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  Managing performance with an ace procurement contract

  When forming “the deal” considerable focus is often given to “the price”, yet the theory goes: “price” trades off against “certainty” and “timing”; each of “certainty” and “timing” apply pressure to the margins of “price”. Placing pressure on “timing” and “certainty” increases the risk of “non-performance”.

  The most critical aspect of contract preparation is to address the risk of “non-performance” and so as a procurement contract unfolds, the “risk of non-performance” relies on the purchaser knowing how well the contractor has been performing and, in turn, help the purchaser predict how well the contractor will continue to perform. These tools are:

  • “Performance Indicators”: “what has been done”, typically used to demonstrate that a party has satisfied the criteria to become entitled to a payment; and
  • “Lead Indicators”: which provide information on future performance and should demonstrate whether the desired results will be achieved within the agreed timeframe and cost, providing an early warning of any problems in the delivery of the contract.

  A core skill in contract preparation is to determine what performance or lead indicators might exist to help manage contract performance. Having a good contract structure will give you options (whether through re-performance, damages or termination rights) to get the goods or services you bargained for; and critical in that is the delivery of the purpose for which the contract exists.

  The foreword to the “Better Practice Guide on Developing and Managing Contracts” published by the Australian National Audit Office in 2012 urges: –

  “[C]ontract management is not an end in itself, and it is important that all contracting decisions and actions focus on the outcomes that entities are seeking to achieve and cost-effective delivery approaches”[1]

  In the event of a contract breach and in the choices and timing of performance and lead indicators, it is paramount that the parties do not lose sight of what it is they committed to do. In order to effectively manage contract performance, the parties must keep that “goal” in mind.

  Where the Commonwealth is a party, it is important to note its obligations under with the Public Governance, Performance and Accountability Act 2013 (PGPA Act). Section 15 requires the “accountable authority” of a Commonwealth entity to promote the “proper” use of public resources i.e. uses which are efficient, effective, economical and ethical. All businesses should keep these principles in mind.

  Structuring a contract to address non-performance

  Performance and lead indicators exist to support the decisions you might wish to make in the course of contract management.

  Identifying what the deliverable is, the means by which the deliverable will be delivered (the steps that need to be in place in that pathway) and the matters that put that delivery pathway at risk, can be used to efficiently and effectively manage the contract by delivering information on a contractors performance in meeting existing contractual requirements and, where appropriate, ensuring that future requirements will also be met.

  Performance measures should be designed to alert the contract manager to potential problems so that remedial action can be taken if needed. Identifying areas for potential dispute early can help you guide compliance with the contract or effectively resolve the potential dispute (without that dispute ever arising).

  Characterising damages and loss from breach

  Further, timing your performance and lead indicators to critical stages of contract delivery should coincide with those points when it becomes most convenient to “cut your losses” and run, if you can. There are many considerations in that decision:

  • Is the deliverable contractor easily substituted?
  • Even if the deliverable can be substituted, what is the consequential cost of delay?

  It is important to be cognisant that a given procurement may simply be a building block embedded within a broader purpose or design. In those circumstances, the possible consequence of terminating the contract is that there may be a greater impact on the procuring party as opposed to the losses which flow naturally from the breach of “that contract”.

  Rectifiable defaults clauses typically deal with issues such as:

  • the deficiency represented by the breach – will you engage a new contractor to rectify the breach? and
  • addressing the consequence to the balance of the performance, particularly in terms of delay.

  While such clauses should be geared towards repairing the relevant default, when partnered with delay clauses, they are often seen as a procedural step towards “termination”, rather than as a contract management tool to keep the contract alive and address the consequences of loss flowing from the works needed to keep the contract on foot.

  Managing Performance

  Complex procurement must rely on the skill, judgement and expertise of the contract party to identify and deal with issues arising not only from the environment into which a deliverable will be put, but issues arising from the development of the delivery and then the way in which the resulting output (or absence of it) will affect the moving environment into which the outcome will be placed.

