A Q&A guide to construction and projects law in Australia.
The Q&A gives a high level overview of the main trends and significant deals; the main parties; procurement arrangements; transaction structures and corporate vehicles; financing projects; security and contractual protections that funders require; standard forms of contracts; risk allocation; excluding liability, including caps and force majeure; contractual provisions covering material delays and variations; appointing and paying contractors; subcontractors; licences and consents; projects insurance; labour laws; health and safety; environmental issues; corrupt business practices and bribery; bankruptcy/insolvency; public private partnerships (PPPs); dispute resolution; tax and mitigating tax liability; the main construction organisations; and proposals for reform.
To compare answers across multiple jurisdictions, visit the construction and projects Country Q&A tool.
This Q&A is part of the PLC multi-jurisdictional guide to construction and projects law. For a full list of jurisdictional Q&As visit www.practicallaw.com/construction-mjg.
Australia is fortunate to have avoided a recession following the Global Financial Crisis (GFC). However, a significant proportion of the growth that Australia has experienced since the GFC is a consequence of a mining and natural resources boom, driven in large measure by growth in China. As a consequence there is a two-speed economy in Australia. The high speed sector is driven by an expansion of mining and resources infrastructure (including rail and port development). The lower speed sector represents the balance of the economy.
In the geographical areas that are not enjoying the mining boom, construction is dominated by large public private partnership (PPP) projects. These projects are driven, primarily, by state governments. Recent changes of government in Victoria, New South Wales (NSW) and Queensland (QLD) have resulted in some slowing of PPP projects in the short term, but this is expected to change soon, with very large projects commenced in NSW and now under active consideration in the other states. In the meantime, construction continues on large projects initiated by previous governments.
In states such as Western Australia (WA) and QLD, there continues to be significant activity in these sectors. With this increase in activity, comes increased competition for contractors and other resources, which in some instances is resulting in a shift in contractual risk allocation in favour of the contractor. Costs are also increasing as a consequence of the elevated demand.
The need to complete mining related infrastructure projects on schedule to ensure mining companies are able to comply with future supply contracts has resulted in an increase in the use of Early Contractor Involvement (ECI) procurement models.
The number of mining projects in Australia continues to grow. Some examples of the large mining projects underway include:
Olympic Dam: BHP Billiton is developing Olympic Dam in South Australia (SA) into an open pit mine for copper, gold and uranium (US$27.4 billion) (as at 1 April 2012, US$1 was about EUR0.7).
Australia Pacific LNG project: development of Origin Energy's natural gas fields in Surat and Bowen Basins, QLD to increase production of liquefied natural gas (US$14 billion for the first phase, US$20 billion capital cost for a full two-train development).
Pluto-Woodside LNG project: development of an offshore platform that is connected to five subsea wells on the Pluto gas fields in WA. In March 2012, the first gas was fed into the project (US$15 billion).
Fortescue Metals Group (FMG) expansion: plans to expand FMG's iron ore production to 155 million tonnes per year. FMG will expand its existing port and rail infrastructure in the Port Headland and Pilbara areas. Production at Cloudbreak and Christmas Creek mines will also be increased. It will build a new rail line in the Solomon area and develop Solomon operations and infrastructure (US$9 billion).
Gorgon LNG project: development of the Gorgon and Jansz gas fields in the greater Gorgon area, about 130 kilometres off the Pilbara Coast in WA. The project is currently valued at US$50 billion.
Recent PPP projects include the:
Victorian Desalination Plant: currently under construction, this will be Australia's largest desalination plant and one of the largest PPP projects in the world (A$3.5 billion) (as at 1 April 2012, US$1 was about A$1).
Victorian Comprehensive Cancer Centre: the design, construction and facility maintenance of a hospital for cancer research, treatment and care (A$1 billion).
New Royal Adelaide Hospital: the design, construction and facility management of this hospital (A$2 billion).
Airport Link and Northern Busway and Legacy Way: the design, construction, operation and maintenance of these road projects in Brisbane (A$4 billion and A$2 billion).
The main parties involved in a typical design and construct, construct only or supply contract are the:
Principal.
Contractor.
Contractor's subcontractors.
Relevant insurers.
Financiers (in some instances).
For the contractual relationships between the main parties involved in such a project, see flowchart, Contractual relationships between main parties.
The main parties involved in a typical PPP project are the:
Principal (usually the state).
Project company.
Builder.
Facilities management (FM) subcontractor.
Subcontractors of the Builder and FM subcontractor.
Financiers.
Equity providers.
Insurers.
For the contractual relationships between the main parties involved in a typical PPP project, see flowchart, Contractual relationships in PPP.
There is arguably no common procurement method where the main parties are local. Typically, procurement arrangements for local projects are selected by:
Considering the objectives of the contracting parties.
Analysing the many contracting methodologies available to the parties, including standard form contracts and bespoke agreements.
Tailoring the chosen contracting methodology to maximise the achievement of the parties' objectives and priorities.
Although the Australian market is seeing a significant increase in the number of international contractors operating in Australia (in particular in the mining and resources sector), this has not resulted in any significant distinction developing between the types of procurement arrangements used by international and local contractors or consultants.
Most projects (outside of resources projects) are undertaken on a limited recourse basis, using a special purpose vehicle (SPV). This is typically a corporate SPV that also includes an SPV holding company. Joint ventures are more common in resources projects. Partnerships are generally less common. In many PPP structures a dual-entity structure is adopted, generally for tax, financing and security purposes. This may involve a project company entity to undertake the project and a separate finance company entity to operate as a financing SPV. In other PPP structures, the two entities may constitute an active operating project company and a more passive asset-holding project trust.
