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                                                                                                                                            association of consulting
                                                                                                                                              engineers australia




                                                  THE AUSTRALIAN CONSUMER
                                                  LAW
                                                                                                                                                 MAY 2009




                                                                                                                                               acea submission
                                                                                      Draft provisions on unfair contract terms




                                                                                                                                              ACEA SUBMISSION




                                                               Name: Nicola Grayson, National Policy Manager
                                                Enquiries |
                                                                                                                                                   L6/50 Clarence Street
                                                                                                                                                   Sydney NSW 2000
                                                                                                                                                   P . 02 9922 4711
                                                                                                                                                   F . 02 9957 2484
                                                            The Association of Consulting Engineers Australia (ACEA) is an industry body
                                                       representing the business interests of firms providing engineering, technology and          E . acea@acea.com.au
                                                                                                       management consultancy services.            W . www.acea.com.au
                                                                                                                                                     THE AUSTRALIAN CONSUMER LAW | MAY 09




       INTRODUCTION ........................................................................................................................................ 2
          ABOUT THE ACEA ................................................................................................................................................................2
          SUMMARY................................................................................................................................................................................2
       CLIENT DRIVEN TERMS AND CONDITIONS ...................................................................................... 5
          ACEA RECOMMENDATION................................................................................................................................................7
       APPLICATION TO GOVERNMENTS........................................................................................................ 8
          ACEA RECOMMENDATION............................................................................................................................................. 10
       EXAMPLE UNFAIR TERMS ..................................................................................................................... 11
          ACEA RECOMMENDATIONS .......................................................................................................................................... 25



       INTRODUCTION

       ABOUT THE ACEA

       The Association of Consulting Engineers Australia (ACEA) is an industry body representing the
       business interests of firms providing engineering, technology and management consultancy services.

       There are over 260 firms, from large multidisciplinary corporations to small niche practices, across a
       range of engineering fields represented by the ACEA with a total of some 46,000 employees.

       The ACEA presents a unified voice for the industry and supports the profession by upholding a
       professional code of ethics and enhancing the commercial environment in which firms operate
       through strong representation and influential lobbying activities. The ACEA also supports members in
       all aspects of their business including risk management, contractual issues, professional indemnity
       insurance, occupational health and safety, procurement practices, workplace/industrial relations,
       client relations, marketing, education, sustainability and business development.


       SUMMARY

       The ACEA has been campaigning for sometime against the use of unfair contract terms in Australia.
       The ACEA published a major paper to Commonwealth, State and Territory Governments in 2008
       entitled, “Public Sector Contracting”, which was updated and republished in March 2009.

       The paper demonstrated that there is wide spread use of standard contractual terms in the building
       and construction industry, which are imposed not by the supplier of consulting engineering services,
       but by the client (consumer). This is because it is the client that has most, if not all, of the
       bargaining power relating to the transaction.

       The ACEA has attempted to engage with numerous government agencies to raise these issues and
       whilst some discussions have been fruitful, there is still a proliferation of onerous contract terms in
       use across the building and construction industry.




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       The ACEA does not believe that the publication of Commonwealth Procurement Guidelines and
       probity alone has been sufficiently effective to alter the contracting behaviour of public sector
       procurers across either Commonwealth or state and territory governments.

       Prior to the 2007 Federal Election the ACEA raised this issue with Dr Emerson, now Minister for Small
       Business and the Services Economy. As a result the Prime Minister, in a speech to the Council of
       Small Business Organisations of Australia, National Small Business Summit, July 2007 made the
       following statement,

                   “Small businesses have been telling me that the terms and conditions of Commonwealth
                   Tender contracts are more onerous than a similar contract between two businesses with
                   similar bargaining power.

                   Public sector departments and agencies are large and have significant bargaining power.
                   They are often inflexible in their dealings with business.

                   This reduces the ability of small businesses to win a larger share of the $26 billion dollar
                   Australian government contract market.

                   The hurdles for small business are numerous.”

                   ............

       The Prime Minister sited the following examples of onerous contract clauses:

                   “Clauses that impose liquidated damages.

                   Clauses that don't allow businesses to limit their liability.

                   Clauses that allow government to sue for consequential loss.

                   And ‘best endeavours’ requirements that often force businesses to be liable for third party
                   actions.

                   These clauses and requirements raise the risk on businesses performing these contracts.

                   Many small businesses are unable to contract with governments because of the proliferation
                   of onerous contract terms that seek to shift unmanageable levels of risk to the private
                   sector.

                   Furthermore, professional indemnity and product liability insurance are often higher than an
                   industry standard and very expensive for small businesses to obtain.

                   As a result, public contracts are often more expensive for businesses to fulfill than if they
                   had a similar contract with a private sector client.”

       The statement made by the Prime Minister and the issues raised within it remain evident in public and
       private sector contracts today. Furthermore they are not only evident in contracts with small
       business but also large consulting engineering companies who are provided with little or no
       opportunity to negotiate these terms with their clients.

       The ACEA strongly endorses the aim of the exposure draft to eliminate unfair contract terms in all
       contracts where they are imposed by a party that has most of or all of the bargaining power relating
       to the transaction regardless of whether it is a business to business or business to consumer contract.




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       The ACEA makes the following recommendations to strengthen the provisions of the Exposure Draft:

       A further safeguard is added to Division 3, section 7 of the Exposure Draft to ensure that
       consulting engineering businesses are protected from sham negotiations.

       The Unfair Contract Provisions apply to all levels of governments in their standard form
       contracts with private sector suppliers of consulting and engineering services.

       The Exposure Draft list of examples of unfair contracts be adopted as drafted and the
       following examples be added including those cited by the Prime Minister:

            •    A term that requires a provider of professional consulting engineering services to
                 accept unlimited liability;

            •    A term that requires a provider of professional consulting engineering services to
                 contract out of the applicable Proportionate Liability Legislation;

            •    A term that requires a provider of professional consulting engineering services to
                 contract out of the applicable Professional Standards Legislation;

            •    A term that requires a provider of professional consulting engineering services to
                 provide a no-fault indemnity for loss or damage arising under as a result of the
                 provision of the services;

            •    A term that requires a provider of professional consulting engineering services to
                 warrant that the standard of care provided will be over and above that required of
                 a professional under common law;

            •    A term that requires a provider of professional consulting engineering services to
                 provide a fitness for purpose warranty;

            •    A term that requires a provider of professional consulting engineering services to
                 be liable for liquidated damages;

            •    A term that imposes on a provider of professional consulting engineering services
                 the right to ‘set off’ fee for any amount (whether liquidated or not) owing under
                 the contract or otherwise owing to a client; and

            •    A term that requires a provider of professional consulting engineering services to
                 vest its intellectual property rights.




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       CLIENT DRIVEN TERMS AND CONDITIONS
       The ACEA’s membership is made up of corporations (small, medium and large) that provide
       consulting and engineering services to a broad customer base in Australia, which includes:

                 Individual consumers in the community served cost effectively by sole practitioners and
                 specialist small firms (which make up the majority of the ACEA membership) and;

                 Major building and construction clients in the private sector and local, state and
                 Commonwealth government, served predominantly by multidisciplinary medium and large
                 firms within the ACEA membership.

       Whilst it is the norm in most service industries for the supplier to provide its terms and conditions to
       its client this is not the norm in the building and construction industry.

