Brigid Lloyd, Director

Introduction and overview

Construction contracts frequently include provisions specifying timeframes and other procedural requirements which apply to the submission of claims for variations, extensions of time and other contractual entitlements. Almost inevitably in the case of contracts for major projects, a failure to comply with prescribed timeframes and requirements will be expressed as a bar to entitlement in respect of the relevant delay or other event.

While it is well-recognised that contractual notice provisions serve a legitimate purpose in the administration and management of construction contracts,[1] increasingly this purpose is largely subverted by extreme drafting which seems more focused on arming the principal with an artillery of procedural arguments to reject otherwise meritorious claims. This has been particularly evident in government contracts relating to major public infrastructure around Australia.

Unduly onerous contractual preconditions to entitlement do not recognise the practical realities of the project delivery context, and the way in which issues and their potential effects become apparent.

The consequences for contractors include not only enormous and disproportionate resources associated with contract administration, but the potential for genuine claims and entitlements to be rejected by principals in reliance on immaterial procedural failures. The broader consequences for project delivery are also problematic, as the lack of prompt resolution of real time and cost impacts hinders the contractor’s ability to manage project controls, planning, reporting and administration. Contractors may also be driven to look for more creative avenues to recover entitlements outside of the four walls of the contract, which can complicate and escalate disputes, leading to increased costs, delays in resolution, and unwanted publicity.

A sufficient solution seems unlikely to be found in the near term via the courts or through the current forms of legislative intervention, although sympathy has been expressed in each of those contexts for the plight of contractors in the face of unreasonable notice provisions. For the reasons set out below, there is an important role for government to drive more immediate and practical change in terms of what is considered appropriate as the market standard for drafting of notice regimes.

Some of the issues that could readily be addressed as part of the contract terms being rolled out for use on major public projects include:

• timeframes for notice, which should take account of the relevant circumstances including when the contractor could reasonably have become aware of the relevant time or cost impact that is required to be notified;
• requirements for detailed claim particulars must be responsive to what information is reasonably available at the relevant point in time;
• notice provisions should be simplified and streamlined across different categories of claim, in a way that promotes the need for timely warning of the underlying event and likely impact for the project, rather than the legal basis of the claim;
• entitlement to claim for the impact of a principal’s direction should not be subject to the contractor’s ability to immediately recognise the circumstances as a variation; and
• the consequences for a failure to comply strictly must be proportionate to any prejudice that results, rather than instant and absolute extinguishment of entitlement.

A market-leading approach by government to addressing these types of issues and returning the balance to achieving the legitimate objectives of contractual notice provisions has the potential to bring about positive change across the industry as a whole, to the benefit of all parties. This type of initiative would also be consistent with government’s expressed intention to promote greater fairness and collaboration in contracting with industry.

Notice provisions – The current landscape

Australia is somewhat unusual in its preference for the use of bespoke contract terms on major projects, over the use of the standard form contracts which are more common throughout international markets. Even where standard form contracts are used, they are often substantially modified in a way that departs fundamentally from the guidance of the publishing body.[2]

At the tender stage, notice provisions can tend to be viewed as a less important and largely administrative element of time and cost entitlement regimes. Contract negotiations tend to focus more on issues such as categories of excusable delay or compensation events which permit a claim, rather than the procedural requirements for submission of claims, when in fact both are critical in determining entitlement.

Reduced attention paid to the drafting of notice provisions is compounded by the fact that – even where genuine issues are identified and raised – principals and their lawyers are often unwilling to compromise, referring simply and unhelpfully to the fact that similar requirements have been included in contracts on other projects. The result is a self-perpetuating cycle of ‘standard drafting’, where contractors in a competitive tender process have limited ability to push back on unreasonable or impractical notice provisions, which go far beyond what is necessary to secure the ostensible objective of ensuring early warning and avoiding stockpiling of claims.

