Case Study: A Contract Review That Changed the Commercial Position Before Signing

Details have been generalised and client information withheld at their request.

The situation

A mid-sized builder with a strong track record in residential work had won their first significant commercial project — a $2.1M office fitout and building services upgrade for a commercial landlord in Melbourne's western suburbs.

The contract was a modified AS4000, and the builder's principal had read it once but was uncomfortable with several clauses they couldn't fully interpret. The client was pushing to sign within two days to meet their fitout commencement obligation.

The builder asked us to review the contract before execution.

What the review found

A same-day review of the contract identified four areas of concern significant enough to require negotiation before signing.

Issue 1: Liquidated damages rate. The LDs clause specified a daily rate equivalent to 0.5% of the contract sum — $10,500 per day. For a nine-month programme, the theoretical maximum LD exposure was several times the project margin. The rate had not been assessed against the principal's actual daily loss — it appeared to be a template figure that hadn't been reviewed. We flagged it as potentially unenforceable as a penalty, but recommended negotiation down to a rate that reflected actual loss regardless.

Issue 2: Latent conditions exclusion. The contract excluded latent conditions liability from the contractor's scope. Standard. What wasn't standard was the definition of "latent condition" in this contract — it was narrower than the AS4000 standard definition, excluding several categories of subsurface condition that would normally be covered. Given that the project involved services upgrades in an older building with limited as-built information, this exclusion created real exposure.

Issue 3: Insurance requirements. The contract required the builder to hold professional indemnity insurance at a level that the builder's current policy didn't meet. This wasn't a commercial negotiation issue — the builder would have been in breach of the contract from day one.

Issue 4: Practical completion definition. The practical completion clause included a provision requiring the contractor to provide an operation and maintenance manual for all services before practical completion could be certified. The builder hadn't priced for this, and the provision of the O&M manual was dependent on documentation from subcontractors who hadn't been engaged yet.

The negotiation

We prepared a brief issues summary — four items, clear descriptions, and recommended positions for each. The builder's principal used this as the basis for a two-hour negotiation call with the principal's solicitor.

All four items were resolved within 24 hours:

The LD rate was reduced to a daily rate reflecting the principal's actual agreed rental loss
The latent conditions definition was revised to align with AS4000 standard language
The insurance requirement was reduced to a level the builder's existing policy covered
The O&M manual requirement was retained but moved to a post-practical-completion obligation, with a retention amount held against its delivery

The contract was executed on time.

What the builder took away

The builder's principal noted afterward that they had reviewed the contract themselves before bringing it to us and had identified the LD rate as a concern. They hadn't identified the other three issues.

Two of the four issues — the insurance breach and the practical completion definition — would have created problems not at the negotiation stage, but during the project. Those are the ones that are easiest to miss on a first read and most expensive to resolve mid-project.

Independent contract review is available as a fixed-fee service, typically completed within 24 hours. Contact us before you sign.