ACLN· Issue W

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AS2124·1986· The 10 Most Misunderstood Provisions

- Philip Davenport, Lecturer, School ofBuUding,University of New South Wales.

This is the text of a recent address to the BuildingDispute Practitioners' Society on General Conditionsof Contract AS2124-1986.

I have chosen as the headings for the 10 most misun-derstood provisions of AS2124-1986:

1. Avoiding Claims for Omitted Items [Cl.3.3]2. Perfection in Contract Documents [Cl.8.I]3. Using AS2I24 for Design andConstructCon-

tracts4. No Latent Conditions [0.12]5. Increases in Fees to Authorities [C1.14.3]6. No Dual Role for Superintendent [0.23]7. Hudson Formula and Prevention Principle

[CI.35.5]8. Delay Costs [0.36]9. Contractor's Float [C1.35.5]10. Disputes and Experts [0.46.1]

1. Avoiding Claims for Omitted Items [CI.3.3]BUis of Quantities are quickly following other dino­

saurs to extinction. However, unlike the other dinosaurs,the reason for the demise of Bills ofQuantities is easy tofmd. There are three causes. Firstly, the word processorthat 63S permitted Bills to grow to enormous~!!thout becoming;n7: efficieqL Despite the s1Ze~fg;illsandtheDIIID n i inchi¥UQUici'n ihenmnbero claims for omitted items bas increased... The second cause of the demise of Bills is the failyreto replace the Austtalian Standard Method of Measure­ment of Bills of QUantities [the ASMM] with a conciseiileiiiod of measurement. Traditionally, contracts providethat the Bill of Quantities is prepared in accordance withthe ASMM. An example is in claose 2.04 of the JCC-A1985 conditions. AS2124-1986 did not make that state-

1ment because in fact no Bill has ever fully complied With~ASMM. The ASMM IS notonly replete with ambigui­ties but it contains requirements for the BUi which cannotbe complied with. The consequence is that any Bill whichpurports tocomply with the ASMM isa potential sourceofclaims.

The final nail in the coffin of Bills is the inability ofmost quantity surveyors to come to grips with "omitteditems". Nomatterhowmany itemsareputin theBill,itwillbe arguable that there are items omitted unless there is anitem such as:

All work and obligations under the Contract notincluded elsewhere in the Bill of Quantities

Generally, engineersseem tohave followed the leadof

the N.S.W. Public Works Department and now there willcommonly be found in any Schedule of Rates an item asfollows to be priced by the tenderer:

All work and obligations under the Contract notincluded elsewhere in the Schedule of Rates.

If that item is used, there is no need for clause 3.3 ofAS2I24. However, the same protection is notachievedbysimply deleting clause 3.3 or amending clause 3.3 in anendeavour to eliminate claims for omitted items. The onlyanswer is to ensure that there are no omitted items. This isachieved with a simple item such as that set out above.

Some argue that this is unfair to tenderers. Is it unfairto ask tenderers to price all the work required by theContract? Contractors have tried in vain to getaround thisstrategy for avoiding claims. There appears to be noreported case on the matter and it seems that the only wayaround the strategy is a claim in tort or under s.52 of theTrade Practices Act or s.42 of the Fair Trading ACL Suchclaims would involve proof of misleading or deceptiveconduct. Merely asking tenderers to price all the wOOc isnotmisleading ordeceptiveconductbut itmay be possibleto draft a Bill of Quantities or a Schedule of Rates that ismisleading.

2. Perfection in Contract Documents [CIA1]An increasingly common claim being made by con­

tractors isa claimin tort that the ContractDocumentswerenegligently prepared and contained errors which resultedin theContractorincuning moreexpense than anticipated.Aclaim is usuallymade in the alternative under s.52oftheTrade Practices Act and s.42 ofthe FairTrading Act. Theclaim issometimesmadebycontraetorsondesign consult­ants and by subcontractors on the Principal.

Clause 8.1 of AS2124 provides a source of recom­pense but the difficulty with clause 8.1 is that itonly givesa right by a contractor against the Principal and it requiresthe contractor tonotify theSuperintendentofan ambiguityordiscrepancy. It is only ifa direction of the Superintend­ent causes the contractor to incur more cost than thecontractorcould reasonablyhaveanticipatedat the timeoftendering that the contractor is entitled to extra recom­pense.