It is not unusual for construction contracts to contain many pages of drafting dedicated to procedural requirements for the timing and form of claims. Requirements are frequently complex and multi-tiered, with a sequence of multiple notices required, within short timeframes which are to be calculated based on different trigger events and points in time. Requirements for the timing and form of notice may differ significantly depending on the nature of entitlement claimed, and the contractor must comply with each and every such requirement regardless of whether the various categories of entitlement arise from a single event. This also has the effect of requiring the contractor to determine at the very outset all of the legal avenues which may be available to pursue its claim, in order to ensure compliance with the applicable notice-related preconditions to entitlement.

Some examples of notice requirements which are a common feature of contracts for major public and private infrastructure include unrealistically short timeframes for initial notice – sometimes a week or less – which are linked to the occurrence of the underlying causative event, regardless of whether a delay or cost impact has manifested or become apparent. There is generally then a further requirement for detailed particulars and quantification of the claim within a period of one to two weeks (or less), often including critical path analysis to demonstrate, substantiate and quantify any claimed delay, as well as detailed particulars of cost impacts, and steps taken and planned to be taken to mitigate the claimed impacts. In the case of claimed variations, notice is usually required within one or two days of the direction which is claimed to involve a variation (and certainly before performing the varied work), even though the circumstances giving rise to such claims are very rarely so clear-cut.

Then, requirements for notice are usually ongoing, with the contractor required to continue to provide updated claims according to a specified form and frequency – usually monthly or even weekly – until the effects of the claim are fully realised and able to be finally quantified. For issues affecting large projects, this can often be a period of months or even years.

In each case, failure to comply strictly with any one limb of the requirements is likely to provide a basis for the principal to reject the claim as invalid and barred. The contractor’s entitlement may be extinguished before it was even capable of being recognised and understood, let alone notified. Compliance is generally ‘black or white’, whereby even a single day of delay in provision of notice may result in rejection of a claim. In the case of a rejected claim for an extension of time, the denial of the contractor’s entitlement may even lead to the contractor being exposed to liquidated damages for delays caused by the principal.

Such provisions do not recognise the practical realities of the project delivery context, and the way in which issues and their potential effects become apparent. They assume an artificial and unrealistic state of affairs where, for example, directions are always clearly identified as such, the likelihood of delays to completion becomes instantaneously evident, and contractors are fully apprised from the very beginning of the legal bases on which they may be entitled to pursue their claims.

Ultimately, the result is that it is not realistic for contractors to comply strictly with these types of notice provisions. The contract administration resources required even to attempt to do so would represent an enormous and disproportionate additional cost to any project. Likewise, from the principal’s perspective, the time and resources required to review, consider and respond to the extent of notices that would need to be submitted in order to guarantee strict compliance would likely be similarly unrealistic or at least undesirable.

A contractual discretion vested in the principal to grant entitlement in the absence of strict compliance goes no way toward addressing the issue, by virtue of the fact that in most sophisticated contracts it is expressed as an absolute discretion, for the benefit of the principal,[3] and even where exercised is generally limited to relief for the time but not cost impact of the relevant event.

In fact, what we are seeing in practice is a tendency for principals to deploy procedural notice requirements as a strategic tactic, as a means of delegitimising otherwise valid claims and entitlements, and even where a failure to comply strictly has not caused the principal to suffer any prejudice. Treatment of major claims often seems to follow an unfortunate script, whereby they are rejected out of hand for an asserted technical failure to comply with notice provisions. That asserted failure will then be used to continue to deny entitlement and avoid engaging with the substantive merits of the claim, or potentially as a bargaining tool to negotiate down the contractor’s claimed entitlement.

As a direct consequence, there is a tendency for contractors to look for more creative avenues to pursue entitlements outside of the contract where recovery is less likely to be limited by the invalidating effects of notice provisions, such as for conduct in contravention of the Australian Consumer Law,[4] or interim relief based on security of payment legislation. This approach in turn creates additional risks for principals who, in responding to and resolving such claims, are less likely to receive the benefit of other contractual regimes such as adjustments to the contract sum and concomitant increases to the value of security and the contractor’s limit of liability. The introduction of extra-contractual claims can also serve to complicate and escalate disputes, leading to increased costs, delays in resolution, and unwanted publicity.