Structures for international projects are generally the same as for local projects. The involvement of international companies at present is more prevalent in the resources industry, where joint venture arrangements are more common, than in other areas.
Projects are financed primarily through senior debt and equity. Equity generally constitutes at least 10% of the funding. Mezzanine finance is also sometimes used in larger projects. The market for bonds (particularly in relation to PPPs) has been effectively closed since the GFC, other than for very mature operating infrastructure projects with stable cashflows. On larger projects, particularly in the resources sector, and where there is an international element, financing from Export Credit Agencies (ECAs) is also quite common. ECAs provide finance to domestic entities to fund their international business activities. Most senior debt is provided by the major Australian banks. However, some projects have recently been financed without the involvement of a major Australian bank and increasingly other entities, such as ECAs and superannuation funds, are providing senior debt finance in syndicates with more traditional commercial bank lenders. Debt finance is generally secured over project assets.
The typical security package taken by financiers on projects includes:
Real property mortgages over the borrowers land or leaseholding.
A general security deed over all assets.
An undertaking from the borrower/SPV (which will entitle the financiers to appoint a receiver) and security over shares in the borrower/SPV.
If an SPV holding company is involved, that company will offer security over the shares in the borrower/SPV. The typical security package for an international project would be the same. In addition to this traditional security, financiers usually insist on both:
The builder procuring performance bonds or guarantees for a percentage of the contract price.
Guarantees from the parent company of the builder and other major contractors (for example, the subcontractor who is responsible for the operation and maintenance of a facility, (FM subcontractor)).
In addition to traditional security, financiers typically require tripartite or direct deeds with key subcontractors to the borrower/SPV, such as the builder and the FM subcontractor. These tripartite arrangements provide:
Step-in rights for financiers to cure defaults on behalf of the borrower/SPV.
Restrictions on contract variations that may be made or claimed by the contractor.
Direct undertakings to the financiers in relation to contract security (such as performance bonds and indemnities).
Assignment of rights under subcontracts.
In addition, the financiers will request that they be named under relevant project insurance policies, and therefore have the right to dictate how insurance proceeds are to be applied.
There are several standard form contracts commonly used on Australian construction projects. The most common are:
Australian Standards suite (published by Standard Australia). This includes:
AS 4000-1997: a construct-only contract for substantial or major projects that can be used for civil, mechanical, electrical and other types of engineering contracts. AS 4000-1997 is based on a previous standard known as AS 2124-1992, which is still in popular use; and
AS 4902-2000: a design and construct contract providing for different variations of design and construct procurement (namely design development and construct, and design, novate and construct) and suitable for major works projects. AS 4902-2000 supersedes AS 4300-1995.
Both of these standards, unamended, tend to allocate more risk to the principal. Other examples of Australian Standards commonly used are consultants' agreements (AS 4122-2000), minor works contracts (AS 4905-2002 and AS 4906-2002) and equipment supply (AS 4910-2002).
Australian Building Industry Contract (ABIC) Suite. The ABIC Suite is jointly published by Master Builders Australia and the Australian Institute of Architects. It is generally intended for use in building projects where an architect administers the contract. The most commonly used ABIC contract for major projects is ABIC MW-2008.
Property Council of Australia, Project Contract 1 (PC-1-1998). A construct only or design and construct contract favouring the interests of principals and building project financiers. It is suitable for non-residential and engineering construction projects.
The Federation International des Ingénieurs Conseils (FIDIC) Suite has been used in Australia across a range of projects and can be a useful form to use, subject to appropriate jurisdictional amendments being made.
The typical risk allocation in a design and construct contract is as follows:
The principal bears the risk of:
native title and heritage claims; and
specified delay events.
The contractor bears the risks associated with:
the site conditions;
design;
construction and commissioning (where applicable);
insurances;
taxation;
construction delay; and
repair work.
The principal and the contractor share the risks associated with:
environmental matters;
planning approvals; and
force majeure events.
The typical risk allocation in a social infrastructure PPP is as follows:
The state bears the risk of:
native title and heritage claims;
specified delay events;
utility price;
volume risk; and
facility demand risk.
The project company bears the risks associated with:
site conditions;
design;
construction and commissioning;
insurances;
taxation;
construction delay;
repair work;
finance;
refinancing;
maintenance;
performance monitoring; and
handover condition.
The state and project company share the risk with respect to:
environmental matters;
planning approvals; and
force majeure events.
See table, Project risk allocation for a comparison between the typical risk allocation in a social infrastructure PPP, design and construct, and construct only contract.
The primary way in which liability can be excluded or restricted is through the use of exclusion or limitation of liability clauses.
Although Australian courts generally enforce limitation clauses, they must be carefully drafted. There are also a number of restrictions contained in some statutes that may restrict the application of an agreed limitations clause.
Statutory restrictions designed to protect consumers include
Sale of Goods Act 1923 (NSW).
Contracts Review Act 1980 (NSW).
Australian Consumer Law 2010 (Cth).
This legislation is not often relevant to non-consumer transactions. However, there is a general prohibition against misleading or deceptive conduct (Competition and Consumer Act 2010 (Cth)). Such conduct can include innocent, negligent and fraudulent misrepresentation. It is not possible to contract out of this law and a party suffering loss as a consequence of such conduct can recover damages. The legislation relates to all commercial transactions. Liability under non-delegable statutory duties and obligations is also unable to be limited through contract (for example, duties under health and safety, and consumer protection legislation).