The claim is usually not with respect to a particularerror, omission ordiscrepancy but that generally the Con­tract Documents were below a reasonably acceptablestandard or the standard which the tenderer might reason­ably have expected. The problem is whether anything inthe Contract or the law requires that the drawings andspecification should be of a certain standard.

ACLN -Issue #22

The loss of the contractor or other claimant is "ec0­

nomic loss". The claimant'S difficulty is that the law doesnot generally recognise a duty of care to avoid causingsomeone economic loss. The importance ofclause 8.1 isthat by making provision for errors and discrepancies inthe Contract Documents, the Principal is by necessaryimplication not promising that they are without errors anddiscrepancies. This makes it difficult for the claimant tosay that the Principal engaged in misleading conduct.

Some misguided Principals amend clause 8.1 becausethey see it as a source of liability rather than an importantprotection for the Principal.

3. Using AS2124 for Design and Construct ContractsThe Standards Association which published AS2124

bas established several subcommittees to review AS2124.One is to consider a "design and construct" contract It isnotgenerally appreciated that AS2124 is quite suitable forand is being used as a design and construct contract. In apaper Design and Construct Contracts in [1991] 16Australian Construction Law Newsletter pp.30 to 32 Ihave considered the special conditions which might benecessary. The point to consider most carefully is the"suitability for purpose" obligation.

4. No Latent ConditionsA latent site condition may necessitate:

1. delay and additional expense to perform thespecified work;and

2. a change from the specified work.

In thecaseof(2), the inclusion ordeletion ofclause 12does not effect a transfer of risk. In the case of (2), if thework is to proceed, a variation must be ordered underclause 40.1, in which event clause 402 provides for extrarecompense. The deletion of clause 12 will not defeat aclaim for extra where a variation is involved. If the varia­tion is not ordered then the Contract may be frustrated. Ihave explored the issue of frustration in a paper Termina­tion ofConstruction Contracts by Frustration [1988] 2Australian Construction Law Newsletter pp.ll to 14.

On the other hand, where there is no need to direct achange to thedrawings orthe specification, thedeletion ofc1.12 will impose a risk upon the contractor. Many latentcondition clauses fail to make provision for the case wherea latent condition does not necessitate a variation. TheJCC-1985 contract conditions, the NPWC3 Special Con­dition of Contract for Latent Conditions and earlier edi­tions of AS2124-1981 fall into this category.

There is a commonly held misconception amongstcontractors that the Principal bas some duty to providesubsoil information to tenderers. There is an equally com­monly held misconception amongst Principals that ifmis­leading subsoil information is provided, the Principal canbe protected against liability by an exclusion clause.

The Principal bas no obligation to provide subsoilinformationbutifthePrincipaldoesprovidesuch informa­tion, even if the Principal bas not been negligent or the

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information has been prepared bya consultant, the Princi­pal can have a liability to the contractor. Section 52 oftheTradePractices Actand S.42 oftheFairTrading Actcreateliability for engaging in misleading or deceptive conducteven though there is no negligence and despite any exclu­sion clause.

However, there isaway toprovidethe informationandavoidliability. The way is to ensure that the Principal doesnot mislead the contractor. The mere fact that informationis incorrect or is itselfmisleading does not mean that thePrincipal bas engaged in misleading conduct. To obtainprotection, the Principal should when providing the infor­mationsay:

Thisinformationmaycontainerrorsoromissionsand may be misleading, The Principal does notwarrant its accuracy and will not be liable if thetenderer is mislead by the information.

5. Increases in Fees to Authorities [CI.14.3]Clause 14.3 can amount to a rise and fall clause. Most

users of AS2124 seem to omit the second paragraph ofclause 14.3 and the whole of clause 142. The problemwith the second paragraph ofclause 14.3 is the vaguenessof the term "fee". Is the cost of electricity a "fee"? Is theamount payable for workers compensation to the Govern­ment Insurance Office a fee paid to a statutory authority?

The only other generally adopted amendment toAS2124 is the deletion from the defmition of LatentConditionsinclause 12.1[a] ofthe words"atthe Site"fromthe phrase "physical conditionson the Siteor its surround­ings, including artificial things but excluding weatherconditions at the Site". The reason for the deletion is theambiguity.

