Construction and Projects in Australia: overview

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 global guide to construction and projects law. For a full list of jurisdictional Q&As visit www.practicallaw.com/construction-guide.

Marcus McCarthy, Belinda Crosbie, and Hamish Geddes, Nexus Law Group
Contents

Overview of the construction and projects sector

1. What are the main trends in the local construction and projects market? What are the most significant deals?

Main trends

Construction. Construction activity in major infrastructure projects in Australia remains generally strong, with a bias towards the eastern seaboard and in particular New South Wales (NSW). Other states are experiencing decreased activity due to less mining activity. However, there are some positive signs from south east Queensland (QLD). In Victoria (VIC) the market has remained steady, as an oversupply of investment grade residential development is absorbed into the market.

Mining. In 2015/16 the raw materials markets stabilised and, in some instances, slightly increased. This has raised optimism. If the price of coal continues to rise in 2016, we expect to see some remobilisation of mines that have been in caretaker mode.

Commercial and retail. The commercial and retail building market in Australia is still underperforming, compared to the residential market. However, the sector has, bounced back with some large scale projects such as Barangaroo and the Darling Harbour redevelopment (see below: Major projects). There is still considerable investment in retail markets, with a trend away from shopping mall type developments to social spaces focused on experiences.

Rail. The rail sector is experiencing strong activity with the NSW, ACT and QLD governments all engaging in rail development and expansion projects.

Major projects

Some major Australian projects are listed below:

  • Barangaroo (NSW). A major urban renewal project involving a 22 hectare, A$6 billion precinct on the western edge of Sydney Harbour, these works are entering the final development approval process.

  • Badgery's Creek Airport (NSW). The Airport is scheduled to become the second airport for Sydney delivering international flights by the mid-2020s.

  • WestConnex Road Project (NSW). WestConnex is Australia's biggest urban road project and will be delivered in three stages over ten years. The final stage (stage 3) is due to open in 2023.

  • NorthConnex (NSW). The NSW and Federal Government, Transurban and the M7 Westlink shareholders (the project sponsors) are planning to build, operate and maintain a nine kilometre tunnel tolled motorway linking the M1 Pacific Motorway at Wahroonga to the Hills M2 Motorway at West Pennant Hills.

  • Forrestfield-Airport Link Project (WA). A$2 billion project that will open up a new rail corridor to Perth's eastern suburbs, as well as connecting the rest of the city to the airport. Contracts awarded in 2016 to Salini Impregilo - NRW Joint Venture.

  • Melbourne Metro (VIC). The Victorian Government recently announced the establishment of the Melbourne Metro Rail Authority. Project consultation and a business case update have commenced. An expression of interest will be released in 2016 with major works expected to commence by 2018.

 

Procurement arrangements

2. Which are the most common procurement arrangements if the main parties are local? Are these arrangements different if some or all of the main parties are international contractors or consultants?

Typical Australian major projects include:

  • Traditional "construct-only" contracts.

  • Design and construct contracts.

  • Engineering, procurement and construction (EPC) contracts.

  • Engineering, procurement and construction management (EPCM) contracts.

  • Guaranteed maximum price (GMP) contracts.

The most common public-private partnership procurement arrangements are design construct and maintain (DCM) and build-operate-transfer (BOT) style contracts.

Although owners can contract with contractors through construction managers, it is more common for owners to contract directly with the contractor. The contractor, in turn, usually subcontracts the majority of the physical work to trade subcontractors.

There is a significant increase in international contractors operating in Australia across various infrastructure sectors, including major transport infrastructure projects.

 

Transaction structures

3. What transaction structures and corporate vehicles are most commonly used in both local and international projects?

Local projects

In Australia, contractors tend to bid for projects either in their own corporate capacity or in a joint venture (JV) with other contractors, designers or technology providers.

There are various reasons why contractors may decide on a JV, including to:

  • Draw on the skillset and expertise of the parties.

  • Share and lower costs of bid and delivery.

  • Share and lower risks as between themselves because clients will almost always insist on a joint and several liability contracting arrangement with the JV.

  • Improve financial strength.

  • Ensure related entities do not bid against one another.

  • Build a brand and a track-record.

JVs can be both:

  • Incorporated, in which each JV takes a shareholding in a company specifically incorporated for the project.

  • Unincorporated, in which each JV is a purely contractual relationship governed by the JV agreement. An unincorporated JV is not a separate legal entity, separate from the parties to the JV. A participant in an unincorporated JV can lodge separate tax returns for their portion of the project and adopt different tax treatment for income and expenses.

There is no strict legal requirement that a local contractor must control the JV. However, foreign investment in incorporated JVs can be examined by the Treasurer and the Foreign Investment Review Board under the Foreign Acquisitions and Takeovers Act 1974 if a foreign person is to obtain:

  • A substantial or controlling interest (15% by an individual, or 40% where two or more persons act together) in an Australian company with total assets valued in excess of A$252 million or A$1.094 billion for prescribed foreign investors in non-sensitive sectors.

  • An interest in Australian urban land, not used for primary production, excluding leases or licences under five years.

International projects

There are no significant differences between the types of procurement arrangements used for international and local parties.

 

Finance

4. How are projects financed? How do arrangements differ for major international projects?

Projects can be government-funded or financed through debt and equity. Mezzanine finance is also sometimes used in larger projects. This can be through second-ranking security at all levels in the project or through a structurally subordinated debt piece at the holding company level.

