How to Choose the Right Construction Contract: AS4122 Conditions vs Commercial Terms of Business

Selecting the right contract is critical for consultants and contractors in the construction industry. The choice between AS4122 General Conditions of Contract for Consultants and Commercial Terms of Business can significantly impact project risk, timelines, and outcomes. In this article, we break down the key differences, explain when each option is most suitable, and share practical tips to help you achieve compliance and protect your business interests.

AS4122 - Features & Why It's Construction Specific

Standard of Care and Scope of Services

• holds the consultant to a specific and higher standard of care relative to the construction industry
• specific obligations on notifications that shift risk to the consultant if there is an error in any information provided to the consultant
• detail on scope of services is provided for with an annexure inserted to provide further specifics to outline the consultant's scope of services

Directions/instructions

• details how instructions/approvals/directions are provided throughout the project

Design and IP Clauses

• covers design liability, copyright ownership, and licensing - these are central to architectural/engineering work
• ownership in designs and copyright are clearly stated

Variations Clause

• allows for formal scope changes and payment/time adjustments which are essential in evolving construction projects

Coordination Duties

• recognises multi-disciplinary teams (architects, engineers, consultants) and sets collaboration obligations

Insurance Requirements

• requires Professional Indemnity, public liability, and workers compensation standard for design consultants in construction

Liability Cap

• enables capped consultant liability, aligning with professional indemnity coverage and industry norms

Delay/EOT Clauses

• provides for when consultants may claim extensions if delayed by others (e.g. by the client or their contractors/consultants, authorities, other allowed events) and costs for delays

Suspension rights

• allows the parties to suspend services with price adjustment in certain circumstances

Termination without cause rights

• allows the client to terminate for its convenience, subject to certain payments being made to the consultant

Subconsultants Clause

• regulates use of subconsultants and who remains liable for those services/deliverables

Parties' Representatives

• reflects contract chain and formal communication needs of projects

Milestone Payments / Completion

• supports stage-based billing and defines when services are complete
• this allows for phased delivery of the project

Specific warranties and indemnities

• These indemnities may include damage to property and personal injury, and warranties for amongst others the standard of care, fit for purpose deliverables and appropriate skill levels

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Work Health & Safety

• address specifics required on a construction site eg who the principal contractor for work health and safety purposes is

Specific legislation

• Civil liability Act 2002 (NSW)
• Design and Building Practitioners Act 2020 (NSW)
• Strata Schemes Management Act 2015 (NSW)
• Building and Construction Industry Security of Payment Act 1999 (NSW)
• Building Code of Australia and National Construction Code

Bespoke special conditions

• fixed pricing, variable pricing on rates or combination of rates and fixed fee pricing
• staging of the project and services
• for design services-process to deal with design approval, delivery of designs/reports, how errors are rectified and priced/paid
• for Regulated Designs under the Design and Building Practitioners Act 2020
• limitation of liability clauses and caps, specific to each project and party
• liquidated damages for delays or late completion
• shifting risk and balancing the risk between the head consultant, subconsultant and client eg requesting a higher standard of care
• licencing, development consents and approvals provisions
• dispute resolution mechanisms

Want to read more on selecting and editing construction contracts? Follow the link to our article on Construction contracts are more than just adocument-remove... | Swaab

Contact us to assist you with your construction specific contracts.

For further information please contact:

Lynn Hawes, Senior Asso­ciate
Phone: + 61 2 9777 8379
Email: lth@swaab.com.au

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.