6. No Dual Role for the Superintendent [CL23]Much bas been written about the so called "dual role"

of the Superintendent. Lawyers and otherprofessionals inthe construction industry have enormous difficulty incoming to grips with the role of the Superintendent Themisunderstanding is exemplified in clause 5.2 of the ICC­1985 contract. There, the functions of the Architect areartificially divided into two categories and with respect tothe second category the contract says "the Architect ishereby authorised to act as the assessor, valuer or certi­fier".

Itwouldbebetterifthe term "dualrole"badneverbeeninvented. Everyone bas the so called "dual role" in so faras everyone in business must not deliberately certify astheir opinion something that is not their opinion. Whetherthe false certification will give someone a cause ofactionis another matter. The Superintendent isnota specialclassof citizen for whom there is some peculiar legal role.

The important question for any contractor is whetherif, in theadministrationoftheContract, theSuperintendentfails to make a decision or in making a decision fails toarrive at a reasonable value ofwork or measure ofquanti­ties or extension of time, the contractor bas any recourse.If the Superintendent is an arbitrator, there may be re­course to the Supreme Court under the Commercial Athi-

ACLN· Issue W

tration ACl However, it would be unusual for the contractto make the Superintendent an arbitrator. Nevertheless,there are some contracts thatprovide thatcertain decisionsof the Superintendent are final and binding and it ispossible that inadvertently the Superintendent has beenmade an arbitrator.

Ifthe Superintendent's decision is fmaland binding onthe contractor then the Superintendent will probably be anexpert and liable to the contractor for negligence in certi­fying [seemypapersProgress Cenijicales [1989] 5 ACLN2, Expert Appraisal - Challenging an Award [1989] 6ACLN 12, and liability Of Engineers to Contractors[1990] 12 ACLN 54]. Somecontracts, ego JCC-1985 givethe contractor a right to go to arbitration. The decision ofthe Superintendent is made binding until reversed by anarbitrator. This can be quite unfair to the parties as inexemplified by Sutcliffe v Thackrah [1974] AC 727,Lubenham Fidelities v South Pembrokeshire [1986] 33Build. L.R. 130 and Pacific Associates v Baxter [1989] 3WLR 1150. It can also mean that the contractormust go toarbitration since a court will not necessarily have thepower to reverse the decision of the Superintendent [seeNonhemRegional HealthAuthorityv Crouch [1984] 2A1lE R 175 and the cases which have considered it].

In the only decision ofwhich I am aware on a questionofintetpretationofAS2124-1986, DowsettJ. in theQueens­land Supreme Court [Graham Allen Eanhmoving vWoodwark Bay Development, unreported 19/12/88] erredin the interpretation of the role of the Superintendent, withdramatic consequences for the Principal. The case isdiscussed in my paper Progress CeniflCaleS [1989] 5ACLN2.

In drafting AS2124-1986 I thought that a much moreefficient solution would be to give the contractor a right toa reasonable value and a reasonable extension of time anda right to damages from the Principal ifthe Superintendentfailed to certify a reasonable value or a reasonable exten­sion of time. That is why clause 23 says:

The Principal shall ensure that ... in the exercise ofthe functions of the Superintendent under the Con­tract, the Superintendenl...

[c] arrives at a reasonable measure or valueof work, quantities or time.

The consequence is that if the Superintendent fails togrant a reasonable extension of time when the Superin­tendent should do so, the contractorhas an immediaterightto damages, ego refund of liquidated damages. Comparethe situation where the right to a refund must await adecision of an arbitrator. In those contracts, while thecontractor is awaiting the decision of the arbitrator, thePrincipal can quite lawfully continue to deduct liquidateddamages. Then there is the question ofwbether the arbitra­tor has power to award interest for the period that thePrincipal has quite lawfully held liquidated damages.

The provisions of clause 23 were novel and for manyyears they caused concern to some architects and engi­neers who feared that the provisions exposed them to someadditional liability. However, in the 5 years that AS2124-

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1986 has been in use, the provisions have given no rise toproblems and it seems that theconcerns havebeen allayed.

It is important to note that clause 23 does not requirethe Principal or the Superintendent to act reasonably.There is a difference between arriving at a reasonablevalue and acting reasonably. It might be said that it isunreasonable to reject certain work which is only slightlydefective but there is nothing to stop the Principal orSuperintendent enforcing the terms of the Contract eventhough a reasonable person might be more lenient.

7. Hudson Formula and Prevention PrincipleWith anygeneral conditionsofcontract, theprovisions

which give rise to the most.disputesare those that deal withtime and money. To assist in the understanding of thissection, I will commence with a brief outline of the timeprovisions in AS2124.