The bond market for infrastructure projects with stable cash flows has started to grow again after the global financial crisis. For larger projects, particularly in the resources sector and where there is an international element, the use of export credit agencies (ECAs) and development finance institutions (DFIs) is quite common. ECAs and DFIs provide government backed-loans, bonds, guarantees and insurance to corporations that are looking to do business overseas. DFIs can assist in making riskier projects more profitable.

Most senior debt is provided by the major Australian and international banks. Other entities such as ECAs, DFIs and superannuation funds have also provided senior debt finance in syndicates with commercial bank lenders.

Debt finance is generally secured over project assets. However, on riskier projects, some limited recourse to sponsor support may be required, particularly to ensure sponsor equity is ultimately contributed where not all equity is contributed at the outset of the project. It is also common to see key project documents subjected to a direct agreement between the sponsor or the project entity, the material project document counterparty and the financiers. Such documents include:

  • EPC contracts.

  • Operation and maintenance agreements.

  • Off-take agreements.

  • Landholder agreements.

  • Government concession agreements.

These agreements aim to:

  • Reduce the risk of key project documents being terminated on the sponsor's or project entity's default or insolvency.

  • Increase the likelihood that financiers can enforce their security and sell the project in its entirety, with all major project documents in place so the project can continue to operate.

 

Security and contractual protections

5. What forms of security and contractual protections do funders typically require to protect their investments?

Security

It is typical for funders in Australian projects to require the contractor to provide various forms of security for its performance of contractual obligations. Security can include:

  • Unconditional bonds for a certain percentage of the contract price (5% to 10% is typical). The bonds are usually:

    • procured from a reputable bank or insurer with an approved credit rating; and

    • proportionately reduced over the construction and defects correction period.

  • A parent company guarantee of the performance of its subsidiary.

  • Retention.

Where international contractors are involved in a project, funders will typically insist on enforceability advice on a guarantee from a parent company outside Australia. Where international contractors have bonding relationships with international banks, funders will insist that those banks have sufficient credit standing and provide bonds that can be called in at branches in Australia.

Contractual protections

For a construction contract to be bankable, funders will also insist on certain contractual provisions including:

  • Delay liquidated damages and look-forward default regimes to safeguard against the risk of delay.

  • Performance guarantees and performance liquidated damages regimes.

  • Tight restrictions on a contractor's ability to terminate a contract.

In project financed projects, funders will also require the contractor to enter into a debt finance side deed under which the funders will have certain rights including a right to step into a defaulting or insolvent principal's shoes to ensure the project can continue.

If a funder enters into a contract as a secured party, the funder will also want to register its interest on the Personal Property Securities Register (PPSR). The PPSR is a register of security interests over personal property. The grantor is not required to consent to registration.

 

Standard forms of contracts

6. What standard forms of contracts are used for both local and international projects? Which organisations publish them?

Local projects

Standard contract forms regularly used in Australia for local and international construction and design include:

  • Contracts developed by Standards Australia. Standards Australia regularly issues new versions and suites of contract documents. For example, it has recently issued a new draft General Conditions of Contract known as AS11000.

  • The Australian Building Industry Contracts (ABIC) suite of building contracts, jointly drafted by Master Builders Australia and the Australian Institute of Architects are intended for use where an architect administers a contract which includes the ABIC MW-2008 Major Works Contract.

  • The Australian Defence Contracting Suite of Tendering and Contracting templates (AUSDEFCON templates) used for defence contracts.

  • The GC21 form of government contracts used by a number of state governments and state-owned corporations.

Australia has made further advances in alliance contracting. The Australian Department of Infrastructure and Regional Development has published National Alliance Contracting Guidelines 2015. These national guidelines are a framework for more consistent and streamlined delivery of large public sector infrastructure projects.

Parties must familiarise themselves with the implications of the no-dispute type provisions that have become standard in project alliances in Australia.

International projects

Generally, there are no mandatory forms of contract for international and local projects. Occasionally, modified International Federation of Consulting Engineers (FIDIC) contracts are used for projects with international components. Among its numerous standard forms is the Gold Book for design, build and operate projects.

 

Contractual issues

Contractors' risks

7. What risks are typically allocated to the contractor? How are these risks offset or managed?

The risks allocated to a contractor will be determined project-by-project taking into account:

  • The nature of the project.

  • The scope of work.

  • The particular risks of the project.

A contractor will attempt to use due diligence and price and time contingencies to mitigate the risks it must accept.

Generally, on a lump sum engineer, procure and construct contract, a contractor will be expected to take risks associated with certain approvals, fitness for purpose of the design and the works, site conditions, delay (with exceptions and extensions and including force majeure) and facility performance. A principal will typically retain key planning and environmental approvals risks, existing structures risk and third party legal challenge risk.

The Australian Government National PPP Policy Framework is intended to establish a best-practice consistent approach to public private partnerships. The framework includes commercial principles for social and economic infrastructure projects (

www.infrastructureaustralia.gov.au/public_private/ppp_policy_guidelines.aspx).

Excluding liability

 
8. How can liability be excluded or restricted under local law?

There are certain liabilities and duties that cannot be excluded, limited or delegated by contract, including:

  • Unlimited liability.

  • Certain occupational liability.

  • Health and safety duties.

  • Liability for criminal or fraudulent conduct.

Proportionate liability legislation varies from state to state. In some states (New South Wales, Western Australia and Tasmania), parties can contract out of the legislation. In Queensland contracting out is strictly prohibited.

Parties can use the contract to limit and exclude other liabilities (see Question 9).

Caps on liability

 
9. Do the parties usually agree to a cap on liability? If yes, how is this usually fixed? What liabilities, if any, are typically not capped?