Surely it is in the interests of principals – as well as contractors – to resolve what is properly a contractual claim within the four walls of the contract, utilising the relevant contractual mechanisms and on the terms that have been agreed by the parties.

A failure to resolve claims involving real time and cost impacts in a timely manner will also inevitably lead to significant problems for project controls, planning, reporting and administration, whereby the contractor is not contractually permitted to take account of actual delays to completion and other impacts in programming and planning the works. This can itself lead to additional claims against the principal for failure to assess claims fairly during the course of the performance of the works, including acceleration costs incurred in attempting to maintain the unextended contractual date for completion.[5]

Working towards a fairer approach

So what can be done?

It appears from decisions such as CMA Assets Pty Ltd v John Holland Pty Ltd [No 6] [2015] WASC 217 that the answer is unlikely to be through the courts. In most Australian jurisdictions, courts consider their hands largely tied when it comes to excusing contractors from strict compliance with unreasonable notice provisions, where the provisions are in clear terms. In CMA Assets, the Supreme Court of Western Australia disallowed claims for extensions of time on the basis of non-compliance with strict notice requirements, despite accepting that doing so was ‘harsh’ and that it would allow John Holland to profit by way of liquidated damages in relation to its own delay.[6]

Ordinary principles of contractual interpretation apply, which can occasionally provide scope for courts to adopt common sense interpretations of notice provisions,[7] but will more often mean that clear and unambiguous drafting is given strict effect, no matter how perverse the outcome.

There have, however, been some positive developments in a legislative context. The Western Australian government has introduced significant amendments to the security of payment regime in that state, which include the right for a party to challenge the enforceability of notice-based time bars under a construction contract on the basis that they are ‘unfair’.[8] In doing so, the government is expressly seeking to improve the fairness of contracting practices across the construction industry, by not permitting one party to use its position to deny an entitlement under the contract on the basis of an unreasonably short, or otherwise unnecessarily onerous (in form or effect) notice requirement.[9]

Following the amendments, a notice-based time bar provision may be declared unfair by a court, arbitrator, adjudicator or appointed expert if compliance with the provision is not reasonably possible or would be unreasonably onerous. The amendments apply in Western Australia to construction contracts entered into on or after 1 August 2022, and the Victorian government is on the verge of introducing equivalent amendments to apply in that state.[10] A similar move is evident in the federal government’s amendments to broaden the prohibition on unfair terms in certain types of contracts, applying from November 2023.[11]

At this stage, it is unclear how successful these initiatives will be in ameliorating harsh outcomes of notice provisions and – ultimately – persuading commercial parties away from the inclusion in the first place of unreasonable and overly onerous contractual preconditions to entitlement. In the case of sophisticated commercial parties involved in larger construction projects, it seems much less likely that the current statutory measures will gain traction. In the case of the security of payment amendments, decision makers are required to take into account factors such as the relative bargaining power of each party in entering into the construction contract, and the (rebuttable) presumption that the party required to give notice possesses the commercial and technical competence of a reasonably competent contractor.[12] Similarly, the expanded application of the unfair contract terms regime continues to be limited to ‘standard form contracts’ with consumers and ‘small businesses’, such that the regime will have little role to play in the context of major projects.

Rather, in order to bring about meaningful change, there must be a genuine shift in the mindset and approach of the parties who are responsible for drafting and negotiating construction contracts, to redefine what is considered appropriate as the market standard for drafting of notice regimes. In this regard, there is an important role for government to play in leading the market and steering the trend away from unreasonable and unrealistic notice provisions, which are vastly in excess of what is required to achieve their legitimate purpose. Governments have acknowledged the need to strike a fairer balance between parties’ contractual rights and interests on the one hand and, on the other, not unfairly limiting or restricting the entitlements of contractors.[13] Such action would also be consistent with published government guidelines intended to promote greater fairness and collaboration in contracting, including a fair and reasonable approach to the resolution of claims.[14]

There are many issues which could be addressed very simply as part of the contract terms being rolled out for use on major public projects. For example, timeframes for notice should take account of the relevant circumstances, through more adaptable drafting which requires notice to be provided within a reasonable time, or as soon as is practicable, and in all cases no earlier than the contractor could reasonably have become aware of the relevant time or cost impact that is required to be notified. Similarly, any requirement for more detailed claim particulars must be responsive to what information is reasonably available at the relevant point in time. Notice provisions should be simplified and streamlined across different categories of claim. Entitlement to claim for the impact of a variation should not be subject to the contractor’s ability to immediately recognise it as such. The consequences for a failure to comply strictly must be proportionate to any prejudice that results, rather than instant and absolute extinguishment of entitlement.

