Construction projects often require adjustments due to unforeseen circumstances or evolving needs. These variations, while common, can spark disputes over cost recovery, particularly when delays arise. The Federal Court decision in Lucas Earthmovers Pty Limited v Anglogold Ashanti Australia Limited [2019] FCA 1049 sheds light on the distinction between recoverable time-related costs for variations and excluded delay costs tied to project completion.
Key Takeaway
A contractual clause excluding recovery of delay or disruption costs does not universally preclude a contractor from recovering time-related costs incurred while performing variations. However, such clauses will bar claims for costs resulting from delays to overall project completion, even if variations contribute to those delays.
Case Summary: Lucas Earthmovers v Anglogold Ashanti
Lucas Earthmovers entered into a contract in 2011 to build a 200 km access road to a gold mine. The contractor was to use materials sourced along the road alignment. When those materials proved unsuitable, Lucas had to transport suitable materials from borrow pits, leading to additional costs and delays.
The parties agreed that the extra work constituted a variation, entitling Lucas to payment for reasonable costs. While Anglogold paid $1.6 million for direct costs, it refused to pay an additional $3 million for time-related costs, citing a delay costs exclusion clause.
The clause stated that the contractor could not claim liabilities resulting from delay or disruption, even if caused by the company’s actions. Lucas argued that the clause did not apply to time-related costs for performing variations.
The court found:
- The exclusion clause only barred costs arising from delays to the project’s overall completion.
- Time-related costs of executing the variations were recoverable.
- However, Lucas’s claim largely represented costs associated with broader project delays, which the clause excluded.
Broader Legal Context
This case highlights the importance of precisely interpreting and drafting contractual provisions related to variations and delays. Other cases provide further insight:
- In Chadmax Plastics v Hansen & Yuncken, a minor variation that effectively cancelled a subcontract was deemed repudiation, as the variation clause did not permit wholesale removal of contracted works.
- In Carr v JA Berriman, the court held that an architect’s power to omit works could not be used to reassign them to another contractor unless explicitly stated.
- Similarly, in Commissioner for Main Roads v Reed & Stuart, engaging a third party to perform omitted works breached the contract, as the omission went beyond the permissible scope of variation.
Lessons for Stakeholders
The Lucas Earthmovers decision underscores the need for contractors and principals to carefully navigate variation and delay provisions. Contractors must clearly distinguish time-related costs for variations from broader delay costs. Principals must ensure their variation powers are exercised within contractual limits to avoid breaching or repudiating agreements.
For both parties, clearly drafted contracts can prevent costly disputes. Delay exclusion clauses should specify whether they apply only to project-wide delays or extend to variations. Ambiguity in such clauses often leads to protracted litigation.
Ultimately, collaboration and clear communication, backed by well-drafted contracts, are critical to minimising disputes in complex construction projects. By learning from cases like Lucas Earthmovers, industry participants can better manage risks and foster smoother project execution. We strongly advise seeking legal advice before entering into contracts to seek to avoid disputes and the substantial legal costs involved in protected constructions disputes.
About the Authors: This article has been authored by Steven Brown. Steven is a Perth lawyer and director and has over 20 years’ experience in legal practice and practices in commercial law, dispute resolution and estate planning.
