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Construction contract administration

This guideline has been prepared to assist health services / agencies and the members of governance bodies such as steering committees (SC) or project control group (PCG) to understand and manage their responsibilities during the construction and contract administration phase of a building project. The guide has been prepared for non-technical members of the SC / PCG who may have little or no experience in the building and construction industry, although it does provide guidance to consultants and project managers regarding government and Department of Health and Human Services requirements.

Contract administration formally commences when the building contractor is formally engaged to deliver the building project and associated works. The contract administration phase covers all construction, subcontracting, procurement and installation of engineering services, commissioning, handover, defects rectification works, and extends to the final financial close of the project.

Contract administration is undertaken during the construction and delivery phase of a project and the contract is managed by or on behalf of the principal to the contract. The principal is the entity entering into the contract with the building contractor. The purpose of contract administration is to

  • Manage the delivery of a capital project and associated work in accordance with the executed contract documents.
  • Ensure the contractor fulfils its responsibilities, duties and outcomes in accordance with documented requirements, the contract itself, and statutory requirements.
  • Ensure that the building contractor is properly paid for works suitably carried out.

The guideline covers the normal procurement arrangements used by the bepartment including use of the standard forms of contract. It is envisaged that the normal arrangement is a lump sum contract using standard terms and conditions. However the principles would also apply to other forms of procurement such as construction management, design and construct and other forms of contracting in standard use in Victoria.

Where alternative procurement methods are used, contract administration requirements will vary according to contract terms and conditions. The department's project manager will provide advice regarding alternative procurement methods which may be used. Contract administration practices may need to be tailored for alternative arrangements such as for public private partnerships, maintenance & performance contracts, and minor works contracts.

Code of practice for the building and construction industry

The Victorian code of practice for the building and construction industry sets out the acceptable behaviours for all parties to a building contract.

The contract administration policies of the government have been set out in the code of practice and reference should be made to the code. In addition, projects in receipt of federal government funding must also comply with the national code of practice where applicable.

Building contract

The building contract is a legal arrangement and usually comprises:

  • A letter of appointment.
  • A signed contract including special conditions and outcomes of agreed negotiations.
  • Documentation including
    • specifications, which usually constitute written requirements for the various building components
    • working drawings and
    • bills of quantities where applicable.

The standard form of lump sum contract approved for public construction in Victoria is the Australian standard general conditions of contract, AS 2124 - 1992, which must be used with the Victorian government approved special conditions of contract. The contract allocates contractual roles to the different parties to the contract, as well as to the superintendent.

The key parties involved in the contract administration phase are:

  • principal from the health service, agency or department
  • contractor, i.e. the builder
  • superintendent, i.e. the administrator appointed to the contract by the principal.

In larger / more complex projects:

  • There may be one or more superintendent's representatives to advise on various areas of specialisation / expertise.
  • The contractor may be a construction manager who tenders out trade packages or sub-contract packages during the course of the construction works. The principles outlined in this guideline also apply to the construction management process.

The principal

The principal to the contract is the party responsible to procure the works and is generally the ‘client' or ‘owner' of the facility, or the person representing the agency which manages or will manage the facility.

The role of the principal includes:

  • making payments
  • ensuring the builder is notified of the appointed superintendent, who will be responsible for directing the works
  • accepting the works at handover.

It is common practice for the principal to appoint or delegate the responsibility for day-to-day activity to an officer who is then the principal's representative. This is separate from the contractual role of the superintendent.

The contractor

The building contractor must be a legal entity and with the appropriate building contractor registration. A tender from a building contractor will be offered in response to a request for tender. The acceptance of a tender, which must be in writing, evidences that a contract exists. See the guideline on tendering, evaluation and acceptance for more details.

The principles in this guideline are equally applicable to building contractors, trade contractors and subcontractors as well as construction managers. Note that construction management contracts are not lump sum contracts, but usually involve the letting of separate sub-contract supply and trade contracts.

For some projects, it is desirable to undertake a series of separate contracts, such as:

  • demolition, removal of hazardous materials and early works to prepare a site that may be followed by
  • construction contract
  • develop a facility in several stages.

These may be separate contracts, and will need to comply individually with these guidelines.

The superintendent

The superintendent is appointed as the contract administrator, to manage the interaction between the contractor and the principal.

It is essential that the contract administration role be undertaken by a person having the necessary expertise and qualification to do so.

