. After receiving the dispute notice, this Contract requires senior executives of all parties to convene a meeting quickly in an effort to resolve the issue. If the issue is not resolved by the senior executives within 28 days after the notice has been issued, the issue has to be referred to expert determination. This is done by issuing a notice to the other party specifying the dispute within the required time. Failure to do so bars the dispute from actions such as litigation or even expert determination. After referring an issue to expert determination, parties have to come to an agreement on the expert that will be involved in resolving the dispute. If no agreement is reached within 28 days after the notice has been received, CEO of Australian Dispute Centre will nominate the expert.

Subcontracting

After nominating or agreeing on the expert, the principal will write an engagement letter to the expert (and send a copy to the contractor) outlining the following: the dispute that has to be resolved, fees of the expert, resolution procedure, and any other relevant matters. Both the contractor and principal share the expert’s fees equally and bears their individual costs. After following the stipulated procedure, the expert makes a determination based on parties’ submissions and his expertise. In this Contract, the expert’s determination is final and binding. Once the determination has been made, the other party should pay or compensate the pursuant within 28 days. Either party is also allowed to commence litigation following the expert’s determination within 56 days. The litigation can only be commenced if no party shall be required to pay any money or if one party is required to pay more money than the one stated in the contract. If there is any issue that any party feels it has not been addressed accordingly, this Contract allows to dispute it any seek further resolution. It also allows any party to pursue an urgent injunction or declaration from an Australian court of law. In the process of resolving any dispute, this Contract requires all parties to continue performing their obligations in strict compliance with the contract terms and conditions.

According to ABIC MW-1 2003 Contract, all parties should also continue performing their obligations as stipulated in the contract even if a dispute arises between them. In case of dispute, the pursuant party is expected to issue the other party with a written notice of the dispute then representatives of the two parties are expected to convene within 5 working days to try and resolve the issue. After the dispute notice has been issued and the parties’ representatives fail to resolve it within 5 working days, the contractor and owner of the contract are required to meet within 10 working days and try to resolve it. If the issue is not resolved within these 10working days, the parties have to agree on an alternative dispute resolution methods, which include mediation, expert determination and arbitration. A written proposal recommending at least one alternative dispute resolution method has to be issued by one or more parties within 15 working days after issuance of dispute notice; the parties have to agree in writing on the alternative dispute resolution method chosen within 20 working days after issuance of dispute notice; and the parties must start the procedure of the settled dispute resolution method within 25 working days after issuance of a dispute notice (The Royal Australian Institute of Architects, 2003). Mediation, expert determination or arbitration must be done in strict compliance with relevant Australian laws and contract terms and conditions. The mediator, expert and arbitrator are nominated by the chairperson of the Chapter of The Institute of Arbitrators & Mediators Australia within the territory or state of the location of the site (The Royal Australian Institute of Architects, 2003). Under this Contract, determination in any of these methods is final and cannot be reviewed. Any party that is dissatisfied with the determination is allowed to pursue any other available legal proceedings. Any party also has legal rights to take any action that will compel the other party to pay for the dues in the issued certificate or pursue urgent court reprieve that will stop the other party’s detrimental action.   

Conclusion 

GC21 (Edition 2) and ABIC MW-1 2003 Contracts are comprehensive documents in equal measure. These documents contain vital information for all stakeholders in the construction industry as they give guidelines on how contracts should be executed. The main advantage of GC21 (Edition 2) is that it has been prepared on the basis of practical experience from Edition 1. It therefore means that this Contract contains updated information aimed at improving delivery of construction projects. Another advantage is that the document is more inclusive and precise, and it contains all details that are deemed necessary for stakeholders in the construction industry. The probability of completing a contract successfully by following this Contract is very high. There is no apparent disadvantage of GC21 (Edition 2) but it can be said that this document is more pertinent or appropriate for experienced stakeholders in the construction industry compared to beginners. The main advantage of ABIC MW-1 2003 is that it contains basic information needed for stakeholders in the construction industry. The information contained in this document is more concise. The likely disadvantage of ABIC MW-1 2003 is that it lacks updated information that is vital in resolving issues affecting present-day contracts in the obstruction industry. In terms of superintendent role, nominated subcontractors/suppliers, payments, time extensions & delay cost claims, and dispute resolution, both documents are similar but distinct. The main distinction is that GC21 (Edition 2) is more precise whereas ABIC MW-1 2003 is more concise. The fact that GC21 (Edition 2) is an updated version of Edition 1 makes it more preferred as it seems to address some of the contractual challenges faced when implementing a construction project. 

References

New South Wales Construction Consultative Committee, 2012. GC21 (Edition 2) General Conditions of Contract, Sydney: New South Wales Government.

The Royal Australian Institute of Architects, 2003. ABIC MW-1 2003 Major Works Contract, Melbourne: The Royal Australian Institute of Architects.