08/11/2016 - 05:36

Call for change to liability law

08/11/2016 - 05:36

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An industry representative body wants the state government to make it easier for small businesses to tender for contracts.

Call for change to liability law
EFFECT: Steve Coghlan says use of the contract clauses is increasing the cost of projects. Photo: Attila Csaszar

An industry representative body wants the state government to make it easier for small businesses to tender for contracts.

Elements of contracts that shift legal liability away from the government are deterring some small businesses from tendering for work, according to the local head of an industry representative body.

Under contract law, project proponents can contract-out of what is called ‘proportionate liability’, according to Consult Australia general manager WA Steve Coghlan, moving a high level of risk on to subcontractors.

“Proportionate liability in legal speak is essentially the determination of liability by a court of law, which is according to a business’s extent of responsibility for a loss under a contract,” Mr Coghlan told Business News.

“Existing laws allow for government and other entities to contract-out of proportionate liability. This often forces risk on to those least able to manage it.

“Basically (that process) actually has a big flow-on effect for businesses, in particular smaller firms.”

Mr Coghlan said this had two main outcomes: firms would have to insure for a higher level of risk, leading to higher insurance premiums; and a reduction in bids and competition for projects due to the absence of smaller firms from the tender process.

“Some 69 per cent of small firm respondents to a recent survey we conducted amongst our membership group said where the use of this (provision) is included in government contracts, they won’t even tender on works,” he said.

“The (result) is a significant decrease in competition, which ultimately increases prices.”

Nor did the provision add any value in terms of risk mitigation, Mr Coghlan said.

Data compiled for Consult Australia suggested that, nationally, usage of the provision imposed a cost of $644 million for a four-year period.

Jackson McDonald partner JC van der Walt said there were not yet clear examples such clauses increased project costs.

“The benefits and burdens of the proportionate liability regime depend on whose shoes you are wearing,” Mr van der Walt told Business News.

“If you are the party likely to be sued, you would want the proportionate regime to apply; if you are the party likely to sue, you would not want the proportionate liability regime to apply.

“With insurance premiums being as low as they are in the current ‘soft insurance market’, it is difficult to say what role proportionate liability plays in that as there are many other contributing factors.”

He said industries like oil and gas preferred not to operate under a proportionate liability regime, and to force a different approach on the industry might deter future investment in the state.

Mr van der Walt said new laws to protect small businesses from disadvantageous contract terms could make clauses contracting-out of proportionate liability unenforceable, although that had yet to be tested legally.

Mr Coghlan said Consult Australia, which represents project managers, architects and quantity surveyors, among others, wants the major parties to commit to change the legislation going into the state election.

“Fundamentally, some small either legislative or procedural changes can have a real big bottom-line impact for both businesses and government,” he said.

But a change is not likely ahead of the March state election, according to a spokeswoman for the attorney general.

“This is a complex matter which is under consideration, however it is unlikely that a decision will be made before the next state election as wider consultation on the matter may be required,” the spokeswoman said.

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