In the Australian market it is extremely common for parties to agree an overall limitation on the contractor's liability, subject to market-standard exclusions. The amount of a liability cap, and the nature and extent of any carve-outs is negotiated between the parties.

As a guide, liability caps tend to range from 50% to 100% of the relevant contract price with carve-outs for the following liabilities:

  • Wilful default or fraudulent act or omission.

  • Third party property damage, or personal injury or death.

  • Insurance proceeds received or that would have been received but for the act or omission of the relevant party.

  • Infringement of third party intellectual property rights.

  • Breach of confidentiality.

Where a contractor is liable under a contract for liquidated damages, it is also common for the parties to agree a sub-cap on the contractor's liability.

It is also common for parties to exclude liability for indirect and consequential loss, except for certain agreed exclusions. These exclusions generally mirror those carved-out from the overall liability cap. However, care should be taken over liability for liquidated damages, which almost always contain elements of loss that would otherwise be classified as indirect and consequential loss.

Force majeure

 
10. Are force majeure exclusions available and enforceable?

Force majeure, a civil law concept, has no real meaning in Australian common law. However, force majeure clauses are sometimes used in Australian contracts because the only similar common law concept, the doctrine of frustration, is of limited application. Most contractors seek to include an express force majeure clause, or a similar excepted risks clause, to relieve them from contractual obligations in the case of events outside of their control. Under some standard form contracts, the contractor is entitled to an extension of time if completion is delayed by events beyond its control.

Material delays

 
11. What contractual provisions are typically negotiated to cover material delays to the project?

Most construction contracts require the contractor to complete construction by a particular date.

A liquidated damages clause is used to account for damages caused by inexcusable delays beyond a project's completion date. These generally include:

  • Delays caused by the contractor.

  • Delays caused by risks that the contractor has accepted under the contract.

Liquidated damages are standard and are enforceable provided they are a genuine pre-estimate of the relevant loss. Liquidated damages will either be paid or deducted at a pre-agreed daily or weekly rate. Liquidated damages are payable until the works are completed or a sub-cap on liability has been reached.

Construction contracts generally include extension of time regimes that allow the contractor an extension of time for certain delay events, such as:

  • Delays caused by the principal or risks that the principal has accepted, such as delays to main planning approvals.

  • Delays caused by neutral events, such as changes in law or force majeure events.

Delay costs provisions can also provide a sub-contractor with costs for delays caused by the principal or related to risks the principal has accepted. A contractor is not usually paid delay costs for delays caused by neutral delays.

Material variations

 
12. What contractual provisions are typically negotiated to cover variations to the works?

Most construction contracts contain express provisions giving the superintendent, the principal or both an entitlement to variations. Most standard form contracts define variation broadly to give the superintendent flexibility as to what the contractor may be directed to perform. This can include addition to the contract, increase, decrease, omission, deletion, demolition or removal to or from the works. However, certain laws restrict the principal's right to direct variations. A principal cannot fundamentally alter the scope of the works. In addition, a principal's right to omit works and give them to other contractors must be expressly and clearly stated in the contract.

The following are taken into account when calculating the payment for variations:

  • The agreement.

  • Any prescribed rates or prices to the extent that it is reasonable to use them.

  • Any reasonable rates or prices determined by the superintendent.

  • Any day work rates.

A contractor is typically entitled to an additional percentage on account of costs to recover its preliminary and margin costs.

Other negotiated provisions

 
13. What other contractual provisions are usually heavily negotiated by the parties?

Other contractual provisions that are usually heavily negotiated include:

  • Provisions relating to security bonds.

  • Payment terms, including advanced payments.

  • Fitness for purpose warranties.

  • Information documents, including relief for errors and omissions.

  • Design development process, including timings for review.

  • Access provisions and delays caused by other contractors on multi-prime sites.

  • Risk and relief for unexpected site conditions.

  • The obligation to procure third-party warranties, and their form.

  • The role of the principal's representative.

  • Indemnities, including subject matter and breadth.

  • The test for completion and the nature of any conditions precedent.

  • Time bars and triggers.

  • Assignment and change in control and restrictions on these.

 

Architects, engineers and construction professionals

14. How are construction professionals usually selected? Following selection, how are they then formally appointed?

Construction professionals such as architects and engineers are usually engaged by a consultancy or professional services agreement. There are several standard form professional services agreements. However, many contractors have their own form of bespoke professional services agreement. There is also an Australian Standard (AS 4122-2010) consultancy agreement which provides for a risk allocation favourable to consultants.

During a tender phase, it is common for consultants to be engaged under a separate teaming or pre-bid tender services agreement. During the tender period, the parties agree on a full-form professional services agreement to govern the delivery of the project after the award.

On large government projects and tenders, probity may dictate a choice of consultant.

It is common for consultants to seek to limit their liability, including their liability for consequential loss.

 
15. What provisions of construction professionals' appointments are most heavily negotiated? Are liabilities routinely limited or capped in construction professionals' appointments?

The provisions of construction professional's liabilities most heavily negotiated are:

  • Liability for tender services. Consultants generally seek to differentiate their liability for services during the tender phase from their services during the delivery phase and impose separate caps on liability. However, contractors generally aim to consolidate the consultant's liability for all services to prevent any avoidance of liability.

  • Fitness for purpose and process risk warranties. Consultants almost always attempt to limit fitness for purpose and risk warranties.

  • Information documents, including the nature of the information parties can rely on and consequential relief for errors, omissions, discrepancies or inaccuracies.