  While much of the assessment and performance risk can and should be controlled through relationship management and good communication, a good procurement contract should be structured so that there is an action plan for performance, clear milestones and deliverables, along with subsequent action that would result from underperformance.

  If you have any questions about procurement or contract management, please get in touch with our Business team.

  [1] Developing and Managing Contracts, Better Practice Guide; ANAO (www.anao.gov.au), forward by Ian McPhee, Auditor General. The ANAO website states that post PGPA, “Substantially the content of this Guide, in particular the underlying concepts and principles of better practice, remain relevant.”

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  Position vacant - Law Graduate

  We are looking for a law graduate student who is considering their next step in their career.   This role will consist of you handling all the modalities of law including Litigation, Estates and Wills, Business and Corporate, Real Estate, Government and Councils, and Employment and Industrial. This role is a fantastic development opportunity to work with a successful business, professional development, and personal growth within the legal sector. This position is your next stepping stone to your path of becoming a Lawyer.

  The main duties of the role include:

  • To work alongside our professional lawyers and support them by provide general support by:
    • Providing Technical skills and matter contribution;
    • Contribute to achieving client objectives;
    • To provide support in Business Development initiatives;
    • Manage own development and support others;
    • Productivity – Deliver to set standards;
    • Pro-Bono and Community Contributions.

  The successful applicant must:

  • Completed a law degree with a strong academic record
  • Litigation experience is an advantage, but not required
  • A high standard of written and verbal communication skills
  • Strong professional presentation and ability to work autonomously with clients
  • Exceptional attention to detail
  • Excellent time management and organisational skills
  • A positive attitude and the ability to work as part of a team
  • Willingness to embrace technology and commitment to continuous improvement
  • A keen ambition to progress your career
  • Must be able to work independently
  • Self-driven- able thinking outside the box
  • Must be able to convert leads into prospective clients

  Please apply by submitting your CV and Cover letter below. Please contact Helen if you have any questions.

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  Disproportionate Apportionment? A caution to defendants involved in claims under the Building Act 2004 (ACT)

  Earlier this month, the ACT Supreme Court released the judgment of Hyblewski v Bellerive Homes Pty Ltd [2019] ACTSC 44. This decision has serious implications for defendants involved in actions over defective building works under the Building Act 2004 (ACT) as it raises serious questions regarding the apportionment of liability in the context of building cases in the ACT.

  Facts

  The plaintiff purchased land in the ACT to build a residential property. She sued the first defendant, the builder of the house and the second defendant, the building certifier, for various defects in building works. During the course of the hearing, the plaintiff settled with the builder, so the case proceeded against the certifier only.

  The plaintiff claimed damages against the certifier for a number of defects in the construction of the building, including poor brickwork, the failure to provide an adequate foundation for the building works, the failure to install a moisture barrier between slabs and the failure to build nib walls in accordance with the approved plans.

  The certifier denied his responsibility for the defects, arguing that the standard of care required by the certifier is lessened by the fact that the builder has to provide statutory warranties. He also argued that issues relating to aesthetic appearance and quality of building work were not the certifier’s responsibility, and that it was not his role to second guess variations from the approved plans. Both of these arguments were rejected by the Court.

  Decision

  The certifier was found to be liable for the defects in the building works. The Court held that if the certifier had performed his statutory and contractual duties with reasonable care and skill, he would have identified the defects and notified the builder such that the builder would have remedied them. Whilst the certifier was not required to detect and rectify every defect in the works, the judge found that these particular defects were such that the certifier should have caused them to be remedied. As such, the certifier’s breaches were found to cause the whole of the loss suffered.

  With regards to apportioning liability, the Building Act 2004 (ACT) only permits apportionment of liability where each defendant was found to be liable. In this case, the certifier was the only defendant who was found to be liable, since the other previous defendant (the builder) had settled with the plaintiff before judgment. Therefore, apportionment of liability to the builder was not available, and the certifier had to bear all liability for the damage suffered.