Indirect or consequential loss (such as loss of business or loss of profits) can be excluded. Recent cases have expanded the meaning of the term "consequential loss" beyond that of other common law countries. Therefore, it is vital that parties ensure that exclusions of consequential loss are carefully considered and the parameters of such exclusion clearly articulated.
Contractual parties must also consider the operation of the statutory "proportionate liability" regime now operating throughout Australia, which can override the intended effect of contractual risk allocation. Under the regime, where the common law would have made two parties jointly and severally liable for the loss (meaning that each was liable for all of the loss, subject to contribution) the proportional liability scheme will limit each party's liability to a proportion of the total loss.
The effect of the proportional liability scheme is to shift the risk of insolvency of one of the parties that were jointly and severally liable, from the other joint wrongdoer to the claimant. That proportion will be determined by a court having regard to each party's responsibility for the total loss. Further, even where all wrongdoers remain solvent, a principal is required to sue each wrongdoer to recover the entirety of the loss. The regime differs across Australian jurisdictions as, for example, parties can contract out of the regime in WA, NSW and Tasmania. However, there is an express prohibition from doing so in QLD, while the other states' legislation is silent on the issue.
It is common for parties to Australian contracts to agree caps on overall liability under a contract. Such liability is commonly limited by one or more of the following:
To a specified amount.
To exclude liability for certain forms of loss (such as indirect or consequential loss).
By reference to the amount for which the indemnifying party is insured.
In major projects such as PPPs, it is typical that there is no limitation of liability in favour of the SPV (with the exception of a carve out for consequential loss in most cases). Downstream of the SPV, the market generally accepts contractors limiting their liability (subject to carve outs) for one or more of the following:
Liabilities covered under an insurance policy.
Loss or damage to property or personal injury.
Infringement of intellectual property rights.
Liability for fraud, criminal conduct, wilful misconduct or gross negligence.
A principal may agree to cap the contractor's:
Liability for losses associated with delay, usually by way of a liquidated damages regime.
Total liability under the contract.
Force majeure events are extreme events that occur beyond the control of either party that delay or prevent one or both of the parties from performing their obligations under the contract. Although the common law doctrine of frustration exists in Australia, and may be applicable in an extreme case of force majeure, the doctrine is narrow in its application and its effect is to terminate the contract. Otherwise, there is no common law concept of force majeure in Australia. Therefore, parties must include an express clause in the contract to deal with this risk.
A force majeure clause must clearly define what constitutes a force majeure event and outline how the parties' rights and obligations are affected by such an event. Typically, a force majeure clause provides that a party's obligations are suspended for the duration of the force majeure event and may give rise to a right of termination if the event continues for a specified continuous period (usually 90 or 180 days).
Delay events are commonly categorised into three types. These types are as follows:
Contractor caused. Contractors are usually not entitled to an extension of time for delays that they cause, as they have the ability to control such delays. Where the contractor causes delay, it is typically liable for liquidated damages and is not entitled to any contribution for the prolongation costs that it incurs. However, as a matter of commerciality, sometimes the principal will take the risk of certain delays that fall within the traditional area of risk assumed by the contractor (such as late supply of material by a supplier nominated by the principal).
Principal caused. The contractor is always entitled to an extension of time for principal caused delays under the standard risk allocation. The contractor is relieved of the obligation to complete on time (thereby avoiding the imposition of liquidated damages) and is entitled to reimbursement of any extra costs incurred as a result of the delay. If the contract does not provide a mechanism entitling the contractor to an extension of time in those circumstances, then the common law prevention principle applies, relieving the contractor from the obligation to complete on time.
Neutral events. These are events that are the fault of neither party or are beyond the control of all parties (for example, inclement weather). The question of who bears the risk of neutral events is a matter for agreement (by reference to market practice, previous deals, bargaining power or other factors).
Construction contracts generally include an extension of time regime whereby the contractor can seek an extension of time. The extension of time regime typically stipulates various conditions precedent to the granting of the extension (for example, the service of a notice within a stipulated time of an event causing delay).
Construction contracts typically contain mechanisms for dealing with variations to the works. In the absence of an express provision allowing variations, the principal has little power to vary the contractor's scope. Generally, the contractor is not entitled to an adjustment to the contract price unless the principal has issued an instruction varying the scope of work. Where the variation results in an increase in the scope of work, the contractor is entitled to additional money and, if there is a delay in completion, an extension of time. If the variation is an omission from the scope of work, then the amount payable to the contractor is reduced. Unless there is an express provision in the contract, the principal is not permitted to omit part of the scope of the contract by way of the variation provision and give this work to another contractor.
Payment for variations is usually calculated by applying agreed rates for the additional work. If there is no agreed rate then either the principal or the superintendent will determine a reasonable rate (depending on the terms of the contract).
Issues that may be heavily negotiated include:
The form of security to be provided by the contractor (for example, whether bonds are to be given by banks or other financial institutions) and the right to call on bonds. In particular, whether the contract will contain a negative covenant regulating the circumstances in which a call may be made, which can be used to seek an injunction restraining the principal from making a call.
The fit for purpose warranty and related quality obligations.
Change in law, particularly where there is a requirement to foresee the impact of legislation that is currently in draft form.
In a PPP context, whole of life and reliability provisions, and who bears the risk in respect of refinancing and change in control.