  • Insurance. The amount of insurance and terms related to notification and disclosure are heavily negotiated.

  • Liability caps and exclusions. Consultants often try to limit their liability to their insurance proceeds. Consultants will also attempt to exclude all liability for indirect and consequential losses.

 

Payment for construction work

16. What are the usual methods of payment for construction work? Are there ways for the contractor and consultants to secure payment or mitigate risks of non-payment under local law?

Methods of payment

Payment for work performed can be secured through either contractual or statutory methods. Contractual mechanisms include obtaining and calling on a parent guarantee from the principal's parent company, or, less commonly, an unconditional bond arranged by the principal.

Securing payment

In most circumstances, the contractor has a statutory entitlement to progress payments under security of payment legislation, such as the Building and Construction Security of Payment Act 1999 in New South Wales (NSW) and its equivalent in all states and territories. In some states, payment can be secured through a lien over the site or, in the case of a subcontractor, the transfer of the debt from the contractor to the principal.

Under security of payment legislation, interim payments are made on account of the final determination of the contractor's entitlement. In each jurisdiction, there are strict requirements for the form and timing of statutory payment claims and adjudication of payment disputes.

In all states there are limits on the use of security of payment legislation for projects relating to mining, mineral processing and oil or gas extraction.

In the Australian Capital Territory, NSW, South Australia, Tasmania and Victoria, a contractor who has not been paid a progress payment that is due and owed, can suspend work and exercise a lien over any unfixed plant or materials supplied.

 

Subcontractors

17. How do the parties typically manage their relationships with subcontractors?

Under a head contract, subcontracting will not relieve a contractor from its liability to a principal. A head contract often dictates certain terms and conditions of subcontract agreements including those relating to supplier warranties.

Prudent contractors will typically attempt to pass on their upstream obligations to their downstream subcontractors. The extent to which a contractor will succeed will ultimately depend on the parties' relative negotiating power, the subcontract scope and the price.

 

Licensing

18. What licences and other consents must contractors and construction professionals have to carry out local construction work? Are there any specific licensing requirements for international contractors and construction professionals?

The licensing requirements are the same for both domestic and international contractors and construction professionals. However, the scope of such requirements varies according to the relevant jurisdiction.

An outline of the relevant legislation for the different states and territories in Australia is set out below.

Australian Capital Territory. The Construction Occupations (Licensing) Act 2004, the Construction occupations (Licensing) Regulation 2004 and the Home Building Act 1989 cover most building works. Different licences are issued for specified types of buildings.

New South Wales. The Home Building Act 1989 covers residential building work or specialist work such as plumbing, gas fitting or electrical work. The maximum penalty for carrying out unlicensed work is A$110,000 for a corporation and A$11,000 for an individual.

Queensland. The Queensland Building and Construction Commission Act 1991 covers licences limited to classes of building or construction work.

South Australia. The Building Work Contractors Act 1995 covers various licences which are issued depending on the types of work.

Victoria. The Building Act 1993 covers most building works. Different licences are issued for specified types of buildings.

Western Australia. The Building Services (Registration) Act 2011 provides that different licences are issued for building practitioners and their contractors, each of which have separate licence classes.

 
19. What licences and other consents must a project obtain?

Before

Before starting the works, any construction project needs planning and environmental approvals.

Generally the principal retains responsibility for obtaining these project approvals. However, the contractor can accept obligations to reasonably assist the principal.

Contracts entered into before these approvals are obtained are fully effective only once the approvals have been obtained on satisfactory conditions.

During

The nature of the approvals required during construction will depend on the project and its location. For example, work adjacent to a railway line or electricity lines requires additional permits.

Contractors are generally expected to take the risk of approvals required during the construction phase.

On completion

The type of approvals that must be obtained on completion of a project depend on the project itself. For example, a residential construction project requires an occupancy certificate and a fire safety certificate.

 

Projects insurance

20. What types of insurance must be maintained by law? Are other non-compulsory types of insurance maintained under contract?

Compulsory insurance

There is no compulsory insurance that must be maintained by law in a construction project in Australia.

Whether insurance is required depends on:

  • The nature of the activities.

  • Where those activities will occur.

  • How those activities will be undertaken.

Employment injury. If an entity involved in a project employs workers, the entity must obtain employers' liability insurance to provide cover injuries to employees. Each Australian state has its own legislation on employers liability insurance. In New South Wales, the Act is the Workers Compensation Act 1987 No 70. In Queensland, the Act is the Workers' Compensation and Rehabilitation Act 2003.

Vehicles causing injury. If an entity owns vehicles that are registrable or can proceed on public roads, it must obtain insurance for those vehicles in the case injury is caused by them. Each state of Australia has its own legislation on vehicle insurance.

Other types of project insurance. If the project involves mining, states can impose a compulsory requirement to take out insurance to cover the risk of the project. Any international contract where the works take place in Australia will be subject to the same requirements as a local contract.

Non-compulsory insurance

Parties that employ workers on site and at their offices will generally take out employment practices liability cover. This protects the employer and directors from compensation claims and defence costs arising from the wrongful dismissal of employees. It will not insure the employer for fines or penalties.

Other types of non-compulsory insurance that will be sought by developers, principal contractors and consultants on specific projects include:

  • Contract works liability and material damage policies.

  • Plant and equipment policies or endorsements.

  • Industrial special risks with business interruption policies.

  • Professional indemnity policies for consultants, such as architects and engineers.

 

Employment laws

21. Are there any labour law requirements for hiring (local and foreign) workers?

Local workers

The Fair Work Act 2009 (Fair Work Act) applies to:

  • All employees who are employed by an incorporated entity, including foreign companies operating in Australia.