       In the building and construction industry, consumers (or client’s as they are more commonly called)
       seeking the services of a consulting engineering company will publish a request for tenders, inviting
       interested consulting engineering businesses to submit a tender for that work. In summary, the
       tender will set out the consulting engineers’ qualifications and experience in the relevant area of work
       and include a fee schedule.

       The request for tender documents, which are issued by the client (consumer) typically contain
       standard contract terms for the engagement of the consulting business.

       This practice has been used to drive consulting engineering businesses to accept onerous (unfair)
       contract terms. Many of the terms listed in the Exposure Draft as examples of unfair terms are
       contained in building and construction contracts used as standard by all levels of government
       (Commonwealth, state, territory and local) and by private sector contractors.

       The ACEA believes that in the building and construction industry the most onerous contract terms in
       use are those that extend a consulting engineering business’ liability above and beyond that which it
       might be liable for at common law. Such terms undermine the common law which has served the
       community and economy well to date. Extending the consultant’s liability beyond common law can
       also trigger an exclusion in their Professional Indemnity Insurance policy, which is the primary
       protection afforded to professional service provider in the event of any claims. The ACEA is
       concerned that many clients have not considered the counter intuitiveness of including such onerous
       provisions and the extent to which they are then exposed to any unmet liability.

       Few government agencies or private sector contractors are prepared to negotiate their standard
       contract terms in a meaningful way. Typically if the consulting engineering firm does not agree with
       the contract contained in the tender documentation they are barred from further consideration in the
       tender process. The ACEA membership regularly report to being told to, ‘take it or leave it’ if they
       attempt to negotiate. The ACEA believe that these constitute ‘sham negotiations’.

       Example of standard contract negotiations

       The ACEA has held discussions with numerous state and Commonwealth government agencies over a
       number of years regarding common contract clauses that operate unfairly against the consulting
       engineering business (the supplier of the service). In response the ACEA is advised to provide its
       membership with two options:




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       Option 1:
       To advise the consulting engineering business to put in a conforming tender (i.e. accepting the
       contract terms as they stand) but to include the cost of compliance with the contract into the bid.

       The ACEA questions how a professional services firm can put a cost on accepting inherently unfair
       contract terms, terms which include for example, no right to terminate and terms that penalise the
       consultant for breaching the contract, this includes indemnifying the client for losses that the client
       caused. Essentially this option makes the bid uncompetitive, so the tender will be rejected.

       Option 2:
       To advise the consulting engineering business to put in an alternative bid with proposed amendments
       to the contract.

       However, it is often the case with both government agencies and private sector contractors that the
       consulting engineering business is required within 24 hours of submission of the tender to withdraw
       the qualifications to the contract or the tender will be declared non-conforming and not considered
       further. Alternatively on being selected as the preferred tenderer, it will be made conditional on the
       withdrawal of the qualifications to the contract terms.

       Another common issue raised by the ACEA membership is that they are told that no other suppliers
       have raised that there is a problem with the terms and conditions. Given the feedback from the ACEA
       membership and other professional service providers, the ACEA believes that often this is simply not
       the case.

       Additionally another retort by government agencies when ACEA members attempt to negotiate more
       reasonable terms is that, “the government doesn’t sue”. This is cold comfort to any consulting
       engineering business trying to establish and manage its risks and obtain Professional Indemnity
       Insurance on the open market. Furthermore, if the government does not intend to sue, why is the
       consultant subjected to such onerous contractual terms? It also does not protect the consultant
       from:

                 A change in personnel, policy and/or practice;

                 Third party claims that eventuate (noting the firm’s exposure if it gives unlimited indemnities
                 and warranties to the government);

                 Being novated to a litigious contractor and;

                 Claims by the contractor, where the consulting engineering business is working to a
                 contractor that has been engaged by a government agency and the contractual terms have
                 been passed on through the contractual chain.

       What is clear is that the use of onerous contractual terms and conditions provide significant leverage
       when “negotiating” a monetary settlement to any problems that may arise. Some ACEA members
       have reported that in practice there are clients that actually use these terms in bad faith to support
       spurious contractual or indemnity claims as a mechanism to delay or to even refuse payment of
       legitimate professional fees.

       This behaviour is contrary to the principle of a contract, which is an agreement reached by
       negotiation by two equals. These contracts are not a product of equals as there is little or no
       opportunity for negotiation.

       In the building and construction industry the client/consumer holds the market power and it is the
       supplier of the professional service (i.e. the consulting engineering business) that is disadvantaged.




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       In the case of the Department of Defence, and many other agencies in the Commonwealth, state,
       territory and local governments, they ask external legal advisors to draft their contracts and to advise
       on any variations. This is borne out by figures released by the Commonwealth Attorney General
       Robert McClelland. The Attorney General announced on 7 February 2008 that, under the previous
       Howard Government, the spend by Commonwealth agencies on legal advice blew out by 20% up to
       $413million for 2006/07. The highest billers were Clayton Utz (used by Department of Defence) and
       Blake Dawson.

       Agencies and legal firms are not seeking input from industry into the development of consultancy
       terms and conditions and as a result they do not reflect the realistic, practical and commercial
       arrangement between the parties. The terms are then, by their nature, adversarial with more focus
       on ways to penalise the consultant when things go wrong, rather than a focus on how to achieve the
       project outcomes by minimising the risk and sharing any residual risks appropriately.

       This is adding significant costs to both the agencies involved, in obtaining the legal advice, and for
       the consultant who must continually seek its own legal advice in order to interpret the contract. This
       is a significant factor in a small consulting engineering business’ decision on whether or not to bid for
       the work. It, in fact, penalises small consulting engineering businesses substantially.

       Conversely there are clients that purport to allow a contract negotiation but frequently the consultant
       will be unsuccessful in getting the onerous contract terms changed. Correspondence will exist
       between the parties demonstrating a dialogue regarding certain terms in the contract and whilst the
       consultant may have some success, what will happen if the consultant is not successful in eliminating
       all the unfair contract terms through a negotiation? Will the consultant lose the protection under the
       legislation because they have been drawn into a negotiation, which allows the client to claim that the
       terms are non-standard?

       Clients may also call for tenders without issuing terms and conditions, selecting a short list of bidders
       for “discussions” then issuing standard terms to those on the short list, which then constitute
       “discussions prior to issuing terms indicate non-standard form contract”.

       In light of the above the ACEA is concerned that the use of the term, “effective” negotiations in draft
       Division 3, section 7 (d) may not be robust enough to capture sham negotiations. Even though
       section 7(1) contains the presumption that a contract is a standard form contract, the presumption is
       rebuttable and small consulting engineering businesses in particular, do not have the resources to
       take on clients who have manufactured this conduct to establish a rebuttal.

       Overall the ACEA endorses the Exposure Draft’s approach to afford protection to a party that has
       been disadvantaged by an unfair contract term, regardless of whether they are in the position of
       consumer or supplier. The ACEA agrees with the unfairness test and the definition of a standard form
       contract. However the ACEA believes that a further safeguard is required to ensure that consulting
       engineering businesses are protected from sham negotiations.


       ACEA RECOMMENDATION

       A further safeguard is added to Division 3, section 7 of the Exposure Draft to ensure that
       consulting engineering businesses are protected from sham negotiations.