Australian construction professionals, such as consulting engineers and architects, are primarily engaged to deliver services under a consultancy or professional services agreement. There are several standard form professional services agreements. The most common is the Australian Standard (AS 4122-2000) which, unamended, provides for a risk allocation favourable to consultants. It is often amended by principals.
The common requirement in relation to the quality of the services to be provided by a consultant is that the consultant must exercise reasonable care when performing the services. Sometimes, the relevant provision may stipulate the consultant will exercise the standard of care to be expected of a particular specialist. Less common, but certainly not rare, is a term that requires a consultant to warrant that its services are "fit for their intended purpose", in which case the consultant assumes a form of strict liability (that is, liability without having been negligent). Such a warranty may have adverse consequences for the consultant's insurance, particularly if it is found liable even though it did not breach the specified standard of care.
Typically, consultants request their liability to be limited to either:
An amount equal to several times their fee.
The indemnity limit specified by the relevant professional indemnity insurance policy.
Further, it is common for consultants to seek to limit liability for consequential loss.
Government departments and authorities, and some larger private project proponents, commonly appoint a panel of professionals from whom services are requested over the term of the panel. Professionals ordinarily must tender for appointment to a panel. Appointed members must normally execute an overarching panel agreement under which purchase orders are then issued for the particular services required.
For larger projects, particularly major government projects, contractors seek to assemble a team of professionals before submitting its expression of interest or response to a request for tenders.
There are three traditional remuneration methods in a typical design and construct structure, as follows:
Lump sum. A lump sum remuneration method is a contract price that is set in the contract as a fixed sum. Invariably, the contract provides for ways in which the contract price can be adjusted (for example, compensable events or compensable causes). Typically, this remuneration method means that the contractor bears the risk that the works or services price may exceed the fixed contract price.
Cost plus contracts. Under a cost plus remuneration method, the contractor is reimbursed costs incurred for labour services and materials (including plant) used in performing the works and a percentage of that cost, or a lump sum on account of overheads and profit. This remuneration method is commonly used where the scope of work is too uncertain to set a fixed price. However, cost plus contracts provide little price certainty for the principal and the contractor has no direct incentive to keep costs down. Where used, principals usually try to structure the contract so that there are incentives which promote contractor efficiency.
Re-measurement. Re-measurement refers to calculating the total price by re-measuring actual quantities used and adjusting the price by reference to rates stipulated by a bill of quantities. This remuneration method is used where it is inefficient for the contractor to estimate the precise quantities required to complete the works/services.
In relation to a typical social infrastructure PPP, the contractor must fund the construction of the works. In return, the state pays a regular fee to the contractor during the operating phase of the project. The fee is typically adjusted by reference to key performance indicators, which account for the quality and timelessness of the services provided.
A contractor can secure payment through either contractual or legislative mechanisms.
The legislative mechanisms include:
Security of payment legislation. The various state-based security of payment legislation regimes facilitate payments to persons who carry out construction work or provide related goods or services. That legislation entitles a contractor, supplier, subcontractor or consultant to make claims and receive regular progress payments for work performed. If a dispute arises as to a claimant's entitlement to the amount claimed, that dispute is resolved in the first instance by adjudication, which will result in a very quick determination. A decision by an adjudicator must be complied with. However, the adjudicator's decision can be subsequently reviewed by a court or arbitrator.
Although the regimes vary from state to state, the security of payment legislation generally applies to construction work that includes:
site preparation;
construction;
repair;
renovation;
design;
drafting; and
management.
The regimes usually do not apply to:
some residential building disputes;
work relating to the extraction of oil or natural gas; and
the mining of minerals.
Lien legislation. In SA, contractors are entitled to a lien over the principal's land for work done or materials supplied (Worker's Lien Act 1893 (SA)) which is still in operation in SA. However, the legislation is not typically used by contractors since the introduction of the security of payment regime in SA.
Ordinarily, the contractor is responsible for the performance of all subcontractors and is liable to the principal for any default of a subcontractor in carrying out the works or services under the contract.
A prudent contractor will ensure that all obligations and liabilities, including indemnities, stipulated in the main contract (between the principal and the contractor) are passed through to the subcontract, so that the relevant obligations and liabilities are back-to-back.
SA is the only state that still allows a subcontractor to claim a lien over the principal's land for work done or materials supplied.
The licences required by contractors to carry out local construction work vary across Australian jurisdictions and in some states depend upon the nature of the work to be performed. The requirements of the relevant legislation are as follows:
Victoria: a licence is required for residential work (section 176(2A), Building Act 1993 (Vic)).
NSW: a licence is required for residential building work and specialist work (sections 4 and 12, Home Building Act 1989 (NSW)).
QLD: individuals can only carry out building work over A$3,000 if they hold a contractor's licence of the appropriate class (section 42(1), Queensland Building Services Authority Act 1991 (Qld)). There are various classes of licences available for certain work (section 30).
SA: if "carrying on a business", a licence is required for all building work (section 6(1), Building Work Contractors Act 1995 (SA)). There are various classes of licences available depending on the type of work (section 7).
WA: a licence is required for all building work (section 7(1), Building Services (Registration) Act 2011 (WA)). There are various classes of licences available for different classes of work (section 9(1)).
Australian Capital Territories (ACT): a licence is required for all building work (section 81, Construction Occupations (Licensing) Act 2004 (ACT)). There are various classes of licences available for certain work (section 15).
Tasmania: a licence is required for all building work exceeding A$5,000 (section 23(1), Building Act 2000 (Tas)).