  • All workers employed in the Australian Capital Territory or the Northern Territory.

The Fair Work Act does not apply to employees of unincorporated entities and employees of some state governments. For example, in New South Wales, Queensland and South Australia the federal regime does not apply to most public and local government employees. Those states have their own regulations.

The Fair Work Act requires employers to comply with the National Employment Standards, which deal with a broad range of fundamental concepts relating to employment contracts.

A worker in the building and construction industry can also be covered by an award. Awards are quasi-statutory instruments that set out minimum terms and conditions of employment for employees in certain industries or occupations, above statutory minimums. Awards generally cover minimum wage, types of employment, overtime penalty rates, allowances, shift loadings and redundancy entitlements. Employers of workers covered by an award cannot contract out of the award entitlements. Penalties apply for non-compliance with minimum award entitlements.

The Building and Construction Industry Improvement (Transition to Fair Work) Act 2012 prohibits unlawful industrial action while protecting freedom of association.

There are now at least 11 different acts of Parliament throughout Australia which contain anti-discrimination provisions, including prohibitions on workplace discrimination and harassment.

Foreign workers

The labour laws applicable to local workers also apply to foreign workers.

All foreign nationals employed in Australia must have a work visa that permits them to work in Australia before starting work on a project. The Subclass 457 Temporary Work (Skilled) Visa allows skilled workers to come to Australia and work for an approved business for up to four years.

 
22. Which labour laws are relevant to projects?

The labour laws applicable to local workers are also relevant to projects (see Question 21).

Other relevant laws include:

  • Enterprise agreements that may be made under the Fair Work Act between an employer and a group of employees. Once approved by the employees, the agreement must be approved by the Fair Work Commission before it comes into operation.

  • Obligations on employers to make compulsory minimum contributions to superannuation funds on behalf of each employee.

  • Workers' compensation legislation, which varies in different states and requires an employer to have insurance for workplace injuries and accidents.

  • Codes of practice and guidelines that have been issued by the federal government and some state governments to regulate employment conditions on government construction and project sites.

The Federal Government is also proposing to strengthen regulatory powers in relation to industrial action, picketing, coercion and discrimination in the building industry.

 
23. Must an employer pay statutory redundancy or other payments at the end of a project? Are all employees eligible?

An employer is generally required to give an employee redundancy pay if the employee is made redundant. A redundancy payment is based on the length of the employee's service. The minimum obligations are set out in the Fair Work Act. If an employee is covered by a registered enterprise agreement, the terms of the agreement will generally stipulate what kind of redundancy payment applies. The terms of an award, employment contract or company policy can also provide for an entitlement to redundancy pay.

An employer is not required to make a redundancy payment to:

  • Casual employees.

  • Apprentices.

  • Employees with less than 12 months' service.

  • Employees whose employment was terminated for serious misconduct.

  • Employees of small businesses that employ less than 15 employees.

 

Health and safety

24. Which health and safety laws apply to projects?

All Australian states and territories, except Victoria and Western Australia, have introduced harmonised state work health and safety legislation. Work health and safety legislation imposes statutory duties of care on persons conducting a business or undertaking (PCBUs) to protect the health and safety of others. It also imposes personal obligations on officers to exercise due diligence to ensure the PCBU is complying with its obligations.

In addition to its common law duty of care, work health and safety legislation imposes on a PCBU a number of broad general obligations, including obligations to:

  • Ensure, as far as reasonably practicable, the health, safety and welfare of all persons performing work for the PCBU. This includes employees, labour hire personnel and contractors.

  • Protect others from risk to their health and safety.

The statutory obligations are deliberately wide and general, but PCBUs must also be aware of specific obligations, standards and other industry guidance materials, such as:

  • Occupational health and safety regulations.

  • Industry-specific regulations, such as those for mining.

  • Codes of practice.

  • Court decisions.

  • Safety alerts.

  • Australian Standards.

The duties under the legislation require PCBUs to proactively manage health and safety risks to ensure a:

  • Proper health and safety management system is implemented on a project.

  • Regime of monitoring work activity to ensure safety outcomes on an ongoing basis.

A failure to comply with such duties can result in civil and criminal penalties.

 

Environmental issues

25. Which local laws regulate projects' effects on the environment?

The effects of projects on the environment are regulated by the planning and environmental laws of Australia. Environmental law matters are regulated at federal, state and local levels.

Federal environmental laws

The federal government has the power to make laws on matters of national environmental significance. Relevant Acts may include the:

  • Environment Protection and Biodiversity Conservation Act 1999 Act.

  • Water Act 2007.

  • Great Barrier Reef Marine Park Act 1975.

State and local environmental laws

The environmental impact of a construction project may have to be assessed under state or local laws. These laws also impose obligations and penalties for unlawful environmental impacts of projects.

States and territories have large and complex legislative and policy frameworks that regulate impacts on the environment, including the often overlapping planning assessment and environmental impact assessment of construction projects.

This law and policy deals with matters relating to the impact of construction projects on the environment, including water use and discharge, air and noise emissions, and waste and recycling.

Each state and territory regulates and manages systems for pollution control, contamination, hazardous materials, waste disposal and biodiversity protection through legislation and environmental protection agencies (EPAs).

While the states and territories can take different approaches to some environmental matters, environmental laws share many common elements, for example regarding:

  • Pollution control and licensing.

  • Hazardous materials and waste.