  Key Messages

  1. Where a plaintiff sues two or more parties for defective building work, but there is only one party that is found to be liable (because for example, the other parties had settled with the plaintiff prior to judgment), no apportionment of liability will be available under the Building Act 2004 (ACT), and the relevant defendant will be liable for the totality of damages.
  2. Building certifiers will not be able to shirk liability by claiming that issues of aesthetic appearance and quality of work are not their responsibility.
  3. Certifiers will not be able to escape liability by deferring their responsibilities to a builder. For example, a certifier will not be able to argue that it was not their responsibility to check whether departures from approved plans were agreed upon before allowing a variation to go ahead.

  If you need advice or further clarification on the decision, please do not hesitate to contact the Litigation Team.

  Written by Kate Meller and Maxine Viertmann.

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  They’re here… changes to the Residential Tenancies Act

  On 21 February 2019, the Residential Tenancies Amendment Bill 2018 (No 2) (ACT) passed in nearly identical form as was originally presented in the Legislative Assembly on 1 November 2018. With a default commencement date of 5 March 2020 (and unless an earlier commencement date is fixed by notice) agents have plenty of time to educate themselves and seek guidance on the changes. Though these changes appear to be a conscious push to move the ACT to a more tenant friendly jurisdiction, it does also bring with it the risk of an increase in disputes and other applications before the ACAT. It is important that agents recognise this risk and integrate procedures to properly accommodate the changes to ensure both their business and the rights of the landlord remain adequately protected and (as far as is possible) uninterrupted.

  Modifications

  One of the major changes introduced by the Bill is the restriction on a landlord’s right to refuse a tenant’s application to renovate or modify the premises. The grounds for refusal depend on the type of modification requested:

  • for special modifications, a landlord may only refuse the tenant’s request if the landlord first obtains the ACAT’s prior approval. These types of modifications include:
  • minor modifications, which are those alterations that can be removed so that the premises are restored to substantially the same condition as at the commencement of the agreement; or
  • alterations undertaken:
    • for the safety of the tenant (e.g. furniture anchors, child safety gates or fittings);
    • on written recommendation of a health practitioner (e.g. safety ramps or safety rails);
    • to improve the energy efficiency of the premises;
    • for the security of the premises (e.g. deadlocks, security doors and alarms); or
    • to allow access to telecommunication services,
  • for any other alterations or modifications, a landlord must not unreasonably refuse the tenant’s application.

  For a request to undertake a special modification, the landlord’s consent will be taken to have been granted if the landlord fails to make an application to the ACAT (for an order to refuse the modification) within 14 days of the tenant making the request. It is imperative then that an agent, upon receiving a modification application from a tenant, passes the tenant’s request onto the landlord as soon as possible.

  The modification, whether special or otherwise, is not at the complete discretion of the tenant, however, as a landlord may impose reasonable conditions on the tenant’s modifications. Such conditions might include that the tenant:

  • provide the landlord with a copy of the plans and specifications before works are carried out;
  • undertake the modifications in accordance with all laws, regulations and the requirements of any relevant authority;
  • uses suitably qualified tradespersons;
  • takes out policies of insurance (noting the interest of the landlord) relevant for the type of works; or
  • obtains and provides copies of all approvals and certificates evidencing proper completion of the works.

  If the modifications improve the premises, landlords should also consider including a condition that the modifications are to remain in the premises on expiry of the agreement, though in such circumstances the tenant is likely to expect reasonable compensation or a contribution from the landlord.

  Pets

  Another change introduced by the Bill is the restriction on a landlord’s right to decline a tenant’s application for the keeping of pets on the premises where there is provision in the tenancy agreement allowing the landlord to do so. Like modifications, a landlord may impose conditions, but these conditions may only relate to the number of animals or the cleaning or maintenance of the premises. For any other conditions or for a landlord to validly refuse the tenant’s request, the landlord must apply to the ACAT for approval.