In addition to the licences outlined above, construction professionals such as architects and engineers must be registered. For example, most people who work in the building industry, in addition to builders, such as engineers, draftspersons and building surveyors, must be registered with the Building Practitioners Board (Building Act 1993 (Vic)).
Foreign building professionals who wish to work in Australia must also be registered by the relevant state board.
For construction of buildings, town planning approval is required where the proposed use of the building falls outside a designated "as of right" use (licences are also required, see Question 18). The detailed design of the building requires building approval, to ensure that the design meets minimum standards. State and federal level environmental approvals are required for large projects.
Contractors may need to get a number of permits, depending on what is being constructed. For example, where a pipeline is being constructed, various approvals relating to environmental concerns may be required. In towns and cities, construction zone permits from the local council may be required to use the zone for the temporary parking of construction vehicles or material delivery vehicles. Councils often regulate the location of these zones to ensure that they are suitable for both construction professionals and the public.
Once the building is completed, there are various certificates that must be obtained from the relevant local council. For example, a final inspection needs to be carried out to the satisfaction of a council representative in order to obtain an Occupancy Certificate. The council must be satisfied that the work is completed in accordance with the council approved plans and is fit for occupation. Also, the building must comply with the fire safety requirements of the relevant local council in order to obtain a fire safety certificate.
The only insurances that are required to be maintained by law are:
Workers' compensation.
Third party motor vehicle insurance.
Professional indemnity insurance for certain prescribed classes of building consultants and for domestic construction.
Contractors must take out insurance relating to the quality of their work.
The main classes of insurance required under a construction contract include:
Contract works. This policy provides cover for destruction or material damage to the works, temporary works, and plant and equipment used during the construction and defects liability periods. Contract works insurance does not include business interruption cover for delay in start up as a result of late completion.
Public liability. Provides cover for third party personal injury or property damage in connection with the project works.
Workers' compensation. Australian legislation requires all employers to have workers' compensation insurance and provides for liability arising from death or injury of an employee.
Professional indemnity. Insurance for professional consultants (for example, engineers, project managers, architects, and so on) engaged in managing and carrying out the design and construction of the works from a technical perspective. Principals often require that this insurance is project specific.
The insurances and coverage required by each contract vary from project to project. Each project must be individually assessed (including seeking advice from the contractor's risk management, accounting and legal advisers and experienced insurance brokers) so that the correct insurance regime is chosen and that coverage is purchased as intended.
Insurance can also be taken out for delay in start up, insolvency of contractors and loss or damage of plant and equipment to be used in the project while in transit.
The majority of employers (whether Australian or foreign-registered entities) and their employees are subject to federal law that governs the employment relationship including:
Hours of work.
Pay.
Leave entitlements.
Compliance with award requirements.
Enterprise bargaining.
Union rights.
Termination of employment.
Each state may also have its own employment regulation that applies to state government employers and unincorporated employers.
There is also federal and state legislation setting out minimum requirements for equal opportunity and to prevent discrimination.
Certain classes of trade employees (including electricians, plumbers, fitters and carpenters) require approved trade qualifications. Trainee trade employees (apprentices), can work if they have the appropriate training contracts, training and supervision, all of which are regulated by state and territory training authorities which are government departments responsible for the operation of Australian apprenticeships (in the relevant jurisdiction).
Foreign employees, that is, employees temporarily or permanently transferred from another country to Australia to perform work on a project, are subject to the same employment regulation as local employees.
Foreign employees must also obtain a permanent or temporary visa that enables the employee to legally work in Australia. Visas and work rights are regulated by the Department of Immigration and Citizenship. Employers usually have sponsorship obligations for temporary employees granted work rights in Australia. Failure by employers or employees to comply with immigration laws can result in significant fines and penalties.
The right to work in Australia is more commonly granted to highly skilled classes of employees and more difficult to obtain for unskilled employees.
There are a number of labour laws that are relevant to a project and advice should be sought before commencement of any project.
The relevant labour laws include:
Fair Work Act 2009 (Cth). This includes minimum terms and conditions of employment (National Employment Standards), hours of work, rates of pay and termination of employment. The Act also regulates the rights and obligations of an employer and employee during the employment and the rights of employee representatives.
A modern award or enterprise agreement issued/approved under the Fair Work Act 2009 (Cth). Modern awards are sets of compulsory terms and conditions of employment that apply to an industry or occupational group. They usually do not apply to managerial employees. They regulate:
minimum rates of pay;
hours of work;
penalty rates;
loadings; and
allowances.
Enterprise agreement. This is a collective agreement between an employer and group of employees that will apply to a specific project or location. An agreement can vary the terms of a modern award if it satisfies a statutory test and is approved by the regulatory body.
Superannuation Guarantee (Charge) Act 1992 (Cth) and Superannuation Guarantee (Administration) Act 1992 (Cth). These Acts impose an obligation on employers to make minimum contributions to superannuation funds on behalf of each employee.
Federal and state anti-discrimination legislation. Legislation prohibits discrimination and harassment for various reasons including race, gender, religion and age.
Workers' compensation legislation. Legislation in each state and territory that requires compulsory insurance to be maintained by an employer with respect to workplace injuries and accidents.
Codes of practice. The federal government and some state governments have also issued codes of practice and guidelines that regulate employment conditions on government construction/project sites.
Employers usually must pay statutory redundancy pay to eligible employees where they no longer require a job to be performed by anyone. The minimum redundancy pay obligations are set out in the Fair Work Act 2009 (Cth). Employees in Australia may also have an entitlement to redundancy pay arising out of:
Terms of an award.
Enterprise agreement.