In some cases, additional legislation may also apply. For example, in Queensland certain projects need to consider requirements for approvals or other constraints under the:

  • Water Act 2000.

  • Vegetation Management Act 1999.

  • Nature Conservation Act 1992.

Several states also have special purpose legislative tools for assessing the environmental impact of major or significant construction projects.

Environmental impact assessments (EIAs)

The test for determining whether an environmental impact assessment (EIA) is required differs from state to state and at the federal level.

An EIA focuses on the biophysical, social and economic impacts of the project. If an environmental or planning approval is granted, the relevant decision-maker can impose conditions on the development of a project, including:

  • A financial security.

  • Insurance.

  • An independent environmental audit.

  • Plans for managing impacts of the action.

  • Environmental monitoring or testing.

  • Compliance with non-statutory instruments and codes of practice.

The EIA process will usually require public involvement in identifying issues and may include rights for submitters or objectors to appeal an approval or its conditions.

Minor projects and projects with limited impact on the environment will not always need to go through a full EIA process.

Sustainable development

Construction projects may need to consider the sustainability of their construction practices based on EIA approval conditions. Australia's environmental legislation obliges persons undertaking certain activities and decision-makers assessing the impacts of those activities, or preparing local and regional planning documents, to have regard to the principles of ecologically sustainable development (ESD).

Australia's National Strategy for Ecologically Sustainable Development (1992) defines ESD as: "using, conserving and enhancing the community's resources so that ecological processes, on which life depends, are maintained, and the total quality of life, now and in the future, can be increased".

Federal, state and local environment and planning legislation incorporate these principles into planning approval and EIA processes. However, they may not always use the term ESD or define it in exactly the same way.

 
26. Do new buildings need to meet carbon emissions or climate change targets?

The Australian Government ratified the Kyoto Protocol in December 2007. The Kyoto Protocol requires Australia to limit annual carbon pollution to an average of 108% of 1990 levels during the first commitment period (2008 to 2012). The Commonwealth Government's current target for 2020 is 5% below 2000 levels. The Federal Government has stated that it will increase this target to 15%, or 25% if certain criteria are met in international agreements for the global reduction of emissions. The government also has a long-term commitment to reduce carbon pollution in Australia by 80% of 2000 levels by 2050.

In relation to buildings specifically, in 2008 the Council of Australian Governments (COAG) developed the National Strategy on Energy Efficiency, which guides government policy on energy efficiency measures for a range of different building types. The National Construction Code includes energy efficiency measures for all building classifications.

Under the National Strategy, state governments are in various stages of implementing agreed measures to improve the overall energy efficiency of Australia's existing and future building stock. For new buildings and major refurbishments, this is usually achieved through efficiency standards in the building codes underlying planning and building standards legislation. Buildings must achieve a specified star rating for energy efficiency. The actual star rating required for a particular type of building may vary in each state.

The Energy Efficiency in Government Operations (EEGO) Policy contains additional requirements for energy targets for office buildings that are owned or leased by the Commonwealth Government.

The Building Energy Efficiency Disclosure Act 2010 requires most sellers and lessors of office space of 2000 square metres or more to obtain a Building Energy Efficiency Certificate before selling or leasing the building.

 

Prohibiting corrupt practices

27. Are there any rules prohibiting corrupt business practices and bribery (particularly any rules targeting the projects sector)? What are the applicable civil or criminal penalties?

Rules

In Australia, there is no single anti-corruption policy or law. The two most significant pieces of legislation that aim to regulate business practices are the:

  • Corporations Act 2001.

  • Competition and Consumer Act 2010.

Both are Commonwealth laws that outline best practices for directors and employees.

Under the Criminal Code Act 1995, it is an offence to bribe foreign public officials. It is also an offence under state and federal criminal laws to bribe Australian public officials. These offences are punishable by fines and, in some cases, imprisonment.

Building industry participants in Commonwealth funded projects are also expected to comply with the Building Code, which sets the Australian Government's expected standards.

Penalties and enforcement

The penalty for foreign corruption can be either:

  • A maximum of ten years' imprisonment.

  • A fine of up to A$1.1 million for individuals and A$11 million for companies or three times the value of the benefit obtained, whichever is greater.

A company can be liable, even if its management did not authorise and was not aware of the bribe, if the company had a corporate culture that tolerated bribery or did not require compliance with the laws against bribery.

If a contractor has illegally obtained the award of a contract, the contract will likely be void and unenforceable.

 

Bankruptcy/insolvency

28. What rights do the client and funder have on the contractor's bankruptcy or insolvency?

A construction contract commonly allows the principal to terminate on a contractor's insolvency. The contract will usually provide for the assignment of subcontracts to the principal so that works can continue under the contract.

What constitutes insolvency will depend on the precise terms of the contract. The contract may define insolvency by reference to:

  • The formal appointment of a liquidator or administrator.

  • Broader preceding events.

Construction contracts often give the principal the right to appoint a new contractor in place of the insolvent contractor and to recover the costs of doing so from the insolvent contractor.

 

PPPs

29. Are public private partnerships (PPPs) common in local construction projects? If so, which sectors commonly use PPPs?

Australian governments actively welcome the participation of the private sector in the delivery of infrastructure and related public services through PPPs. In line with the National PPP Policy, the Australian federal, state and territory governments will consider a PPP for any project with a capital cost of over A$50 million.

The most prominent sectors in which PPPs are commonly used include hospitals, education and transport.

 
30. What local laws apply to PPPs?

The Council of Australian Governments endorsed the National PPP Policy and Guidelines on 29 November 2008. These guidelines substantially harmonise the states and territories, although some states also have their own jurisdictional policies that apply alongside the guidelines.