Under clause 27.1 the Principal agrees to give theContractor possession of so much of the Site as is neces­sary for the Contractor to commence work. The time fordoing so is stated in the Annexure. What if the Principalfails to do so? How long must the Contractor wait beforethe Contractorcan treat the Contract as at an end. To coverthis problem we have in the Annexure under cl.44.7:

The delay in giving possession of the Site whichshall be a substantial breach(is) ...

The period filled in is often 3 months. At the endofthisperiod the Contractor still cannot treat the contractas at anend butmust fust give a show cause notice to the Principalunder cl.44.7.

Once the Contractor has been given possession ofsufficient of the Site to commence work, the Contractormustcoounenceworkwitbin 14 days [clause 35.l}. How­ever, before commencing work, the Contractor must give7 days notice [clause 35.1] and must produce proof ofinsurance [clause 21.1]. If the Contractor fails to produceproofof insurance, the Principal can refuse access [clause27.1].

Having commenced work, the Contractor must pro­ceed with due expedition and without delay [clause 33.11and must not, without reasonable cause, depart from theconstruction program [clause 33.2]. The Contractor mustexecute the work to Practical Completion by the Date forPractical Completion [clause 35.1] although theContrac­tor is entitled to have the time for Practical Completionextended in certain circumstances [clause 35.5].

Failure to proceed with due expedition is defmed as a"substantial breach" under clause 44.2 and can result in a"show cause notice" and termination [clause 44.4]. Fail­ure to achieve Practical Completion by the Date for Prac­tical Completion results in liability for liquidated damages[clause 35.6].

Delays are frequent in the construction industry. Theyoften involve substantial COSl Therefore contractors havedevised ingenious arguments for avoiding liability to thePrincipal for liquidated or otherdamages for delay and forrecovering from the Principal additional remuneration.One of these is the "Prevention Principal" and another is

ACLN - Issue m

the "Hudson Formula". Neither has any basis in law orlogic but that does not seem to deter contractors fromraising them. They will find plenty of support in theliteratureofthe industry but little ornone inreported cases.

The "Prevention Principal" is the subject ofmy paper"Variations Ordered after the Date for Practical Comple­tion" in [1991] 17 Australian Construction Law Newslet­ter [ACLN] 53 and the Hudson Formula is the subject ofmy paper " The Two Hudson Formulas" in [1991] 18ACLN14.

To assist in understanding what is to follow, let us takean example of a building contract using AS2124-1986which involves building 10 identical houses in 10months.Assume that the contractor proposes to build the housessequentially, one per month. Assume that at the time thecontract is let, labourcosts perhouse are $40,000,materialcosts are $40,000 per house, on-site overheads [sheds,fencing, etc] are $10,000permonth and off-site overheads[insurance, headofficeexpenses, etc. are $5,OOOpermonthleaving profit of$5,000 per house or $50,000 in total. Thecontractprice will be a lump sum of$lm. or $100,000 perhouse.

Assume that at the start the Principal breaches thecontractby being one month late in giving possession. TheContractorcan apply for an extension oftime. Theoriginalperiod until theDate forPracticalCompletion is 10monthsfrom the date of acceptance of the tender.

If time is extended by one month, the Contractor willnot be liable to liquidated damages.

The Contractor is entitled to damages for the breachbut what are the damages? If the Contractor has advancenotice of the delay and can keep the worlcers fully engagedon another project, there may be no damages. Since theContractorhasnot taken possession ofthe Site, the on-siteoverheads have probably not commenced. Any directcosts such as labourand on-site overheads are usually easyto prove. These costs are obviously damages flowing fromthe delay. The question is whether the Contractor is enti­tled to anything in respect of the Contractor's off-siteoverheadsandprofit, which were 5% and 5% respectively.

The proponents of the Hudson Formula [or othersimilar formulas] would say that the one month extensionof the contractperiod means that the Contractor is entitledtoanamount for overheads andprofitcalculatedaccordingto the formula This would give the Contractor an amountof$10,000 for themonth's delay. Tbis $10,000 is irrespec­tive of whether the Contractor had actual extra labour andon-site overheads and is quite independent of the actualdamages. Of course, the law does not award damagesunless they have actually been incurred and any formulathat arrives at an amount which is independent of actualloss will not be recognised.