       The following is proposed:

       Whether attempts to modify terms within a contract, through negotiations, have been rejected and
       the party rejecting cannot demonstrate to the Court that it has done so on the grounds set out in Part
       2 Division 1 Section 3 (b).




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       APPLICATION TO GOVERNMENTS
       The ACEA is concerned that some Commonwealth Government agencies may attempt to
       circumnavigate the Unfair Contract Term provisions either by claiming that the procurement activities
       of government are not part of “carrying out a business” which is the provision through which the
       Trade Practices Act 1974 (TPA) applies to the Commonwealth. The ACEA is also concerned that state
       and territory Governments will seek to circumnavigate the provisions because the Trade Practices Act
       1974 (TPA) does not extend to the activities of state and territory governments. This situation has
       arisen in the application of the ‘unconscionable conduct’ provisions of the TPA (s.51AC) and the ACEA
       would be concerned if the same ambiguity applies to the proposed Unfair Contract provisions.

       Public sector procurers use tender procedures to demand compliance with their terms and conditions,
       and on some occasions confidentiality agreements to prevent discussions of the terms outside the
       framework of the client–consultant relationship. A factor in the trend to use onerous terms in public
       sector contracts is the ambiguity as to whether the TPA applies to governments.

       According to how the courts have interpreted the meaning of Section 2 of the TPA, some government
       departments and agencies have deemed themselves (in some circumstances which significantly relate
       to the interests of the ACEA membership, particular small business members) not to have obligations
       under the Act, on the basis that they are not engaged, when procuring the services of the private
       sector in ‘carrying on a business’, or that they are exempt in ‘the public benefit’.

       In 2003, the Senate Committee Review of the Effectiveness of the Trade Practices Act in Protecting
       Small Business expressed the view that where Commonwealth Government purchasing involves
       ‘trade, commercial transactions or engagement’ and is ‘conducted with some degree of system and
       regularity’, it is very likely that procurement already comes within the meaning of conducting a
       ‘business’ under the Act.

       Importantly the Committee found that for clarity, the TPA may need amendment to make it clear and
       explicit that s.51AC applies to the Commonwealth Government. The Committee also agreed that
       Government agencies in all jurisdictions should conduct commercial activities without engaging in
       unconscionable conduct. Amending the TPA so that Part IVA, including s.51AC, applies to state and
       territory Governments (including local) would have this effect.

       In 2004, in its response to the Senate Committee Report, the Government agreed with the Committee
       regarding application of the TPA to Government departments and agencies, but concluded that
       clarification of the TPA was unnecessary because section 2A of the TPA states that the
       Commonwealth is bound by all provisions of the Act in circumstances where it is carrying on a
       business and this includes Part IVA. This response does not address the many procurement
       circumstances where public authorities evoke the exemption clauses (i.e. they are not carrying on a
       business, or the public interest is involved). It has also not addressed many public sector procurers’
       approach to contracting and risk management.

       The Productivity Commission’s Inquiry Report on the Review of National Competition Policy Reforms
       in February 2005 raised the lack of clarity in this area, and also recommended that the Australian
       Government should give consideration to amending the TPA to ensure that all Commonwealth, state
       and territory (including local) Government procurement activities are covered by the Act.

       In June 2005 the ACEA received written advice from the Australian Competition and Consumer
       Commission (ACCC) that, in their view, the jurisdiction of the Act does not extend to the conduct of
       public sector agencies engaged when procuring goods or services for their own consumption.




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       However in a later letter to the ACEA (December 2005) the ACCC advised that Commonwealth
       entities are bound by the TPA as a whole and it is state governments that are only bound by Part IV
       of the Act and that an amendment to the Act would be required in order to give effect to the whole
       Act.

       Government procurement practices were again cited as an area of concern for Australian business in
       the report of the Regulation Taskforce report ‘Rethinking Regulation’ published in January 2006. The
       report notes,

       “Some agencies seem to adopt ‘one size fits all’ approach to tendering, with requests for tender for
       smaller projects requiring similar documentation and obligations – including, in some cases, insurance
       requirements – as for very large complex projects. In some cases, the additional requirements
       agencies impose on business seem to be against the spirit of the [Commonwealth Procurement]
       guidelines”.

       The former Australian government provided a formal response to the ‘Rethinking Regulation’ report
       and on this issue it was indicated that they would write to Chief Executives of government agencies
       asking them to review their instructions relating to procurement, to identify and address any
       unnecessary requirements placed on potential tenderers. The ACEA is not certain whether this
       action was completed before the election in 2007.

       The ACEA has attempted to engage with numerous agencies to raise these issues and whilst some
       discussions have been fruitful, there is still a proliferation of onerous contract terms in use across the
       building and construction industry. The ACEA does not believe that the publication of Commonwealth
       guidelines on procurement and probity alone will be sufficiently effective to alter the contracting
       behaviour of public sector procurers across either Commonwealth or state and territory governments.


       Prior to the 2007 Federal Election the ACEA raised this issue with Dr Emerson, now Minister for Small
       Business, Independent Contractors and the Services Economy. As a result the Prime Minister, in a
       speech to the Council of Small Business Organisations of Australia, National Small Business Summit,
       July 2007, made the following statement,

                   “Small businesses have been telling me that the terms and conditions of Commonwealth
                   Tender contracts are more onerous than a similar contract between two businesses with
                   similar bargaining power.

                   Public sector departments and agencies are large and have significant bargaining power.
                   They are often inflexible in their dealings with business.

                   This reduces the ability of small businesses to win a larger share of the $26 billion dollar
                   Australian government contract market.

                   The hurdles for small business are numerous.”

                   ............

       The Prime Minister sited the following examples of onerous contract clauses:

                   “Clauses that impose liquidated damages.

                   Clauses that don't allow businesses to limit their liability.

                   Clauses that allow government to sue for consequential loss.




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                   And ‘best endeavours’ requirements that often force businesses to be liable for third party
                   actions.

                   These clauses and requirements raise the risk on businesses performing these contracts.

                   Many small businesses are unable to contract with governments because of the proliferation
                   of onerous contract terms that seek to shift unmanageable levels of risk to the private
                   sector.

                   Furthermore, professional indemnity and product liability insurance are often higher than an
                   industry standard and very expensive for small businesses to obtain.

                   As a result, public contracts are often more expensive for businesses to fulfill than if they
                   had a similar contract with a private sector client.”


       The statement made by the Prime Minister and the issues raised with it remain evident in public
       sector contracts today.

       Most recently the Leader of the Opposition, Mr Malcolm Turnbull, in his response to the Federal
       Budget (14th May 2009) stated,

               “Now the most consistent complaint we have heard from small businesses is excessive
               regulation and compliance. The Coalition would reduce this burden to the lowest in the OECD,
               and join state and local governments to deliver a one-stop online portal for all necessary filings.
               Many small businesses find the paperwork for Government tendering overly complex and
               inconsistent between departments and governments. Part of our reform will be to standardise
               and streamline procurement contracts and similar processes.”

       It is the ACEA’s position that, without certainty regarding the application of the TPA to all levels of
       government when procuring the services of the private sector, the use of unfair contract terms will
       continue to proliferate to the detriment not only of the consulting engineering industry, but also to
       public sector clients and the community.