The guidelines consist of:

  • The National PPP Policy Framework.

  • The National PPP Guidelines Overview.

  • National PPP guidance material consisting of seven volumes covering topics such as commercial principles for social infrastructure, public sector comparator guidance, discount rate methodology, jurisdictional requirements and commercial principles for economic infrastructure.

Foreign companies can participate in Australian PPPs, including as concessionaires, builders, operators or financiers.

 
31. What is the typical procurement/tender process in a PPP transaction? Does the government or another body publish standard forms of PPP project agreement and related contracts?

PPPs are typically procured through a competitive tender process. The key stages are:

  • Expression of interest.

  • Shortlisting and request for proposals (RFP).

  • Selection of a preferred bidder.

  • Contractual close.

  • Financial close.

There is currently no standard form of PPP project contract used throughout Australia. However, the Commonwealth Government has initiated steps to better harmonise state governments' procurement processes for PPPs by establishing a Commonwealth advisory body, "Infrastructure Australia", and appointing a Commonwealth Minister for Infrastructure.

 

Dispute resolution

32. Which are the most common formal dispute resolution methods used? Which courts and arbitration organisations deal with construction disputes?

Formal dispute resolution methods

The most common formal dispute resolution methods used are arbitration and litigation.

Arbitration remains the dispute resolution method of choice for contracts involving international parties.

State civil and administrative tribunals have jurisdiction in residential building disputes.

Where a litigation case is heard will depend on the:

  • Nature of the dispute.

  • Causes of action in a claim.

  • Value of the dispute.

Courts and arbitration organisations

Each state and territory has its own Supreme Court and rules on the Court's jurisdiction.

The arbitration institutions most commonly used to arbitrate domestic construction disputes are the:

The arbitration institutions most commonly used to arbitrate international construction disputes are the:

  • International Chamber of Commerce (ICC) (www.iccwbo.org).

  • International Centre for Dispute Resolution (ICDR) (www.icdr.org).

  • ACICA (see above list).

 
33. What are the most commonly used alternative dispute resolution (ADR) methods?

Alternative dispute resolution (ADR) methods are regularly used in construction contracts. The most commonly used forms of ADR in Australia include:

  • Negotiation between nominated senior executives of the parties.

  • Mediation.

  • Independent expert determination.

  • Boards of review, also known as dispute review boards.

Adjudication of payment disputes under security of payment legislation is also commonly used in Australia.

 

Tax

34. What are the main tax issues arising on projects?

Major projects can encounter a range of tax issues in Australia, particularly relating to stamp duty and income tax.

Each state and territory has its own stamp duty regime, with some jurisdictions imposing duty only on transfers of land, and others imposing duty on transfers of non-land business assets. Stamp duty is also generally charged on:

  • Transfer of interests in entities that have significant land-holdings.

  • Certain types of mortgage in New South Wales.

At federal level, companies pay 30% income tax on taxable profits. Taxable profits include both revenue and capital receipts. Under Australia's international tax treaties, liability for Australian income tax can attach to profits made in connection with a permanent establishment in Australia. This often includes construction projects.

It is important to establish whether project participants account for expenses as upfront deductions from taxable profits or by a range of staggered methods of expense accounting. If a company has made tax losses on one project, difficulties can arise in relation to retaining those losses if the shareholders of the company seek to dispose of their interests or if the company seeks to adapt its business operations.

Multinational entities in particular should be aware of limits on the degree to which companies can be funded by debt. Broadly, current rules allow for a 60/40 ratio of debt to equity. However, these rules may be subject to change.

Upstream distributions to a foreign creditor or shareholder may be subject to interest or dividend withholding tax, chargeable at a rate depending on the treaty status of the foreign country involved. A specific withholding regime applies to payments made to foreign entities involved in construction projects.

A variety of entities in Australia, including some types of partnerships and trusts, receive flow-through treatment for income tax purposes. Trusts are very widespread in Australian tax structuring and can provide some conceptual difficulties for non-resident investors who are more familiar with other forms of entities, such as limited partnerships.

A range of registration, payment and reporting requirements may apply to project participants, including pay-as-you-go withholding tax and goods and services tax.

Land tax is levied at state or territory level and council rates are levied at local council level.

 
35. Are any methods commonly used to mitigate tax liability on projects? Are there any tax incentives to carry out regeneration projects?

Parties to construction projects often try to minimise their liability for stamp duty. For example, by avoiding unnecessary transfer of interests in land or assets, and by using exemptions for transfers between related entities.

Exemptions are also available from goods and services tax, particularly where the relevant supply is from a going concern.

Rates of withholding tax are frequently modified by tax treaties, so this can affect projects involving cross-border payments between parties.

Exemptions to the withholding regime may also be considered.

 

Other requirements for international contractors

36. Are there any specific requirements that international contractors or construction professionals must comply with?

In addition to licensing requirements for carrying out building work (see Question 18), the Corporations Act 2001 requires foreign companies to register with the Australian Security and Investment Commission (ASIC). This includes international contractors that intend to start projects in Australia. An international contractor can either:

  • Register as a foreign company with a branch office in Australia identified by an Australian Registered Body Number.

  • Purchase or incorporate a local Australian subsidiary company identified by an Australian Company Number.

In practice, typically an international contractor intending to operate substantially in Australia will incorporate or establish a local Australian company. To incorporate a new Australian subsidiary, a foreign company must:

  • Appoint directors, at least one of whom resides in Australia.