It is the principal's role to ensure the contractor is notified of the appointed superintendent and if there are any limitations to that appointment. If the role of superintendent has not been included at the time of engaging consultant team members, then the appointment should occur as soon as practicable after the acceptance of the contract and must occur before the contractor is given the authority to start work on site.

Key roles of the superintendent are set out in the contract. The superintendent is responsible for the day-to-day administration of the contract and specific tasks including:

  • issuing directions to the contractor
  • monitoring, recording & reporting
  • providing advice and monitoring compliance with regulations
  • valuing the work undertaken and recommending payments.

The superintendent is obliged to follow the provisions of the contract agreement and contract documents, must interpret and administer the contract in accordance with the documents and must act with due consideration for their intent.

Certain clauses require the superintendent to act as:

  • an agent for the principal

and in other clauses

  • a certifier, where the superintendent is required to be fair to both parties in making certification decisions.

In both instances, the superintendent is required to act reasonably, but particularly when acting as a certifier, there will be an expectation from the builder / contractor that the superintendent acts impartially.

There are many matters calling for the superintendent's view. Some examples are:

  • assessing and certifying progress payments
  • issuing, assessing, referring and authorising contract variations
  • determining quality of materials and workmanship
  • issuing notices and dealing with payment provisions
  • ascertaining losses or expenses by the building contractor due to instructions
  • assessing and determining any extensions of time applications
  • determining and formally notifying the date of practical completion
  • determining completion and issuing the final certification.

On government projects, the superintendent has the additional responsibility of taking into consideration government regulations and policies, particularly in respect of OH&S regulations and the Security of Payment Act. The superintendent must act in a manner consistent with these requirements to ensure that the principal is not exposed to risks or liable for additional payments.

Restrictions to the superintendent's powers normally apply to department funded contracts. The superintendent cannot engage in the following actions without the direction of the principal and approval of the departmental director:

  • engage in arbitration, litigation or mediation
  • approve prolongation claims and associated costs being awarded to the contractor
  • approve handover of the completed facility without prior inspection and agreement by the relevant health agency.
  • issue the final payment certificate to the contractor.

An example template for a letter of nomination of the superintendent is contained at the end of this guideline.

Legal and financial obligations

Health services / agencies (acting as principal to the contract) and consultants (as superintendent or superintendent's representative) should be aware of their technical, legal and financial obligations and responsibilities, as failure to do so may involve disruptive and costly compensation claims.

Occupational health & safety (OH&S) responsibility

The health service / agency is to note that the engagement of a superintendent is not a substitute for discharging their responsibilities in regard to the matters of OH&S. These requirements are to be taken as shared duties and obligations, and cannot be wholly delegated to others. Health services / agencies must ensure that these items are regularly monitored and reported on and where necessary action taken to address issues as they arise.

  • Any OH&S related issues arising.
  • The primary responsibilities can and should be transferred to the contractor in writing by nominating the contractor / builder as the principal contractor. This can be done either in the contract Annexure (Part B) or by separate written instruction.
  • The principal is to provide the builder with any site or agency specific safety requirements to ensure contractors can establish and maintain procedures to ensure safe working conditions prevail. The construction health and safety guideline provides specific guidance on this issue.

Security of payment (SOP) responsibility

The health service / agency is to note that the engagement of a superintendent is not a substitute for discharging their responsibilities in regard to the matters of SOP. The responsibilities are shared and cannot be wholly delegated. Health services / agencies must ensure that these items are regularly monitored and reported on and where necessary action taken to address issues as they arise.

  • The key objective is to ensure that payment claims for works satisfactorily undertaken by any trade or contracting party are responded to, payment schedules issued, and payments made in a timely way.
  • If part or the whole of a payment is withheld, the claimant must be advised of the reason in the prescribed manner.

Facility operation during construction

Many construction projects are undertaken whilst buildings are occupied. It is essential that health service delivery standards be maintained for the facility during construction. In addition to careful planning, and appropriate organisational and contractual arrangements, full co-operation between the Principal, Superintendent and Contractor is essential. Important issues to be considered include:

  • communication between the health service / agency and the builder / contractor
  • dust, dirt and infection control
  • vibration and noise control
  • access requirements of staff, patients, visitors and others
  • maintenance of essential engineering services and utilities
  • safety and security.