       The ACEA strongly believes that the Unfair Contract provisions must apply to all levels of government
       and the private sector to ensure that businesses, in particular small business are protected, given the
       imbalance of market power that exists when the government/contractors are procuring services from
       the private sector.


       ACEA RECOMMENDATION

       The Unfair Contract Provisions apply to all levels of governments in their standard form
       contracts with private sector suppliers of consulting and engineering services.




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       EXAMPLE UNFAIR TERMS
       The ACEA agrees with the proposed examples of unfair contract terms and has provided examples of
       the terms, listed in the Exposure Draft, that are used by clients/consumers in consulting engineering
       services standard form contracts:

       A term that permits, or has the effect of permitting, one party (but not another party) to terminate
       the contract: Exposure Draft Part 2, Division 1, Section 4 (b).

       To the ACEA’s knowledge there are no examples of client contracts that allow a consulting engineer
       to terminate the contract. The right only rests with the client.

       Commonwealth termination clause (Department of Defence Design Services Contract)
       which bestows right of termination on the Commonwealth only:

       The amount to which the Consultant is entitled under this clause will be a limitation upon the
       Commonwealth’s liability to the Consultant arising out of, or in any way in connection with, the
       termination of the Contract (whether under clause or deemed to be under clause X through the
       operation of clause X) and the Consultant will not be entitled to make any Claim against the
       Commonwealth arising out of, or in any way in connection with, the termination of the
       Contract other than for the amount payable under this clause X.

       This clause will survive the termination of the Contract by the Commonwealth under clause X or by
       the Consultant following repudiation by the Commonwealth.




       A term that penalises, or has the effect of penalising, one party (but not another) for a breach or
       termination of the contract: Exposure Draft Part 2, Division 1, Section 4 (c).

       There are many examples of contracts where the terms make the consulting engineering business
       responsible for any adverse outcome on the whole project, regardless of whether they could
       practically influence the outcome or were at fault, including budget over-runs and delays.

       Indemnity clause from a Queensland State Government contract, making the consulting
       engineer liable for consequential loss and, liable for all loss and all third party claims
       arising out of performance of the contract even where there is no negligence, not limited
       to injury or damage caused by the consulting engineer’s actions and not limited to a
       person who is connected to the consultant (SE Queensland Water):

       The supplier indemnifies SEQWater for any loss or omission of the supplier whatsoever (including, but
       not limited to, consequential loss and damage, and fines, penalties or charges) arising directly or
       indirectly out of:

            (a) The performance or breach of the Standing Offer or a Contract;

            (b) Any negligence or other wrongful act or omission of the supplier or its personnel or of any
                other persons for whose acts or omissions the supplier is vicariously liable;

            (c) Claims by a third party arising out of the supplier’s performance of a contract;




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            (d) Personal injury or death of any person (including the supplier and its personnel);

            (e) Loss of, damage to, or loss of use of, any property;

            (f) The breach of any legal requirement by the supplier or its personnel; and

            (g) Any act, default or omission of any person,

            except to the extent that the loss is caused by SEQWater’s own negligence or breach, or that of
            its personnel.




       A term that permits, or has the effect of permitting, one party (but not another party) to vary the
       terms of the contract: Exposure Draft Part 2, Division 1, Section 4 (d).


       Local Government variation clause, bestowing variation right on the Council only
       (Wollongong City Council):

       The Council’s representative may direct the Contractor to carry out a Variation by a written document
       entitled Variation Order.




       A term that limits, or has the effect of limiting, one party’s right to sue another party: Exposure Draft
       Part 2, Division 1, Section 4 (k).

       Commonwealth Government time bar clause, prohibiting the consultant from bringing a
       claim (Department of Defence):

       If the Consultant fails to comply with clause 13.1, 13.2, 13.3, 13.4:

       (a) the Commonwealth will not be liable (insofar as it is possible to exclude such liability) upon any
           Claim by the Consultant; and

       (b) the Consultant will be absolutely barred from making any Claim against the Commonwealth,

       arising out of, or in any way in connection with, the relevant direction or fact, matter or thing (as the
       case may be) to which clause 13.1 or 13.2 applies.




       The ACEA also believes that the examples of Unfair Terms should also include the
       following terms, which are commonly found in contracts imposed on consulting
       engineering businesses.

       They are:

       •         Unlimited liability (as noted by the Prime Minister);

       Many government agencies and private sector clients do not allow liability limits to be negotiated and
       agreed with the consulting engineering business. Unlimited liability in consulting engineering
       contracts exposes businesses to levels of liability that are unsustainable for the industry and result in
       significant uncertainties for governments.




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       The absence of liability limitation clauses in contracts also undermines government’s commitment to
       value for money as they encourage competition in the industry based on suppliers that are prepared
       to ‘bet the farm’ rather than suppliers that can provide the best service.

       The assumption that liability can be unlimited is illusory. Levels of fees paid to consulting engineering
       businesses and their balance sheets are a small percentage of project capital value; these businesses
       (professional service providers) are not capable of supporting capital risk on a project. A consultant’s
       balance sheet supports the business as a whole; it provides services to a wide range of clients and
       projects. It is therefore not appropriate that consultants be exposed to unmanageable liability and
       project risk on any one project.

       In addition, unlimited liability is seen by some clients as giving them full protection from risk. This is
       not the case because any unmet liability from the consultant falls back to the client (as the owner of
       the project).

       The situation is compounded by the use of indemnity and warranty clauses that seek to impose
       liability onto the consulting engineering business, which falls outside their insurance cover and for
       which they have little management or control over the risk itself.

       In 2007 the ACEA reviewed a random sample of 27 publicly available standard Commonwealth, state
       and territory contracts. Only four of the contracts reviewed allow for some limitation of consultant
       liability, subject to negotiation with the client.



       •         Exclusion of Proportionate Liability Legislation;

       Commonwealth, state and territory Ministers recognised that the operation of insurance and the law
       of joint and several liability has given rise to professionals often being singled out as the sole target
       for legal action in proceedings for property damage and purely financial loss even when the
       professional is only one of the parties involved and may have only contributed in a minor way to the
       loss.

       Ministers and the community realised in 2001/02 that these factors had contributed to an exponential
       increase in professional indemnity premiums which were not sustainable. As a result,
       Commonwealth, state and territory Ministers unanimously agreed to implement Proportionate Liability
       Legislation and Professional Standards Legislation on a nationally consistent basis as a means to
       address the availability and affordability of public liability and related insurances (including
       professional indemnity insurance).

       There was strong agreement by all Ministers that proportionate liability for economic loss should be
       introduced as a matter of priority. Ministers also noted that proportionate liability and professional
       standards legislation are not mutually exclusive and this led to the introduction of national
       Professional Standards Legislation and the expansion of the Professional Standards Council to
       approve and administer schemes under the legislation. Amendments were also made to the Trade
       Practices Act 1974 to give effect to apportionment of liability.

       In short the Reforms allow professional consultants to:

            •    Limit their liability under contract in return for maintaining/raising their professional standards
                 (Professional Standards Legislation); and




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            •    Should a matter go to court, the consultant can only be held responsible for the proportion of
                 the loss or damage that the consultant was responsible for (Proportionate Liability), rather
                 than for the full amount as was previously allowed (Joint and Several Liability).