  Where an agent receives such a request from a tenant the agent should carefully consider the conditions to be imposed so as to provide the landlord with appropriate options. These might include that the carpet is professionally cleaned (perhaps even on a number of occasions) during the term of the tenant’s occupation or that the premises is fumigated on expiry of the tenant’s occupation.

  Break Lease Clause

  Another major change introduced by the Bill is the limitation on the fee payable by the tenant under a ‘break lease clause’.

  Though a break lease clause is optional, under the new changes, if the tenant terminates the tenancy under a break lease clause during the first half of the fixed term (subject to the fixed term being 3 years or less), the tenant will be liable for:

  • where less than half the fixed term has expired, 6 weeks rent; or
  • where half the fixed term has expired, 4 weeks rent,

  but where the landlord enters into a new tenancy agreement for the premises prior to the expiry of the above periods (6 weeks or 4 weeks) the liability of the tenant will be reduced by an amount equal to the rent paid by the new tenant during that period. Essentially, the liability of the tenant is capped to the actual loss (in terms of rent at least) suffered by the landlord.

  In relation to the tenant’s potential liability to the landlord, other than for rent, under the Bill this is now limited to:

  • where half or more of the fixed term has expired, an amount equivalent to 2/3 of 1 weeks’ rent; or
  • where less than half of the fixed term has expired, an amount equivalent to 1 weeks’ rent,

  but only where the tenant vacates the premises more than 4 weeks before the end of the fixed term.

  It should be noted, however, that these limitations only apply where the landlord enters into a new tenancy agreement within the defined period.

  By capping the landlord’s right to recover from the tenant the actual loss suffered, particularly in relation to having to advertise and re-let the premises, this change is likely to lead landlords to refuse to include a break lease clause in the agreement and to instead rely on the provisions of the Act and their rights under contract law.

  Though the changes introduced by the Bill do bring with them an inherent risk of encouraging the parties, whether in dispute or simply seeking clarification or approval, to seek an order from the ACAT and thereby overburden the services of the ACAT, the managing agent remains in a unique position to guide the parties to a mutual and commercial resolution within the framework of the Act and the prescribed tenancy terms. Agents then, should take the opportunity now to consider the repercussions of the changes and to start the education process with their landlord clients before the changes take effect.

  If you need advice or further clarification on the changes, please do not hesitate to contact the BAL Real Estate Team.

  Written by Benjamin Grady and Riley Berry.

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  Unconscionable Conduct and Undue Influence: Business Breakfast Club March Summary

  This month at Business Breakfast Club Riley Berry of BAL Lawyers discussed unconscionable conduct and undue influence with a focus on the Australian Consumer Law and what these factors mean for commercial contracts.

  Unconscionable Conduct and Undue Influence

  There are several instances where a Court will overturn a contract based on the conduct of one of the parties prior to making the contract. Two of the most prevalent are unconscionable conduct and undue influence. Unconscionable conduct requires the innocent party to be subject to a special disadvantage “which seriously affects the ability of the innocent party to make a judgement as to the [the innocent party’s] own self-interest”. The other party must also unconscientiously take advantage of that special disadvantage. There are two types of undue influence: Actual undue influence where it can be proven that one person exerted influence over another to have them enter into the contract, and presumed undue influence which is a deemed relationship of influence were one party is antecedent to the other party. The spheres of undue influence and unconscionable conduct overlap and the line between the two is often blurred.

  Remedies Available

  Only a Court can make a determination if there has been unconscionable conduct or undue influence. As a result if you feel that you have been a victim of this, there are few options except to litigate or to file a complaint with ACCC. Alternately if you are in a position of greater bargaining power and entering into an agreement it is important to ensure that none of your actions risk being viewed as unconscionable or the contract may be undermined by a Court. The best option is to be aware of what actions a Court might consider unconscionable, and avoid engaging in those actions, or avoid entering into contracts with a party engaging in conduct that may be considered unconscionable.