There are of course many other common elements of contractual notice regimes which require consideration and review to ensure a sensible and properly balanced approach. Governments and principals on major projects must instruct their lawyers to draft and negotiate contractual notice regimes which are fair, reasonable, and accord with the realities of the project delivery environment, and which provide for proportionate consequences where real loss is suffered as a result of non-compliance. Otherwise, lawyers will continue to advise their principal clients that it is in their interests to maximise the hurdles to the contractor’s entitlements, and then take the unedifying position in negotiations that such regimes are appropriate simply because they are ‘market’ – the answer is that they should not and do not need to be.

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[1] See, for example, Multiplex Constructions Ltd v Honeywell Control Systems Ltd [2007] EWHC 447 (TCC); CMA Assets Pty Ltd v John Holland Pty Ltd [No 6] [2015] WASC 217, [375].
[2] For example, pursuant to FIDIC’s ‘Golden Principles’ which identify the essential features of a FIDIC Contract that make the risk/reward allocation fair and balanced, GP4 provides that “All time periods specified in the Contract for Contract Participants to perform their obligations must be of reasonable duration”.
[3] See, for example, CMA Assets Pty Ltd v John Holland Pty Ltd [No 6] [2015] WASC 217, [432]; cf Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd [2017] NSWCA 151, [128].
[4] See, for example, Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd [2018] VSC 246.
[5] See, for example, V601 Developments Pty Ltd v Probuild Constructions (Aust) Pty Ltd [2021] VSC 849.
[6] CMA Assets Pty Ltd v John Holland Pty Ltd [No 6] [2015] WASC 217, [375], [865].
[7] V601 Developments Pty Ltd v Probuild Constructions (Aust) Pty Ltd [2021] VSC 849 at [1022] – [1023].
[8] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 16.
[9] Western Australia, Second Reading Speech, Legislative Council, 11 November 2020, 3 (Alannah MacTiernan, Minister for Regional Development); Explanatory Memorandum, Building and Construction Industry (Security of Payment) Bill 2020, 12.
[10] Building Legislation Amendment (Fairer Payments on Jobsites and Other Matters) Bill 2025.
[11] Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth), amending the Competition and Consumer Act 2010 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth).
[12] Building and Construction Industry (Security of Payment) Act 2021 (WA), s 16(6).
[13] Western Australia, Second Reading Speech, Legislative Council, 11 November 2020, 3 (Alannah MacTiernan, Minister for Regional Development); Explanatory Memorandum, Building and Construction Industry (Security of Payment) Bill 2020, 12; Victorian Government Department of Transport and Planning, Government Response to the Parliamentary Inquiry into Employers and Contractors who Refuse to Pay Their Subcontractors for Completed Works (October 2024 <https://www.parliament.vic.gov.au/49601c/contentassets/f4f138f882a04a79a215796fccb91ec3/gov-response-subcontractors-inquiry.pdf>.
[14] See, for example, NSW Government, Commercial Principles for Infrastructure Projects (May 2022) <https://www.infrastructure.nsw.gov.au/media/dwyd5gzs/commercial-guidelines.pdf>, the purpose of which principles is “to assist NSW Government Agencies to provide a consistent, reasonable and equitable approach to developing contractual terms for capital projects”; also NSW Government Action Plan – A Ten Point Commitment to the Construction Sector (June 2018) <https://www.infrastructure.nsw.gov.au/media/bg0npvoz/10-point-commitment-to-the-construction-industry-final-002.pdf>.