       These Reforms have been introduced into the legislation of each state and territory and the
       Commonwealth. However, in spite of the work of Ministers and the industry, procurement and
       contracting practices in the building and construction industry are frustrating the intentions and
       effectiveness of the reforms by requiring consulting engineering businesses to contract out of the
       protection afforded to them by their own government’s legislation.

       In respect of the Proportionate Liability Legislation, national consistency was not achieved when the
       legislation went through each state and territory parliament. The issue of whether or not the
       legislation applies to every professional services contract has not been resolved. This is because the
       relevant state legislation is either unclear or allows for the parties to contract out, which in effect
       undermines the intention of the legislation. Due to an imbalance of market power it is the ACEA’s
       experience that if a client is able to contract out they will do so on all occasions. The only exception
       to this is the Queensland legislation, which expressly prohibits the contracting out of the
       Proportionate Liability legislation.

       The ACEA supports the Queensland model because it reflects the agreement reached by the Minister’s
       and provides absolute certainty for the contracting parties. The ACEA is wholly opposed to allowing
       contracting parties to ‘contract out’ of the legislation as it undermines the entire purpose of the
       legislation and it creates great uncertainty between the parties.

       Here are some examples of contracting out provisions in use by government agencies, which the
       ACEA has seen:

                 “Notwithstanding anything else, to the extent permissible by law, the expert or the arbitrator
                (as the case may be) will have no power to apply or to have regard to the provisions of any
                proportional liability legislation which might, in the absence of this provision, have applied to
                any dispute referred to arbitration or expert determination pursuant to this clause.”
                Department of Defence

                 “If any party to the contract consists of more than one person then the liability of those
                persons in all respects under the contract is a joint liability of all those persons and a separate
                liability of each of those persons.” AusAid

                 “To the extent permitted by law, the Proportionate Liability Legislation is excluded and does
                not apply to any claim arising under this contract.” Australian Nuclear Science and
                Technology Organisation

                 “Part 4 of the Civil Liability Act 2002 (NSW) does not apply to this Agreement or any of the
                Services”. Roads and Traffic Authority (NSW)

       Requiring consultants to contract out of this statutory protection may also affect the extent to which
       their Professional Indemnity insurance will cover the additional liability that has been caused by
       another party, which the consultant would not otherwise be responsible for.

       •         Exclusion of Professional Standards Legislation;

       The Professional Standards Legislation presents a slightly different picture. Under legislation currently
       enacted in all jurisdictions, membership of Professional Standards Schemes is available to those
       members of professional associations that have successfully launched a scheme. Membership of a
       scheme allows the member to limit their liability in return for improved risk management standards.




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       Membership of Professional Standards schemes is not mandatory for firms or individuals. However
       Professional Standards Legislation in most jurisdictions expressly forbids individuals or firms who are
       scheme members from ‘opting out’ of the terms and conditions of the scheme once they join.

       The ACEA has considered developing a scheme, but at this time there are a number of barriers that
       need resolving. A primary example of such a barrier, is that there may be a growing trend for public
       sector clients to include terms in their contracts which require the consulting engineering firm to
       agree that it will not become a member of a Professional Standards Scheme. This on the grounds
       that the government agency is not prepared to accept the limitation of liability provisions. This was
       recently demonstrated by Engineers Australia’s application to the Professional Standards Council to
       launch their scheme in all jurisdictions. Objections were raised by a number of large public sector
       agencies, who objected to consultants limiting their liability. This would appear to go against stated
       government policy set out in the legislation enacted in each jurisdiction.

       The fundamental objective of such schemes is to raise professional standards. They also promote
       responsible management of risk through the limitation of liability element of the schemes.

       The most objectionable example found in a contract issued by the Tasmanian Government which
       states,

                   “Operation of a Scheme

                   No Scheme in force
                   If no Scheme applies to the Contractor, the Contractor waives all present and future rights,
                   as against the Crown, to claim any limitation of liability provided by any future Scheme, in
                   relation to future legal liability, claims or proceedings arising from, or attributable to, the
                   Contractor delivering the Department’s Requirements including a wrongful (including
                   negligent) act or omission.

                    Scheme in force
                   If a Scheme applies to the Contractor at any time during the Term, then:

                   (a) subject to clause 36.2(b), the level of the Contractor’s liability under this Agreement will
                   be limited by the Scheme; and

                   (b) if required by the Delegate, the Contractor will immediately obtain an approval, under
                   Section 27 of the Professional Standards Act 2005, for a level of liability under the Scheme
                   not lower than the level described in Schedule 1.

                   Drafting Note: The Professional Standards Act 2005

                   The Professional Standards Act 2005 provides for the limitation of liability of members of
                   occupational associations in certain circumstances. Under Section 27 of the Act, however,
                   the Crown may require a member to obtain an approval for a higher maximum amount of
                   liability than would otherwise apply. Drafters should therefore consider whether such an
                   approval should be required. If it is to be required, the relevant higher amount must be
                   added to Schedule 1 prior to this Agreement being entered into.”

       •         No fault based indemnity for loss and damage (as noted by the Prime Minister);

       It is ACEA’s position that broad indemnity clauses that transfer risks that are outside the control of
       the consultant and can arise regardless of whether the consultant caused the fault should be an
       example of an unfair term.




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       Indemnity clauses alter the common law and contractual framework within which a client to
       consultant relationship operates, by over-riding other provisions of the contract. This has the
       following onerous effects:

            1. The indemnity clause is relied upon by clients to circumvent court proceedings for established
               liability, for example the client may not have to prove negligence.

            2. The client may not have to show the consultant’s action actually caused the loss claimed.

            3. The client does not have to take steps to mitigate the loss.

            4. The loss does not have to be reasonably foreseeable, and hence can extend to consequential
               losses.

            5. The consultant cannot claim that there was any contributory negligence by the client without
               an express provision in the indemnity that allows it.

            6. The indemnity clause may have the effect of circumventing the Proportionate Liability
               Legislation.

            7. The indemnity clause is excluded from insurance cover.

       This is illustrated by State of New South Wales v Tempo Services Limited [2004] NSWCA4 (“Tempo
       Services”). In Tempo Services, the relevant indemnity clause provided as follows:

       “The Contractor shall be liable for and indemnifies and shall keep indemnified the Government against
       any liability, loss, expense, damages, claims, suits, actions, demands or proceedings, whether arising
       out of any statute or at common law, in respect of personal injury (including illness) to or death of
       any person arising out of or in connection with or caused by the performance of the services”

       On appeal, the New South Wales Court of Appeal concluded that the costs incurred by the State
       clearly arose out of or in connection with the work specified in the contract and, as such, questions of
       fault and who was responsible or to blame for the incident did not arise for consideration, it was
       merely a matter of contractual interpretation.

       The wording of the indemnity clause in Tempo Services is typical of the type of clause found in many
       consultant contracts, in that the consultant is indemnifying the client against loss, damage, personal
       injury etc, “arising out of or as a consequence of the carrying out of the Service”, thus matters of
       fault are not relevant.

       Extending the consultant’s liability beyond that owed at common law means that insurers will typically
       deny claims for the whole or part of the liabilities that are subject to the indemnity.