  To avoid being a victim of unconscionable conduct:

  • ensure all commercial agreements are in writing (and both parties have the contract)
  • make sure you fully understand all the terms of the transaction
  • do not sign any agreements without reading them carefully
  • ask for plain language explanations and obtain independent professional legal or financial advice if unsure
  • do not allow yourself to be talked into a deal that is wrong for you by high pressure sales tactics. Be wary of tight decision deadlines

  To avoid engaging in unconscionable conduct:

  • consider the characteristics and vulnerabilities of your customers. For example, use plain English when dealing with customers from a non-English speaking background
  • make sure your contracts are thorough, easy to understand, not too lengthy and do not include harsh, unfair or oppressive terms
  • ensure you have clearly disclosed important or unusual terms or conditions of an agreement
  • give customers the opportunity to seek advice about the contract before they sign it
  • do not reward your staff for unfair, pressure-based selling

  For more information, please contact Riley Berry. The next Business Breakfast Club will be held on 12 April 2019 on “Advertising and Promotion – Pitfalls and Risks”. If you would like to attend, please click here to go to the event listing.

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  Being a political player: Risks to navigate in electoral advertising requirements

  With 2019 being an election year there will be a significant increase in political donations being made to candidates, political parties and special interest groups. The recent changes to the Commonwealth Electoral Act 1918 (the CEA) have manifestly changed the definition of “electoral matter”, and since this phrase is the legislative “hook” for obligations and disclosures required by the CEA, it is important to be aware of how these changes affect your potential involvement in political advocacy.

  Political Campaigner Registration

  The CEA has amended the definition of “electoral matter” to matter which has a “dominant purpose of influencing the way voters vote”. The risks associated with the subjectivity of the dominant purpose test, and the fine distinction between a publication being “public education” and an “electoral matter”, should prompt entities to consider whether they need to register as a political campaigner under the CEA. If the electoral expenditure of an entity has:

  • exceeded $500,000 in any one of the previous three financial years; or
  • exceeds over $100,000 during the current financial year,

  the entity must register as a “political campaigner” within 90 days of exceeding the threshold or risk civil penalties of $42,000 and in some circumstances up to three times that amount.

  Foreign Interest Electoral Reform

  Parliament has tightened the rules regarding foreign donations and entities should be conscious of these rules particularly where their cash flow includes international revenue streams. Entities that:

  • were incorporated in Australia; or
  • have their head office in Australia; or
  • have their principal place of activity in Australia,
  • do not qualify as foreign donors.

  It is highly unlikely that an Australian entity will face any issues where their cash flow includes international revenue streams. Indeed subsidiaries of foreign companies directly fall within the scope of the exceptions to what is a “foreign donor” under the CEA. However an issue can arise where the foreign entity “gives” to its Australian entity a sum which is:

  • for the purposes of incurring electoral expenditure; or
  • for the dominant purpose of creating or communicating electoral matter; or
  • a political “gift”.

  Further, where a “scheme” was thought to exist for the purpose of avoiding CEA restrictions, then the receipt of the “gift” or “expenditure” will have infringed the prohibition against foreign donations. Therefore an Australian subsidiary that funded a political gift or electoral expenditure would be well advised to ensure that it did so from its own profits (where those profits were derived from Australian activities or activities that had Australia as its head/principal office).

  Other salient changes to be aware of:

  1. The reworking of existing advertising material will be treated as new. Material for each variation must be separately authorised and a “paper trail’ must be kept for each authorisation.
  2. There also is a dominant purpose test for reportable “expenditure”. This test, if managed, will make the distinction between “research” and the creation or publication of the advertisement clearer.

  The new regime is intended to be protective of the public putting the onus of a pro-disclosure regime on entities incurring expenses that may be related to electoral matters. Entities interested in making donations or publishing views should explore and consider their legal liabilities before doing so.

  If you have any questions or concerns about your obligations under the CEA, get in touch with our Business law team.

  Written by Mark Love with the assistance of James Connolly and Riley Berry.

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