Melbourne Law School - Theses

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Type: Masters Research thesis × Subject: Australia × Author: Cole, John C. ×

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    Drafting enforceable limitations of liability in construction contracts for major projects
    Cole, John C. ( 2002)
    Engineering and construction contractors working on large industrial plants (each a "Contractor" or, collectively, "Contractors") employ various strategies to define, limit and manage risks associated with their business activities. The cornerstone of any successful risk management philosophy must be excellence in the performance of the Contractor's work on each construction project (each a "Project"). When a Contractor meets or exceeds its customers' expectations, there will usually be minimal risk associated with the work. Given the inherent risk in any Project, Contractors also rely heavily on legal risk management strategies. Many Contractors manage risk through corporate architecture, using different operating companies to conduct their various business activities with the aim of limiting their liability to the assets of the corresponding operating company in the event of a catastrophic loss. This device requires great care in implementation, which is beyond the scope of this paper. The primary legal strategy for the managem.ent of risk utilised by Contractors, and the substance of this paper, is the formation of contracts with customers and major subcontractors and suppliers, including the interplay between such contractual provisions and corresponding insurance protection. This paper focuses on a Contractor's most significant exposures to financial liability in the context of contract formation and considers how a Contractor can minimise such exposures through carefully drafted provisions on limitations of liability, insurance and indemnities. In discussing the reasoning behind such provisions, the paper examines how many of the standard form construction contracts fail to meet the commercial objectives of a Contractor seeking to actively manage its risk. The paper also considers the enforceability of such provisions in the light of recent case law. It does not address other important issues such as regulatory risks and payment risks. This paper is written from the perspective of a Contractor managing risks through contract formation and insurance. (From Introduction)