       Below is an extract of the relevant exclusion from a current CGU Insurance Policy:

       “Claims:
       (a) alleging a liability under a contractual warranty, guarantee or undertaking (unless liability would
       have existed regardless of the contractual warranty, guarantee or undertaking); or

       (b) about circumstances where a right of contribution or indemnity has been given up by an Insured;
       or




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       (c) about circumstances where someone has done work or provided services under an arrangement
       or agreement with the Insured which limits any potential right for the Insured to receive contribution
       or indemnity from that person;

       (d) arising from any Civil Liability which the Insured agrees to accept outside that which is normal in
       the course of the conduct of the Insured Professional Business Practice; or

       (e) arising from any business not conducted for or on behalf of the Insured firm or incorporated
       body.”

       ACEA has sought advice from specialist PI insurance brokers regarding the impact of indemnity
       clauses on standard PI policies; the advice received has been consistent.

       “An indemnity is an agreement to assume someone else’s liability in the event of a loss. It is a means
       of shifting risk from one party to another. When a design professional indemnifies a client, he or she
       is agreeing to assume some of the client’s potential or actual legal liabilities and thereby to act as an
       insurer, of sorts, for that client. Indemnities which are broadly drafted may amount to contractual
       assumptions of liability in excess of that which would apply at common law. As such, these types of
       clauses may give rise to claims with respect to which you have no cover under your policy. We
       strongly suggest that you seek the deletion of this indemnity from the agreement.”

       It is interesting to note that the Commonwealth Government has also received this advice in terms of
       its own insurance cover. Advice provided to the Department of Finance and Administration in
       November 2004 stated,

       “As from 1 July 2004, Comcover’s standard terms of cover altered. The policy no longer allows for the
       automatic coverage of indemnities that are included in a contract. It is important that agencies take
       note of the following clauses and how they will impact on managing indemnity exposure:

        General Exclusion 2.9.12

       “2.9.12. liability arising out of any indemnity unless the liability would have arisen in the absence of
       such indemnity.”

       This exclusion does not apply to indemnities contained in a contract where the contract was entered
       into prior to 1 July 2004. Commonwealth policy on the issuing and managing of indemnities is
       detailed in Financial Management Guidance No. 6 – Guidelines for Issuing and Managing Indemnities,
       Guarantees, Warranties and Letters of Comfort, September 2003. See also Part 3. General
       Information – section 3.6 Contracts with Outside Organisations.”

       This exclusion excludes liability arising from an indemnity unless the liability also arises at common
       law. Therefore, if an agency agrees to the issuing of an indemnity (that is, extends the agency’s
       liability beyond common law) and does not obtain Comcover’s agreement to cover the indemnity
       under the policy, there is no cover in the event of a claim.

       There is no need to refer indemnities to Comcover for consideration if the indemnity does not extend
       the agency’s liability beyond common law, as the policy will automatically provide cover (subject to
       the standard terms and conditions of the policy).”

       The ACEA does not endorse consulting engineering businesses providing indemnities for matters that
       are outside their control (i.e. not fault based) and are thereby uninsurable because the consultant is
       exposed to extensive liabilities, which it may not be able to bear.




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       It is a requirement of the ACEA’s Code of Ethics that members hold insurance or make their clients
       aware if insurance is not maintained. This requirement is so that clients are aware of their own
       potential exposure when they enter into an arrangement with a consultant.

       The ACEA believes that indemnities that extend consultants’ liabilities to matters beyond their control
       and insurability are against the interest of not only the consulting engineering industry, but also the
       clients that they serve.

       •         Warranties for matters outside the management and control of the business (as
                 noted by the Prime Minister);

       Warranties provide a contractual guarantee that the consulting engineer will behave or perform in a
       certain way during the term of the contract. Warranties typically extend the obligations of the
       consultant beyond their common law duties of care. Some professional indemnity policies exclude
       cover for liability assumed under an express warranty unless such liability would have attached
       notwithstanding the express warranty.

       Warranties are used as a method of transferring risks onto the consultant that are often not within
       their control or responsibility. A typical example is a warranty providing for the level of “standard of
       care” that the consulting engineering will apply. The ACEA believes that the ‘unfair term’ requires the
       consultant to perform to the ‘best/high/highest/worlds best practice’ standard of care.

       There is no definition of what corresponds to the ‘highest/expert’ etc. standard of care and this can
       lead to great uncertainty of outcome should a matter be taken to court on the basis that the
       consultant failed to perform to best practice or highest standards in the industry.

       Further, to the extent that these types of clauses may result in a liability being imposed upon the
       consultant which exceeds the level of liability and standard of care required by the common law,
       these clauses may result in liability which is excluded from cover under the consulting engineering
       business’ professional indemnity insurance policy.

       If the consultant fails to observe the warranty given it is a breach of a contractual obligation. The
       Proportionate Liability Legislation defines an ‘apportionable claim’ as one which arises from a failure
       to take reasonable care. If a breach of warranty is defined as a breach of a contractual duty rather
       than a failure to take reasonable care, it is unlikely that it will be covered by the Proportionate
       Liability Legislation. Use of warranty clauses is therefore a way for clients to circumvent the
       Proportionate Liability Legislation.

       Set out below are examples of where this term has been used:

       Agency                 Standard of Care
       AusAid (Fed)           Must perform services in a diligent manner and to the highest standard of skill and
                              care to be expected of a contractor that is a specialist in the provision of the type
                              of services required; so that the project aims are fulfilled.

       Australian             The consultant must perform the services at a high standard and in accordance
       Nuclear Science        with professional standards of conduct applying to the performance of such work
       and Technology         at the time and/or as required by the specifications.
       Organisation
       (Fed)




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       Dep’t of Defence       The Consultant must exercise the standard of skill, care and diligence in the
       (Fed)                  performance of the Services that would be expected of an expert professional
                              provider of the Services.

       Dep’t of Finance       The Contractor must provide the Services (including the provision of Contract
       & Deregulation         Material) specified in the Contract: (a) at a high professional standard and in
       (Fed)                  accordance with the Contract; (d) exercising high professional standards of skill,
                              care and diligence used in well managed operations performing services similar to
                              the Services.


       Dep’t of               The contractor agrees to perform the services at the standard recognised as best
       Veterans’ Affairs      practice in this profession.
       (Fed)

       City of Sydney         The Consultant will perform the work in accordance with the professional
       (NSW)                  standards of the relevant profession, exercising a high degree of skill, care and
                              diligence.

       Wollongong City        The contractor must exercise the standard of skill, care and diligence in the
       Council (NSW)          performance of the services that would be expected of an expert professional
                              provider of the services.

       Dep’t of Natural       The consultancy services must be carried out with all due care and skills and in
       Resources and          accordance with the highest applicable professional standards, principles and
       Water (inc.            practices.
       Mines & Energy)
       (QLD)


       Dep’t of Primary       The consultant must perform its obligations under this Agreement professionally,
       Industry &             carefully, skilfully and competently; in a timely and efficient manner; in
       Resources (SA)         accordance with the best practices current in the consultant's industry; in the
                              interests of the client without favour to any other person; and strictly in
                              accordance with the standards referred to in the services specification.


       Dep’t of               If no standards for the services are specified in the specification, then the
       Environment &          contractor must supply the services in accordance with the highest standards that
       Conservation           usually apply to the supply of the services and with proper skill, care and
       (WA)                   diligence.