Contract of employment.
Company policy.
Industry schemes for portable redundancy benefits may also apply to alter the statutory redundancy pay obligations. Such schemes are available in the construction industry. Employers who participate make ongoing contributions to the scheme and the rules of the scheme govern whether any redundancy pay is payable at the end of a project. Redundancy pay is usually paid directly by the scheme to the employee.
Specific legislation in each state and territory regulates workplace health and safety. The obligations are imposed on employers and anyone whose conduct may affect health and safety of employees or others on site. Obligations vary according to which state or territory the employer or employee is located. However, the overarching obligations are to provide and maintain, so far as is practicable:
Safe workplaces.
Plant and systems of work.
Information, instruction, training and supervision so that work is performed safely.
Breaches of workplace health and safety (WHS) obligations carry significant consequences including fines of up to A$3 million for a corporation in certain jurisdictions. Individual directors or officers of an employer may also be personally liable for breaches of the laws.
WHS laws are currently subject to significant legislative reform with the aim of harmonising WHS legislation in each state and territory (see Question 37, Reform).
Australia has a federal legal system, which means that environmental issues are regulated at both commonwealth (that is, national) and state or territory level. Generally, the commonwealth's participation in the regulation of environmental issues is limited to prescribed matters of national environmental significance and matters involving the commonwealth or its bodies. Consequently, environmental issues are primarily regulated at a state or territory level.
Each of Australia's seven states and territories has its own legislation regulating issues such as development and land use control, pollution control, environmental licensing, waste management, and contamination.
The primary legislation is as follows:
Protection of the Environment Operations Act 1997 (NSW).
Environmental Protection Act 1994 (QLD).
Environment Protection Act 1970 (Victoria).
Environment Protection Act 1993 (SA).
Environmental Protection Act 1986 (WA).
Environmental Management and Pollution Control Act 1994 (Tasmania).
Environment Protection and Biodiversity Conservation Act 1999 (Commonwealth).
Most states also have a range of other legislation regulating specific environmental matters, areas and industry sectors. Environmental matters are also regulated by a range of subordinate legislation including regulations, state environmental protection policies, waste management policies, standards and codes of practice.
Before planning or environmental approval for the project is granted, major projects likely to have significant effects on the environment by virtue of factors such as its nature, size or location may require an EIA. Each state has its own specific EIA regime. In many states the EIA of certain projects is regulated under major project legislation.
Australian laws require that new residential buildings meet certain environmental criteria. There are, in addition, accreditation organisations that may award environmental ratings to commercial buildings. At present the requirement for accreditation is not mandatory.
However, a carbon tax is to be introduced in 2012, which will provide a significant incentive to occupiers of buildings to decrease carbon emissions. Accordingly, tenants in commercial buildings are favouring buildings that are energy efficient. Similarly, larger projects are often procured on the basis that carbon offsets will be part of the project, for example, a government may require that either:
A new project with significant energy consumption use power generated from a renewable energy source, such as wind.
The operator purchase "renewable energy credits" from a producer of energy, generating that energy from a renewable source.
Australia is a party to both the United Nations Convention against Corruption and the OECD Anti-Bribery Convention. These have been given legal effect in Australia through amendments to the Criminal Code Act 1995 (Cth), which makes it an offence for a person to bribe foreign public officials.
It is also an offence under federal and state criminal law to bribe Australian public officials. Fines and imprisonment may be imposed for these offences.
The penalty for committing this offence is imprisonment for up to ten years or a fine of up to A$1.1 million. Australian law currently recognises "facilitation payments" as a defence to the charge in circumstances where the payment was minor and made with the intention of facilitating a routine government action. However, it is anticipated that this defence will shortly be removed as part of the implementation of the Australian government's National Anti-Corruption Plan. This change would make Australian anti-corruption laws consistent with the UK's Bribery Act, and the OECD position.
Australian courts will likely set aside a contract at the motion of the innocent party, if it is determined that the contract is the result of a bribe.
Typically, a contract entitles either party to terminate the contract on insolvency of the other party. If the contracts are properly drawn and a contract is terminated as a result of the contractor's insolvency, the principal should be able to step in and take an assignment of the benefit of the key subcontracts entered into by the contractor (under co-lateral contracts with key subcontractors and suppliers). In many contracts, insolvency will be defined by reference to events that precede insolvency, even if the contractor may still be able to pay its debts at that time. On the other hand, the contract may seek to define insolvency narrowly, so that, for example, the right to terminate only arises on the appointment of a liquidator.
Aside from taking an assignment of subcontracts, the principal usually has the express right to appoint a new contractor and may recover the costs of doing so from the contractor.
PPPs are commonly used by state and federal governments to procure a range of infrastructure projects. Social infrastructure such as hospitals, prisons, schools, desalination and other water treatment plants is increasingly being delivered using this method of procurement. Under the current model, the state pays the private sector developer a regular fee for making the required facility available.
As a consequence of the GFC, financing economic infrastructure PPPs (that is, PPPs that generate an income for the concessionaire, such as a toll road) has become more difficult. Therefore, the provision of economic infrastructure by PPP, under a model where the private sector charges a fee to the public for use of the infrastructure and takes full demand risk, is becoming rare. Before the GFC many toll roads were procured using this model. After the GFC, roads and other economic infrastructure are still being procured by use of PPPs. However, the relevant state involved is now more willing to take or share the demand risk.
