Is AS4122-2010 a good contract for consulting services?

I’ve seen a plethora of consultant contracts during the 12 years I’ve been in the construction and engineering industry. The rare diamonds have been short and practical. Others have been nearly as long as War and Peace and chock full of nasty indemnity clauses.??

One standard form contract remains a constant: the?AS4122-2010 General Conditions of Contract for Consultants?(aka “AS4122”). I’ve read these conditions so many times I’m pretty sure I could recite them. And wouldn’t that be a fun party trick?

Wait a sec – what’s a “standard form contract”?

Conveniently, I prepared?this handy rundown?earlier and posted it on the SoundLegal blog. Long story short, a “standard form” contract is a standardised set of pre-written terms and conditions. AS4122, like other Australian Standard contracts, was developed by?Standards Australia?with input from stakeholders, including?Consult Australia?and various industry membership and advocacy associations.

Advantages in using AS4122

The different stakeholder contributions means that AS4122 makes for a relatively balanced contract. It has all of the nuts and bolts necessary for a consulting services project. However, as AS4122 is just the general conditions, you will need some kind of additional document to create the legal contract, like an instrument of agreement or a letter of award.

What do consultants like about AS4122?

AS4122 is capable of dealing with most of the key risks that consultants worry about, including:

• Limiting the consultant’s liability
• Defining the?fitness for purpose obligation
• Setting a standard of care consistent with the common law
• Linking the indemnity to fault
• Allowing for either party to retain IP produced in the course of the services

These characteristics mean that the consultant’s risk is more likely to be covered by commercial professional indemnity insurance products.

Why do principals like AS4122?

From the client’s point of view, AS4122 works well because:

• It allows for the scope to be captured by reference to multiple documents (meaning the Client can bring in the RFP, the PPR, the brief, the specification and any other relevant project documents)
• If the consultant represents that the services will meet a standard of care higher than the common law, they can be held to it
• The client can terminate for its own convenience

ATTENTION CONSULTANTS: please don’t break a lawyer’s heart?

I often see consultants and engineers referring to AS4122 as their terms of engagement in their fee proposal. This is a big step up from saying nothing and hoping the contract fairies will swoop in and fix it all up. Plus, opening negotiations on the terms of engagement puts the engineer in a much stronger position.

BUT. It?kills?me when those same consultants fail to say anything about what should go in Part A of the Annexure (i.e., where all the project details are). This is a?big?missed opportunity to manage some key commercial and legal risks, such as:

• Specifically defining the scope of the services, to reduce scope creep
• Setting payment terms to support cashflow (e.g., frequency of claims fortnightly or monthly rather than on milestones; 14 day terms instead of 30 or 42 days)
• Limiting liability
• Introducing an interest rate to incentivise prompt payments

I’m a principal and I want to procure consulting services under AS4122 – what amendments should I make?

Principals and head contractors often ask us to add these things to AS4122:

• Insert provisions for the consultant to act as lead consultant or deliver contract administration services
• Create processes for a superintendent to administer the consulting contract
• Beef up the design review clauses
• Align variation and time clauses with the head contract
• Add a set off right to the payment clause
• Introduce a form of deed of novation, for the consultant to be novated to the contractor after construction kicks off
• Include a form of deed of release for final payment
• Add certification provisions and forms

I’m a consultant and I want to sell consulting services under AS4122 – what amendments should I make?

Here are some amendments we recommend consultants make:

• Populate Part A of the Annexure, particularly the limitation of liability, payment terms and retention of IP
• Require variations and fee adjustments to be agreed and confirmed in writing, before the varied services are commenced
• Exclude consequential losses
• Limit liability at Item 24 of Part A to “The lesser of reperformance of the Services or 100% of the Consultant’s Fee”
• Provide for recovering costs of collecting late payments

HOW CAN SOUNDLEGAL HELP YOU IF YOU WANT TO USE AS4122?

If you’re a consultant, we can:

• Help you use the right words to confirm that your fee proposal is subject to AS4122 being the terms of engagement
• Work with you to populate the key parts of the Annexure, for use in your fee proposal template
• Develop some special conditions to amend the general conditions, to help you protect your margin and manage your risk

If you’re a principal, we can:

• Draft an instrument of agreement template, that you can use whenever you procure design or consulting services
• Help you understand how to define the scope of the consultant’s services and the purpose for which the services will be used
• Provide project-specific and/or general amendments, to give you greater control over the time, cost and quality of the consultant’s services and deliverables

Thinking of procuring or selling some consulting services soon? Get in touch and we can talk about how SoundLegal can help.

From Gemma and the SoundLegal Team

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