       Main Roads              If no standards for the Services are specified in the Specification, then the
       Western                Contractor must supply the Services in accordance with the highest standards that
       Australia (WA)         usually apply to the supply of the Services and with proper skill, care and
                              diligence.


       A further example of an unfair warranty term that clients may impose is a ‘fitness for purpose’
       warranty.

       Fitness for purpose warranties require the consultant to guarantee that the services provided by the
       consultant will fulfil the purposes required by the client. This purpose is almost always not defined.




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       It is not possible to reasonably expect the consultant to second guess the client’s intended purpose
       for the design now and into the future.

       Engineering design is heavily codified and subject to agency guidelines, etc. It is vital that consultants
       are able to reasonably rely on these codes and guidelines. Furthermore, consultants rely on data
       provided by the agencies and other organisations (their clients). The consultant can only provide the
       service that has been set out in the scope of works specified by the client. It is an onerous contract
       term to expect the consultant to guarantee fitness for purpose without clear and concise definition of
       what the purpose will be now and into the future. The result otherwise will be that the services are
       not fit for purpose intended by the client for reasons that are not the fault of the consultant.

       Section 74 of the Trade Practices Act 1974 specifically excludes services of a professional nature
       provided by a qualified engineer from an implied warranty that the services provided are reasonably
       fit for purpose.

       Claims which arise out of ‘fitness for purpose’ clauses, particularly those which require the consultant
       to guarantee, warrant or ensure a certain outcome is achieved, can give rise to a ‘contractually
       assumed liability’ exclusion under the consultant’s professional indemnity insurance policy.

       Below are examples found of fitness for purpose warranties.

       Agency                 Fitness for Purpose
       Australian             The services will be carried out with due care and skill and that any material
       Nuclear Science        supplied in connection with the services will be reasonably fit for the purpose for
       and Technology         which it is supplied.
       Organisation
       (Fed)

       Dep’t of Defence       The Consultant must (i) ensure that the Design Documentation complies with the
       (Fed)                  requirements of the Contract; and (ii) use its best endeavours to ensure that the
                              Design Documentation will be fit for its intended purpose.

       Dep’t of               The Services will be fit for the purpose as set out in Schedule 2 and item 6 of the
       Resources,             Order.
       Energy &
       Tourism (Fed)
       Dep’t of Finance       The Contractor must provide the Services (including the provision of Contract
       & Deregulation         Material) specified in the Contract: (c) in a manner that ensures they are fit for
       (Fed)                  Finance's purposes.


       Dep’t of               The contractor agrees to ensure that the services are performed properly and
       Veterans’ Affairs      completely, including in a manner consistent with the purpose stated in Part A (a)
       (Fed)                  [Purpose].
       City of Sydney         The Consultant will ensure that the Deliverables (and any item represented in that
       (NSW)                  Deliverables) are fit for purpose as defined by the Brief.




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       Hunter Water           Final draft documents submitted for the Corporation's review shall represent a
       Corporation            level of completeness that the Consultant believes is final and fit for purpose. All
       (NSW)                  final documents prepared by the Consultant must have been prepared by
                              competent professional staff and have been checked for accuracy, compliance
                              with relevant codes, ordinances and regulations, and the requirements of the
                              Agreement. The final draft documents and final documents shall either be signed
                              by the Principal nominated in the Schedule or accompanied by a written statement
                              signed by the Principal nominated in the Schedule certifying that the documents
                              are in accordance with the above requirements.
       Railcorp (NSW)         The contractor must ensure that all contract material produced by it is suitable in
                              all respects for its intended purposes, as disclosed by Railcorp.


       Wollongong City        The contractor must use its best endeavours to ensure that the services will be fit
       Council (NSW)          for their intended purpose.


       Dep’t of Main          The subject matter to the consultant services or contract materials shall be free
       Roads (QLD)            from defects and errors and appropriate for the intended use with regard to the
                              assumptions that the consultant can be reasonably expected to make in
                              accordance with sound engineering principles.


       Dep’t of Public        The Managing Contractor will complete all Design Development Work in
       Works (QLD)            accordance with the requirements of the Contract so that the Developed Design
                              will be fit for its intended purpose in all respects.


       Dep’t Transport        The design shall be fit for its intended purposes. With regard to: durability;
       Energy &               aesthetics and visible features; safety considerations; whole of life performance;
       Infrastructure         user cost; functional and operational requirements (e.g. performance, reliability
       (SA)                   and maintainability); and environmental performance.



       City of Stirling       AS4122-2000 – The Consultant has examined the Brief and the Services are
       (WA)                   suitable, appropriate and adequate for the purpose stated in the Brief, having
                              regard to the assumptions that the Consultant shall be reasonable expected to
                              make in accordance with sound professional principles.


       Main Roads             AS4122-2000 – The Consultant has examined the Brief and the Services are
       Western                suitable, appropriate and adequate for the purpose stated in the Brief, having
       Australia (WA)         regard to the assumptions that the Consultant shall be reasonable expected to
                              make in accordance with sound professional principles.




       •         Liquidated damages;

       Liquidated damages clauses impose damages upon consultants for delays in providing services
       and/delays in project delivery. These clauses are punitive in nature and they do not account for the
       fact that the delay may have been beyond the consultant’s control and in fact may have been
       contributed to by the client.




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       To the extent that a liquidated damages clause may result in liability to pay damages which exceeds
       that which would have otherwise been the consultant’s liability (for instance by being imposed in the
       absence of proven fault by the consultant or in an amount that exceeds the client's actual loss) such
       damages can fall outside the cover provided by the consultant's professional indemnity policy.

       The ACEA believes therefore that a term in a contract that requires either party to become liable for
       any delays that are beyond its reasonable control are unfair.

       Examples of liquidated damages clauses include:

       Agency                 Liquidated Damages

       AusAid (Fed)           If the project management contractor does not complete a Milestone to which this
                              clause applies by the relevant date for milestone completion, it must pay
                              liquidated damages at the rate specified for the purposed of that milestone for
                              everyday after the date for milestone completion until it completes the milestone
                              or the contract is terminated, whichever is first. This amount is an agreed
                              genuine pre-estimate of AusAid’s damages if completion of the milestone occurs
                              after its date of completion.



       Hunter Water           If the Consultant fails to complete the work by the date shown in the Schedule or
       Corporation            such later date as may be agreed in accordance with clause 17 (“the revised
       (NSW)                  date”), the Consultant shall be indebted to the Corporation for liquidated damages
                              at the rate stated in the Schedule for every <week/day> after the date shown in
                              the Schedule or the revised date, whichever is the latter, to and including the date
                              when the work is actually completed or the date that this Agreement is terminated
                              under clause 19, whichever occurs first. The maximum liability of the Consultant
                              for delay in completion of the work shall not exceed the amount stated in the
                              Schedule.



       Railcorp (NSW)         If the contractor does not complete a milestone task by any milestone date to
                              which liquidated damages apply (as identified by item 1 of the contract details),
                              the contractor must pay Railcorp liquidated damages at the applicable rate stated
                              in item 1 of the contract details for every week or pro-rata for part of a week after
                              the time for completion of the services to an including the date the contractor
                              completes the milestone task. The parties agree that the liquidated damages
                              specified in the contract are a genuine pre-estimate of damages likely to be
                              suffered by Railcorp as a consequence of the contractor's delay.