All laws that are applicable to standard construction projects usually are applicable to PPP projects. For a number of years, each of the state governments (particularly Victoria and NSW) had developed and released their own policies and guidelines for PPPs. In 2008, the Australian government announced a new, national approach to planning, funding and implementing the nation's future infrastructure needs. On 9 April 2008, the Infrastructure Australia Act came into force, paving the way for the establishment of an advisory council (Infrastructure Australia) to oversee this national approach to infrastructure.
A key role of Infrastructure Australia was to develop, in conjunction with federal, state and territory government agencies and in consultation with key stakeholders in the private sector, a set of nationally consistent guidelines and policies for PPPs by October 2008, making it simpler and cheaper for local and international financiers to invest in Australian infrastructure. Infrastructure Australia subsequently released the following:
National PPP Policy Framework, which sets out:
the objectives, scope and application of the new nationalised policy;
how government will decide whether to embark on the procurement method; and
the key principles for government in the application of the PPP model.
National PPP Guidelines Overview, which provides an overview of the key stages of the PPP process, including:
determining PPP delivery;
delivering a PPP;
risk allocation; and
value for money.
National PPP Detailed Guidance Material, which includes six volumes covering the following topics:
procurement options analysis;
practitioners' guide;
commercial principles for social infrastructure;
public sector comparator guidance;
discount rate methodology guidance; and
jurisdictional requirements.
The policy requires the state and commonwealth governments to apply the National PPP Guidelines to the procurement of PPP projects. The policy does not apply to the local government sector, which is responsible for smaller projects. However, local government entities may consider the benefits of using this national policy when developing a PPP project.
The policy adopts a consistent approach for many issues and provides for a menu of options, giving governments flexibility to choose between a number of defined approaches for dealing with a particular risk, or contractual issues, while still remaining within the overall risk framework of the principles. Although the policy and guidelines have been generally well received by the market, one of the main criticisms has been that this "menu approach" means that each state and territory can effectively continue to do what it wants in any case, and that a truly national approach has not in fact been achieved.
In practice, while there is a level of compliance with the guidelines and policy resulting in some standardisation of risk across the PPP market, the unique factors that influence each deal, together with market factors (for example, the GFC) mean that PPP documentation in Australia is unlikely to be truly consistent in the short to medium term.
When procuring a PPP project, the government releases an invitation seeking expressions of interest from consortiums interested in the project delivery. From that process, a number of shortlisted consortiums are selected (usually limited to two or three) to whom a request for proposal is issued. The procurement process for PPPs is not substantially different from a typical procurement process. However, the nature of these projects, in particular the requirement to prepare and submit substantial design documentation and demonstrate the capacity to fund the project, means that the cost of bidding these projects is usually significantly higher than standard projects.
While there has been a move to standardise PPP policy and guidelines, at this stage standardisation of PPP contracts has not been achieved (see Question 30). However, as a matter of practice, there is a degree of standardisation between the projects as a result of the use of precedent documents.
The most common formal methods of dispute resolution are institutional arbitration and litigation in the superior courts of the states and territories. In some jurisdictions, smaller disputes (below A$1 million) may be litigated in the district or county courts.
Government projects are more likely to use courts, whereas private sector contracts, and contracts with at least one international counterparty, are more likely to use institutional arbitration.
In recent years, major public sector projects have increasingly used Dispute Boards. Unlike other forms of dispute resolution, Dispute Boards are typically comprised of three independent persons, selected by the contracting party at the commencement of the project, who are actively involved throughout the delivery of the project.
The superior courts of the states and territories are in common use.
The arbitration institutions most commonly used for local projects are:
Australian Centre for International Commercial Arbitration (ACICA) (www.acica.org.au).
Institute of Arbitrators and Mediators Australia (IAMA) (www.iama.org.au).
The arbitration institutions most commonly used for international projects are:
ACICA.
International Chamber of Commerce (ICC) (www.iccwbo.org).
Singapore International Arbitration Centre (SIAC) (www.siac.org.sg).
Contracts for major projects in Australia commonly specify one or more of the following in their dispute resolution clauses:
Executive negotiation.
Mediation.
Dispute resolution boards.
Expert determination.
The one chosen depends on the nature of the project and the types of disputes likely to arise.
Adjudication is also available under security of payment legislation in the states and territories. This legislation entitles contractors to pursue disputed progress payments by referring them to adjudication. If an adjudicator determines any amount to be owed, it will be an enforceable debt. However, the outcome of an adjudication is provisional and will not prejudice any subsequent arbitration or court proceedings.
The main tax issues on projects generally relate to stamp duty, income tax and withholding tax. Stamp duty varies throughout the Australian jurisdictions, but the two most common issues that arise are in relation to mortgage duty and landholder duty. Mortgage duty is payable on the securities provided for debt, but only applies in NSW. Accordingly, most projects undertaken in other states are unaffected (as long as there is no property located in NSW at the time the security is given). Mortgage duty in NSW is scheduled to be abolished in 2012.
Duty is also payable on the transfer of land and where an equity shareholder transfers an interest in a company that is land rich. Again, jurisdictions differ in how this is applied but some project vehicles may become land rich through the project company taking an interest in land. This would result in duty being payable if equity holders were to subsequently transfer their interest in the company.
Income tax can be an issue as a result of rules that deny deductibility of expenses where it is considered that the project is controlled by a government entity. This can be an issue in PPP projects where the state (through a project agreement) may be seen to exercise a degree of control over the project.
Withholding tax is payable and may be of significance to financiers in the context of PPP projects, as interest payments made by an Australian domestic borrower to financiers located overseas may be subject to withholding tax. This may be relevant if international finance is being provided to the project. This will commonly be the case as international commercial banks are active participants in the Australian project finance market.