Some try to justify the use of the formula by arguingthat it calculates the "contribution to off-site overheadsand prOfit" which the contractor is prevented from earningby being unable toeam income from anotherproject. Theyusually skip over the question of whether the contractor isactually prevented form earning income and they invari­ably ignore the question of whether the loss of income, if

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any, was foreseeable within therule inHadley vBaxendale.Most large contractors will not be prevented from under­taking any other work which is available. They can recruitmore staff or subcontJacl If in a particular instance thelarge contractor is so prevented then it is most unlikely thatthe loss would have been foreseeable.

The claim is usually based on the Hudson FoonuIa.While the book from which the formula comes is a wellknown and respected text, in many aspects it does not

, reflect the law. This is one such aspect. The law onlyrecognises actual damages not a theoretical loss.

What if the Contractor decides not to apply for anextensionoftime?There isno obligation on the Contractorto claim an extension unless failure to do so would be afailure to mitigate damages. The Contractor is entitled todamages for breach of contract. The Contractormight putthe workers on overtime to make up for the time lost. Theovertime would be what are commonly called "accelera­tion costs".

Is there a limit to the amount which is recoverable asacceleration costs? Since the acceleration costs are dam­ages for breach of contract, the principle of mitigationapplies. The question must be asked, "What would havebeen the Contractor's loss if the Contractor had not accel­erated". Ifthe loss wouldhave been liquidateddamagesof$1,000 per day, the Contractor would be limited to accel­eration costs of $1,000 per day. Logic will show that inmostcases the amountperday ofliquidateddamages is theceiling on acceleration costs.

Now assume that the Superintendent fails to grant orrefusesanextensionoftime. Undermostforms ofcontract,the consequence would be that the Principal could notrecover liquidated damages. However, under the lastpara­graph of AS2124, the Contractor has agreed that:

A delay by the Principal or the failure of theSuperintendent to grant a reasonable extension oftime or to grant an extension of time within 28 daysshall notcause theDate for Practical Completion tobe set at large but nothing in this paragraph shallprejudice any right of the Contractor to damages.

If the failure of the Superintendent to grant a reason­able extension of time is a breach of contract, then thePrincipal would be liable to the Contractor for the liqui­dated damages, if any, which the Contractor will becomeliable to pay as a consequence of the Superintendent'sfailure. Under Clause 23 the Principal agrees to ensure thatin the exerciseofthe functions ofthe Superintendentunderthe Contract, the Superintendentwill arrive ata reasonablemeasure of time. Here is the source of the liability of thePrincipal for the failure of the Superintendent to extendtime.

The Contractor may decide to accelerate the workrather than incur liquidated damages and where the Prin­cipal is in breach on account of the Superintendent'sfailure to extend time, the Principal would be liable for theacceleration costs. Again, due to the principle of mitiga­tion, the amountofliquidateddamages would puta ceilingon the acceleration costs which could be recovered.

$SO,OOO$40,000$10,000$5,000$5,000.

ACLN· Issue In

Taking the exampleof the contract for $lm. foc the 10houses, assume that the Contractor is runiung late and inmonth 11 while the Contractor is incurring liquidateddamages of $1,000 per day, the Superintendent orders avariation which involves an extra 10 days work. There isa theory [called the "Prevention Principle" or the "PeakPrinciple"] that the ocder causes the Principal to lose theright to all liquidated damages.

A variant [alsocalled the"Prevention Principle"or the"PeakPrinciple'1 is that the Principal loses theright to anyliquidated damages after the date of the instruction to varythe work. The argument is that the Principal by the varia­tion prevented the contractor from achieving PracticalCompletion by the Date for Practical Completion. Obvi­ously a variation directed after the Date for PracticalCompletion cannot possibly prevent the contractor fromachieving Practical Completion on that date. Somethingelse bas been the cause. The argument is based on amisinterpretation of Peak v McKinney [1970] 1BuildL.R.lll. For further discussion, see my paper Vari­ations ordered after the Date of Practical Completion[1991] 17 ACLN 53.

Under AS2124, neither theory is true. The Contractorbasagreed tobuildbya certain date the ten housesand anyextraworkorderedas a variation [clause35.2]. The partieshave agreed that if extra wodc is ordered, the Contractorwill be entitled to extra time [clause 35.5] and clause35.S[b][iv] specifically provides for extension of time forvariationsdirectedafter the DateforPracticalCompletion.Clause 3S.6 provides:

Ifafter the Contractor bas paid or the Principal basdeducted liquidateddamages, the time for practicalCompletion is extended, the Principal sball forth­with repay to the Contractor any liquidated dam­ages paid ordeducted in respect ofthe period up toand including the new date for Practical Comple­tion.

