“You’re the only consultant who won’t sign our contract,” said practically every commercial and government client ever, at some point when they became frustrated with the contract negotiation process.

When your client suggests that you are the only consultant who seeks to negotiate more balanced contract terms, how do you prove otherwise? How can you establish that other consultants have the same objections as you to broad indemnity clauses, warranties of fitness for purpose, and waivers of proportionate liability rights?

A new resource you can call on is the Model Client Policy drafted by peak industry body, Consult Australia, and released in June 2018. Consult Australia is encouraging the Policy’s adoption by government at all levels. Although aimed at government clients, it also documents a number of worrying trends across the construction industry. Just some of its key points are:

• Consultants are spending “an increasing amount of unnecessary time” on contract negotiation
• Onerous and unfair terms, such as “fitness for purpose” warranties and “expert” standards of care, should be “prohibited from use” in government contracts for consulting services
• Consultants’ insurance “typically [will] not respond” when a contract imposes risk that exceeds the consultant’s common law liability
• All too often, clients allocate project risks to contractors and consultants, even where the client may be the party best equipped to manage that risk
• Inappropriate risk allocation to consultants can make professional indemnity insurance unaffordable
• Since consultants’ project income is “a fraction of” the benefit earned by clients and contractors, they are least able to sustain the risk of uninsured liabilities and project risks
• Inappropriate risk allocation undermines project success, because the party who has allocated the risk may then have no incentive to help manage the risk

The Policy also articulates some important trends, such as the loss of internal expertise in government clients over the last 30 years, and the unfortunate new tactic of requiring consultants to verify client-supplied information (and therefore accept liability for loss resulting from inaccuracies in it), even when the consultant may have little or no real ability to check the information.

The two core messages in the Policy are these:

1. The significant market power wielded by government clients gives them an obligation to act as Model Clients, which requires working collaboratively to achieve mutually beneficial outcomes.

2. Government should make much greater use of standard form contracts, so as to achieve greater balance and reduce the amount of time spend on contract negotiation:

[W]e strongly recommend that government agencies use standard contracts on an ‘if not, why not’ basis, whereby the public service is required to use them unless there is an appropriate reason not to do so that is explained to their industry partners and recorded publicly.

There is certainly room for improvement here. Of the contracts for government projects sent to our review service in 2018, less than 10% were based on an Australian Standard contract, and less than 2% used an Australian Standard contract without amendments.  The governments using standard contracts were Queensland, WA, SA state government. Apart from a couple of local councils in NSW, the bigger states of NSW and Victoria do not appear to be using standard contracts at all.

The Model Client Policy is readable and freely available, and makes a helpful addition to the resources of any office called upon to negotiate complex contracts.

 

Wendy Poulton

Risk Manager