New Commonwealth laws to impact whole-of-government construction contracts

4 May 2018

Amendments will remove rights to terminate a contract when a supplier becomes insolvent or goes into administration.

From 1 July 2018, amendments to the Corporations Act 2001 (Cth) will remove the right of a terminating party to terminate a contract when a counterparty:

  • becomes insolvent
  • has a managing controller appointed
  • goes into administration.

The suite of standard whole-of-government construction contracts will be updated by 30 June 2018 to reflect these changes.

Several contractual measures against a distressed company will be abolished including the right to:

  • terminate the contract
  • modify the contract
  • call in bank guarantees
  • step into the contract
  • suspend the works.

The rationale for these new laws is to enable companies in financial distress to have a chance of trading out of their situation rather than going into actual insolvency (liquidation).

Currently most construction contracts provide a right of termination on insolvency.

Agencies should consult their legal teams to update documentation to reflect the amendments.

For further information please contact ConstructionSuppliers@finance.nsw.gov.au 

Issuing entity:
Public Works Advisory Construction