REALWorld Law

Construction

Allocation of risk

What risks in a construction or engineering contract are normally borne by the contractor? To what extent is force majeure relevant in such contracts?

Australia

Australia

In so-called ‘traditional’ procurement, the building contractor is responsible for the construction of the works, but not for their design. In design and construct (D&C) contracts, the building contractor also takes on responsibility for design of the works either by appointing the design consultants or assuming responsibility for design consultants procured by the employer. In the latter instance, the design consultants may be appointed by the employer in the usual way, even before the building contractor is selected; when the employer enters into the D&C building contract, the design consultants’ appointments are simultaneously transferred across (or ‘novated’) to the building contractor and this places single point design (as well as workmanship) responsibility on the contractor and gives the building contractor control of the design process.

Force majeure clauses are often included in D&C contracts. Sometimes the scope of a force majeure clause will be quite limited because most construction contracts will already provide a contractor with some relief for delay caused by third-party events in the form of an extension to the date for completion of the works.

Given that force majeure clauses are creatures of contract, their interpretation will be governed by the normal rules of contractual construction. Force majeure provisions will be construed strictly in the event of any ambiguity. In this context, it means that the clause will be interpreted against the interests of the party that drafted and is seeking to rely on it (‘contra proferentem’). The parties may contract out of this rule.

Importantly, parties cannot invoke a force majeure clause if they are relying on their own acts or omissions.

The underlying test in relation to most force majeure provisions is whether a particular event was within the contemplation of the parties when they made the contract. The event must also have been outside the control of the contracting party. There are generally three essential elements to force majeure:

  1. It can occur with or without human intervention
  2. It cannot have reasonably been foreseen by the parties
  3. It was completely beyond the parties’ control and they could not have prevented its consequences

There are two aspects to the operation of force majeure clauses:

  1. The definition of force majeure events
  2. The operative clause that sets out the effect on the parties’ rights and obligations if a force majeure event occurs

The events which trigger the operative clause must be clearly defined. It is in the interests of both parties to ensure that the 'force majeure' is clearly defined in their contract.

The preferred approach for a developer is to define force majeure events as being any of the events in an exhaustive list set out in the contract. In this manner, both parties are aware of which events are force majeure events and which are not.