The new date for Practical Completion may well be adate earlier than the date upon which the variation isordered. This is discussed in more detail in my paperVariationsorderedafterthedateforPractical Completion[see above].

8. Delay Costs [CI.36]CI.36ofAS2124 serves2 purposes. Firstly, itprovides

a mechanism foc the contractor to obtain additional remu­neration on account of delay in certain pre-agreed situa­tions. Foc example, if the contractor is delayed by inclem­ent weather, the contractor is usually entitled to an exten­sion of time but 00 extra money. However, if an item"weatherconditions$1,000perday" is in theannexure, thecontractor would be entitled to $1,000 foc each day thattime is extended on account of weather conditions, irre­spective of whether the contractor's actual costs weremore or less than $1,000 per day.

Thesecond purpose which cI.36serves is to permit thePrincipal to put a ceiling on recompense where anotherprovision ofthe contractaIready provides focrecompense.

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Take delay caused by a latent condition. 0.12 wouldpermit the contraetoc to recover whatever costs are causedby the delay. However, if the Annexure included undercI.36 ''Latent conditions $1,000 per day", cI.36 then pr0­vides that$1,000perday will be the limitof the Principal'sliability foc that delay.

CI.36 does not limit the Principal's liability for dam­ages for breach of contract There is a commonly heldmisconception that deletion ofcI.36 prevents the contrac­torfromcIaiming"prolongationcosts". Prolongationcosts[ormorecorrectly,costarising fromdelay] arerecoverablein one of two situations, namely:

1. where theContractprovides forpayment [e.g.cL36, cI.l2 (latent conditions), cI.33.1 (direc­tions with respect to the order of work) andcI.34.4 (suspension)]; or

2. where the Principal breaches the contract

Nothing in AS2124-1986 limits the Principal's liabil­ity for damages for breach but there is a time bar in clause42.7 on the making ofa claim more than 28 days after the

. end of the Defects Liability Period.Letusreturo to theexampleofthe tenhouses tobebuilt

for $lm. in 10 months. Assume that the Superintendentdirects that an 11th bouse be built Assume that theContractor does not raise objection under the 3rd para­graph ofclause 40.1. Assume that the direction is given atthe endoftheSthmonthandthatat theeodofthe7thmonththere is a wage rise that increases the Contractor's labourcosts per house from $40,000 to $SO,ooo.

If the extra bouse is built in month 11, a reasonableprice foc the house would be $110,000 made upas followsusing thepricesociginallypostuIatedandaddingthe$10,000increase in labour costs:

labourmaterialson-site overheadsoff-site overheadsprofit

However, if the additional bouse is built in month 6,before the wage rise, a reasonable price for that house is$100,000. The Contraetoc's labour costs foc house no.7will now be $50,000 because it will be built after theincrease whereas, bad itootbeen for the variation, itwouldhave beenbuilt in month 7, before the wage rise and labourcosts would have been $40,000. Can the Contractor re­covertheextra$10,000and ifso, how? Tbe variation isnota breach of contract

The answer is in clause 33.1 oc clause 34.4. H theSuperintendent gave a direction, either expressly or byimplication that the order of work be changed, the extracost is recoverable under the lastparagraph ofclause 33.1.In any event, the work. on houses 6 to 10 was suspendedwhile the additional bouse was built and the suspensionwas due to an act of the Superintendent, namely orderingthe variation.Clause 34.4 then provides for theprincipal topay any cost incurred by the Contractor by reason of thesuspension.

ACLN - Issue 11.2

There is one caveat. Clause 34.1 refers to a suspensionthat is "necessary". If there is nothing in the direction tovary the work that makes it necessary to suspend otherwork [ego the extra house could be built after completionof the other 10 houses], and the direction says nothingabout theorderofwork, clauses 33.1 and34.4may havenoapplication.

Proponents of the Hudson Formula will probablydemand an additional $10,000 [over and above the addi­tional labour costs] on the basis that time has been ex­tended for 1 month on account of the variation. However,the only additional cost to which the variation puts theContractor is the wage rise with respect to house no.7.Otherwise, the costofbuilding the 10houses is exactly thesame as it would have been had there been no extension oftime.