Stamp duty, income tax and withholding tax are commonly mitigated (see Question 34). Landholder duty can sometimes be addressed through appropriate structuring of land tenure arrangements or corporate structures. Deductibility of interest is commonly addressed in PPPs through the use of a securitised lease structure. Withholding tax is commonly addressed by the borrower undertaking a procedure under tax legislation (section 128F) (involving issuing an invitation to the market to participate in a large syndicated loan) that allows it to take the benefit of an exemption from withholding tax.
There are various other requirements that international contractors or construction professionals must comply with in different circumstances.
Although there is no legal requirement to do so, international contractors may:
Enter into incorporated or unincorporated joint ventures.
Establish a wholly owned subsidiary in Australia.
Conduct business directly in Australia as a foreign corporation, in which case it must be registered with the Australian Securities and Investment Commission.
Foreign investment is generally encouraged, but approval is required before acquiring certain classes of assets. The Foreign Investment Review Board is a government entity that examines proposals by foreign interests to purchase certain assets in Australia and makes recommendations to the government on whether those proposals are suitable for approval under the government's policy.
In July 2012, the Australian government will implement a carbon tax under the Clean Energy Bill 2011. The implementation of the tax has created some uncertainty as its impact on pricing is yet to be determined.
In January 2012, a new personal property security register commenced under the Personal Property Securities Act 2009. The Act alters the law in relation to security interests over the personal property of any individual or corporation. In terms of its impact on projects, parties must now consider for each contract whether any interests that are created under the contract are security interests for the purposes of the Act.
In July 2012, the new mineral/petroleum resources rent tax will be implemented under the Minerals Resource Rent Tax Bill 2011. The tax will apply to:
The mining of iron ore and coal.
Onshore oil and gas projects.
Gas extracted as a necessary part of coal mining.
This tax could have a flow-on effect to the construction and major projects industries as it may impact demand for mining infrastructure.
In WA, the government has implemented a new framework for the registration of building service providers (including builders, painters and building surveyors) under the Building Services (Registration) Act 2011.
WHS legislation in the different jurisdictions are currently under reform with a view to harmonise each state's WHS legislation. The model WHS legislation imposes new duties on principals and principal contractors to ensure the safety and health of all persons on site.
The legislative reform aims to ensure that WHS legislation in each state and territory will be harmonised. Once the harmonisation is completed, there will be uniform legislation adopting the following:
Model Work Health and Safety Act.
Model Work Health and Safety Regulations.
Model Codes of Practice (Model Legislation).
The Model legislation will impose obligations on persons conducting a business or undertaking to its:
Employees.
Contractors.
Subcontractors (including their employees).
Volunteers.
Work experience students.
Offences against the Model legislation can be criminal offences. Fines can range from A$500,000 to A$3 million for a corporation and A$100,000 to A$600,000 for an individual, as well as imprisonment.
WHS obligations can also be imposed by specific industry regulations, codes of practice and Australian Standards.
Click here (www.practicallaw.com/8-519-9992) to view a pdf.
Click here (www.practicallaw.com/0-519-9991) to view a pdf.
Main activities. A not-for-profit organisation dedicated to being the national forum for the advancement of the engineering field within Australia. Engineers Australia's activities include programme accreditation, migration skills assessment, advocacy and professional development.
W www.engineersaustralia.org.au
Main activities. Master Builders Association's activities include promoting the interests of the building and construction industry, training, legal services, industrial relations, building codes and standards, and industry economics.
Main activities. A professional body representing building surveyors in Australia. The Australian Institute of Building Surveyors' activities include training seminars, continuing professional development, publication of the Australian Building Surveyor and accreditation.
Main activities. Represents Australia's leading construction contracting organisations. The member companies operate in a number of sectors including residential building, engineering construction, mining, gas and oil operations, and environmental services.
Main activities. An association that assists members to negotiate employment terms. The association's main activities include representing members in industrial matters, disseminating current information regarding industry practices and promoting favourable employment terms for architects.
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Qualified. Supreme Court of Queensland, 1973; Supreme Court of Northern Territory, 1981; Supreme Court of Victoria, 1983; Supreme Court of Australian Capital Territory, 1984; Supreme Court of New South Wales, 1985; Supreme Court of Western Australia, 1986; High Court of New Zealand, 1992
Areas of practice. Construction and major projects; transport infrastructure; government services; strategic advice; international arbitration; procurement strategy; debt finance, dispute resolution.
Recent transactions
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Qualified. Supreme Court of Queensland, 1983; Supreme Court of New South Wales, 1987; Supreme Court of Northern Territory, 1987; Supreme Court of Australian Capital Territory, 1987; Supreme Court of Victoria, 1992; Supreme Court of South Australia, 1995; Supreme Court of Western Australia, 1995; High Court of New Zealand, 2004
Areas of practice. Construction and major projects; international arbitration; litigation and dispute resolution; international trade; international investment strategy and protection.
Recent transactions
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E dfitts@claytonutz.com
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Qualified. Supreme Court of Victoria, 1995; High Court of Australia, 2009
Areas of practice. Banking and finance; corporate finance; property finance; project finance, projects and PPPs; infrastructure.
Recent transactions
T +61 3 9286 6960
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E lcousins@claytonutz.com
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Qualified. Supreme Court of Western Australia, 2006
Areas of practice. Construction and major projects; PPPs; energy and resources; infrastructure.
Recent transactions
