Good faith in construction contracts: A bridge too far?

Standards Australia is proposing to change its standard contract to introduce an express obligation of good faith on the parties. But imposing such an obligation in 'hard dollar' construction contracts carries risks for parties and will potentially lead to more disputes.

A PROPOSAL FOR GOOD FAITH TO BE FRONT AND CENTRE

Standards Australia has released a draft of its proposed new standard general conditions of contract, DR AS 11000:2015.

AS 11000 is intended to replace AS 2124:1992 and AS 4000:1997. Both these standards are widely used in construction and any change to the terms in AS 11000 is likely to be influential.

One significant proposed change is the introduction of an express obligation of good faith on the parties. The contract provides that the parties agree 'to act reasonably in a spirit of mutual trust and cooperation, and generally in good faith towards the other'.

Another significant proposed change is that the parties, as part of their obligations to act in good faith, are required to give 'early warning' to the other when they become aware of an event or circumstance which may impact upon time, cost, scope or quality under the contract and may become an issue under the contract.

Adopting an early warning procedure as part of the standard contract is a sensible step, and the New Engineering Contracts and GC21 form of contracts already provide for some form of early warning.

But including an express obligation of good faith in construction contracts without regard to the risk allocation and commercial imperatives driving different delivery structures could be problematic.

'Good faith' is a concept often used in contracts to impose a certain standard of behaviour on the parties in performing their obligations. It is prevalent in long term contracts, contracts...