       Roads and              If the Contractor fails to achieve Completion by the Date for Completion, the
       Traffic Authority      Contractor shall be indebted to RTA for liquidated damages at the rate stated in
       (NSW)                  Item 10 of the Schedule for every week or part thereof after the time for
                              completion of the Services to and including the date the Contractor completes the
                              Services in accordance with this Agreement. The Contractor and RTA agree that
                              the liquidated damages specified in Item 10 of the Schedule are a genuine pre-
                              estimate of damages to be suffered by RTA.




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       Dep’t of Public        Principal for liquidated damages at the rate stated in the Annexure for every
       Works (QLD)            calendar day after the Date for Practical Completion up to and including the Date
                              of Practical Completion or the date that the Contract is terminated, whichever first
                              occurs, less the liquidated damages paid by the Managing Contractor or deducted
                              by the Principal’s Representative pursuant to sub-clause 49.5. The Principal's
                              Representative shall deduct liquidated damages in assessing any amount due to
                              the Managing Contractor under clause 57. If after the Managing Contractor has
                              paid or the Principal has deducted liquidated damages, the Date for Practical
                              Completion is extended, the Principal shall forthwith repay to the Managing
                              Contractor any liquidated damages paid or deducted in respect of the period up to
                              and including the extended Date for Practical Completion.


       Dep’t Transport        Limit of liquidated damages: unlimited.
       Energy &
       Infrastructure
       (SA)

       Dep't of Primary       If the Contractor fails to – (a) complete the provision of Project Services by the
       Industries (VIC)       Completion Date; or (b) fails to meet any specified delivery date nominated in
                              Schedule 2; liquidated damages at the rate specified in Schedule 1 shall be paid
                              by the Contractor to the Department. The Parties agree that the liquidated
                              damages specified constitute a fair and reasonable pre-estimate of the loss that
                              will be suffered by the Department.



       VicRoads (VIC)         If the Provider fails to complete the Assignment, or a separable part of the
                              Assignment, as the case may be, within the time specified for completion or any
                              extension of time granted thereto under this clause, the Provider shall be liable to
                              the Corporation, by way of pre estimated and liquidated damages and not as a
                              penalty, for the amount or amounts stated in the Annexure hereto for every week,
                              or part thereof on a pro rata basis, that shall elapse after that time or the
                              extended time until the whole of the Assignment or a separable part of the
                              Assignment, as the case may be, has been completed or until this Agreement is
                              cancelled by the Corporation under the provisions of Clause 1.19, whichever is the
                              sooner and that amount or amounts shall be a debt due from the Provider to the
                              Corporation. In addition to any other remedies, this debt may also be deducted or
                              recovered by the Corporation from any moneys owing to the Provider.

                              Where the Corporation has been able to use part of the Provider's work in
                              performing the Assignment or the separable part thereof, as the case may be, the
                              amount of pre estimated and liquidated damages for which the Provider is liable to
                              the Corporation by virtue of this sub clause may be reduced by an amount
                              determined by the Superintendent and notified by the Superintendent to the
                              Provider.




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       •         Set off of unpaid fees

       There are also contracts in use by clients of consulting engineering firms that give the client the right
       to ‘set off’ against the consultant’s fee for any amount (whether liquidated or not). For example,
       unpaid fees from future work and or “claims”. The ACEA believes that this is objectionable because
       the contract should only relate to the matter at hand and not be used as a vehicle to pursue matters
       under a wholly separate contract.

       •         Loss of ownership of Intellectual Property;

       Copyright is a free, automatic right of an author or creator of original work under Australian law and
       this protection usually lasts for 50 years after the death of the creator.

       The key asset of a consulting engineering business is the intellectual property that it creates, this is
       their major ‘product’ or ‘offering’.

       In relation to engineering design and documentation, where no specific provision in relation to
       copyright is stated in a contract, the copyright is retained by the consulting engineering business.

       An implied license, or permission, is granted to a private sector client for the use of the design to
       build the building, and the implied license allows the client to pass the license to a third party who
       purchases the project, whether complete or otherwise. Unless an agreement is made to the contrary,
       the implied license will operate whether or not the consulting engineering business has been paid.

       Under the Copyright Act (S 106) the Commonwealth and state and territory governments are an
       exception. Copyright is owned by the Crown, unless specifically stated to the contrary in the
       agreement document.

       In cases where the outright transfer of copyright and intellectual property rights to the Crown or to
       private sector clients raises issues of competitive disadvantage, and it has been the ACEA’s advice to
       its members that they should seek to negotiate for the retention of these rights in their contracts, if
       possible. Otherwise, consultants may decline to bid for or accept a project if the transfer of copyright
       or intellectual property rights poses unacceptable commercial disadvantage or business risks.

       Copyright transfer clauses can:

            1. Automatically transfer intellectual property regardless of whether the client pays the
               consultant fees or breaches the contract;

            2. Irrevocably transfer the copyright to a lender or financier through a separate agreement
               which bears no relationship to the agreement between the consultant and the client;

            3. Go beyond the design itself to include everything involved in its creation;

            4. Allow the drawings and related documents to be used for purposes for which they were not
               originally intended;

            5. Enable the client to on-sell the copyright on terms undisclosed to the consultant;

            6. Capture details uniquely developed by the consultant and incorporated in the project,
               preventing their use on future projects;

            7. Deny consultants legal access to their own designs, drawings, sketches and ideas and any fair
               dealing for establishing and maintaining a reputation.




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       Example of a state government contract assuming ownership of copyright (Queensland Public
       Works):

                 “Title to and ownership of intellectual property rights (including copyright) in all contract
                 material shall upon its creation vest in the principal without need for further assurance. The
                 consultant shall do all things necessary to perfect the vesting of the intellectual property
                 rights attaching to the contact material in the principal.”

       There are also instances where a client might require the consultant to give them permission to use
       the intellectual property of the consultant on other projects. This is objectionable because the
       consultant may be liable for aspects of the resulting project and yet they have had no involvement in
       it.




       ACEA RECOMMENDATIONS

       The Exposure Draft list of examples of unfair contracts be adopted as drafted and the
       following examples be added including those cited by the Prime Minister:

            •    A term that requires a provider of professional consulting engineering services to
                 accept unlimited liability;

            •    A term that requires a provider of professional consulting engineering services to
                 contract out of the applicable Proportionate Liability Legislation;

            •    A term that requires a provider of professional consulting engineering services to
                 contract out of the applicable Professional Standards Legislation;

            •    A term that requires a provider of professional consulting engineering services to
                 provides a no-fault indemnity for loss or damage arising under as a result of the
                 provision of the services;

            •    A term that requires a provider of professional consulting engineering services to
                 warrant that the standard of care provided will be over and above that required of
                 a professional under common law;

            •    A term that requires a provider of professional consulting engineering services to
                 provide a fitness for purpose warranty;

            •    A term that requires a provider of professional consulting engineering services to
                 be liable for liquidated damages or liable for delays beyond its reasonable control;

            •    A term that imposes on a provider of professional consulting engineering services
                 the right to ‘set off’ fee for any amount (whether liquidated or not) owing under
                 the contract or otherwise owing to a client; and

            •    A term that requires a provider of professional consulting engineering services to
                 vest its intellectual property rights.

                                                                 -Ends-




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