  • Open a registered office in Australia.

  • Establish a shareholding registry and inject capital.

The Federal Treasurer can examine foreign investment by way of share or asset acquisitions, including shares of incorporated joint ventures. Foreign investment may also need to be approved by the Foreign Investment Review Board under the Foreign Acquisitions and Takeovers Act 1974. Foreign investment proposals can be blocked or made subject to conditions, if the Treasurer determines that they are against Australia's national interest. Generally, however, most proposals are approved without conditions.

 

Reform

37. Are there any proposals to reform construction and projects law?

Reform proposals

There has recently been significant reform concerning security of payment legislation in certain Australian states.

Queensland. The Building and Construction Industry Payments Act 2004 (BCIPA) has introduced changes relating to payment claims and adjudication proceedings that have affected contracts from 1 September 2014.

New South Wales. The News South Wales Parliament has enacted the Building and Construction Industry Security of Payment Amendment (Retention Money Trust Account) Regulation 2015 (NSW). The Regulation applies to contracts entered into from 1 May 2015.

From November 2016 major changes to strata laws will also come into effect, including obligations on developers of strata property to provide a building bond, mandatory defect inspections and maintenance schedules.

Trends

See Question 1, Main trends.

 

Main construction organisations

Engineers Australia

Main activities. Engineers Australia is the national forum for the advancement of engineering and the professional development of its members.

W www.engineersaustralia.org.au

Master Builders Association

Main activities. The Master Builders Association is the major Australian building and construction industry association.

W www.masterbuilders.com.au

Australian Institute of Building

Main activities. The main objective of the Australian Institute of Building is to promote excellence in the construction of buildings and just and honourable practices in business.

W www.aib.org.au

Australian Institute of Building Surveyors

Main activities. The Australian Institute of Building Surveyors is committed to the professional development of its members through clear educational pathways to ensure constant supply of well-educated building surveyors.

W http://aibs.com.au ( www.practicallaw.com/5-519-4552)

Australian Constructors Association (ACA)

Main activities. The ACA represents leading construction and infrastructure contracting companies. It is dedicated to promoting a sustainable construction industry for Australia.

W www.constructors.com.au

 

Contributor profiles

Marcus McCarthy, Principal

Nexus Law Group

T +61 2 4961 0002

F +61 2 4961 1009

E mwm@nexuslawyers.com.au

W nexuslawyers.com.au

Professional qualifications. Admitted New South Wales, April 2001

Areas of practice. Construction and infrastructure; security of payments legislation; commercial and business law; commercial agreements and contracts; corporate law; litigation and dispute resolution; intellectual property; mining and resources; transport and logistics.

Non-professional qualifications. LLB; B.Bus

Recent transactions

Marcus's recent transactions include:

  • Acting for a specialist logistics company in a complex corporate acquisition.

  • Acting for a Government Authority in Supreme Court dispute with global civil contractor regarding collapse of bridge pipeline.

  • Government & industry co-funding agreements for commercialisation of VAM abatement technology

  • Rail Interface Agreements with ARTC, Pacific National and Hunter Valley Coal Chain, including Rail Capacity Group Charter documentation.

Languages. English.

Professional associations/memberships. New South Wales Law Society

Belinda Crosbie, Partner

Nexus Law Group

T +61 2 4961 0002F +61 2 4961 1009E bjc@nexuslawyers.com.au

W www.nexuslawyers.com.au

Professional qualifications. Admitted New South Wales, 2006

Areas of practice. Commercial advisory; dispute resolution; litigation; construction; infrastructure.

Non-professional qualifications. LLB (Hons) University of Newcastle; Bachelor of Social Work

Recent transactions

Belinda's recent experience includes:

  • Drafting and negotiation of EPCM contract for a multi-billion-dollar coal infrastructure project at a port.

  • Acting for a structural, mechanical, electrical and civil joint venture in Supreme Court proceedings for A$40 million damages for alleged negligence and breaches of contract.

  • Acting on behalf of a building contractor in a dispute with the Northern Territory government regarding variation and delay claims.

  • Acting on behalf of a state government owned corporation defending negligence claims in the Consumer, Trader & Tenancy Tribunal and associated responses to the Energy & Water Ombudsman of NSW.

  • Acting on behalf of a civil contractor in expert determination proceedings against a multinational joint venture regarding the Pacific Highway Upgrade.

  • Advising principals, contractors and subcontractors on the security of payment process, preparing adjudication applications and responses, and acting in administrative appeals from adjudication determinations.

Languages. English

Professional associations and memberships. New South Wales Law Society; Society of Construction Law.

Hamish Geddes, Senior Associate

Nexus Law Group

T +61 2 4961 0002
F +61 2 4961 1009
E hg@nexuslawyers.com.au
W www.nexuslawyers.com.au

Professional qualifications. Admitted New South Wales, 2012

Areas of practice. Construction; litigation; commercial advisory; strategic planning.

Non-professional qualifications. LLB, University of Newcastle

Recent transactions

Hamish's recent experience includes acting for:

  • Head contractors claiming variations and defects in works from subcontractors on major residential development.

  • Principals on their rights under contract for delay damages and variation claims.

  • Head contractors in their Supreme Court wind up applications for contractors.

  • Head contractors responding to a latent defect claim by contractor under Security of Payment Act.

  • Builders responding to various defective building claims in the NSW Civil and Administrative Tribunal.

Languages. English

Professional associations and memberships. Law Society of New South Wales; Society of Construction Law; Committee member of the Master Builders Association, Committee member of Consult Australia's FutureNet.


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