The prolongation of the contract has not caused "pro­longation costs". Even if it had, the contractor must pointto a right under the Contract to some additional recom­pense. A variation is not a breach. There is no equivalentin AS2124-1986 to the last paragraph of clause 35.4 ofNPWC3 which, due to the misinterpretation of the para­graph, has proven a windfall for contractors under theNPWC3 conditions. [This is the subject of my as yetunpublished paper NPWC3 Clause 35.4 - Delay CostClaims]

Some may argue that the extension of time meant thatthe Contractorcouldnotunder'takeother work foramonth.Even if that were so, there is no provision for recovery ofloss of the income that mighthave been earnt elsewhere inthatmonth. The Principal is entitledtohavevariations. Theamount to be paid for extra work is to be determined by anagreed formula [clause 40.2] and if other work is sus­pended clause 33.4 provides for the "cost incurred by theContractor byreason ofthe suspension" tobe valued underclause 40.2. Clause 4O.2[f] provides:

If the valuation relates to additional costs incurredby the Contractor for delay or disruption the valu­ation shall include a reasonable amount for over­heads but shall not include profit or loss of profit.

9. Contractor's Float [CI.3S.5]The fourth paragraph of clause 35.5 covers what is

sometimes called the Contractor's "float". The Superin­tendentcannot take intoaccount the "float"available in theContractor's program in determining whether the Con­tractor can reach Practical Completion.

The term "float" is used in several senses and sayingthat "floatbelongs to the Contractor" can beambiguous. Ifthe contractperiodis6 monthscommencingon IstJanuaryand the Contractor could, but for a 30 day delay, fmish by30th April, the delay will not cause the Contractor to incurliquidated damages but it will nevertheless delay theContractor in achieving Practical Completion. Hence theContractor is entitled to an extension of time. The Super­intendent should extend the Date for PracticalCompletionfrom 30th June to 30th July. The period from 30th April to30th June would be described as the 'Contractor's float'.

Now assume that the original Contract period is as

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before but after clearing the site, the Contractor will haveto wait until 15th February to commence constructionbecaUse Council approval will not be available till then.Assume that the Contractor could, but for the delay, havecleared the Site by IstFebruary. Assume that in the courseofclearing the site, the Contractorisdelayedby 5 days wetweather but the wet weather will not delay constructionbecause there is still adequate time to clear the Site.

The period from 1st to 15th February is also oftendescribed as the 'Contractor's float'. Nevertheless, thedelay on account of wet weather would not entitle theContractor to an extension of time for Practical Comple­tion because in fact Practical Completion will still beachieved on the same day irrespective of the wet weather.

Another instance where the term 'Contractor's float' isused is where there are two phases of construction pro­ceeding in parallel.

Forexample, theContractormayhave toconstruct twoidentical water treatment tanks. One may be so delayedthat the Contractor cannot achieve Practical Completionuntil 30th November. The other [tank A] may be onschedule and due for completion on 30th June. If theContractor is delayed for 10 days in constructing tank A,the Contractor will still achieve Practical Completion ofthe whole contract on 30th November. The delay on tankAwillnotcausea delay in achieving PracticalCompletion.Hence the delay does not entitle the Contractor to anextension of time. The delay is often said to be a delay towork which is not on the critical path.

10. D~putes and Experts [C1.46.1]Clause 46.1 providesa mechanism for an independent

expert appraisal of claims. It is not generally appreciatedthat clause 46.1 permits the appointment of a secondSuperintendent to consider a particular dispute or alldisputes. There is little point in referring a dispute to thesame Superintendent who, on behalf of the Principal hasalready made a decision to reject the claim.

The contractorcanalways propose to the Principal thatfor the purposes of clause 46.1 and any particular claim,the Principal should appoint an independent person tomake the decision. The contractor might even suggestsharing the costs of the independent person. Having adecision [albeit not binding] ofan independent third partyfrequently results in settlement, not necessarily at thefigure decided by the independent person.

Some Principal's fail to perceive the difference be­tween an arbitrator and an expert and they delete clause46.2 and provide that disputes will be submitted to anexpert who will make a final and binding decision "as anexpert and not as an arbitrator"'. The fact that a contractcalls a person an expert and not an arbitrator, is notdeterminant of whether the person is an arbitrator or not.This is the subject of another paper of mine Expens andArbitrators, see [1991] 21 AQ..N 4.0