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  • Writer's pictureJohn Lowry

Period Contracts and The One Contract Rule

Contractors and subcontractors entering into a period maintenance or standing order contract, should be aware of the risk of the contract being assessed as a series of small bites, instead of an entire contract.

Period, or Term, Contracts are commonly used for standing orders and maintenance work, where the contract defines the general terms and cost or rates for the work, and where the scope is defined in purchase orders or directions as the work is required.

Airconditioning service and maintenance contracts commonly use period contracts, with fixed maintenance items, plus repairs on purchase orders. Subcontractors on residential construction are often engaged on a standing order contract with rates and general conditions fixed, and each new build confirmed with a purchase order.

Courts around Australia have been conflicted over the question of whether a payment claim under a period, or term, contract that includes separate purchase orders or directions, can amalgamate purchase orders into a single payment claim. Whether each purchase order is a separate contract will be influenced by the contract and by the particular circumstances of the job.

The QMBA term subcontract makes it clear that each purchase order is a separate contract, under an overarching agreement describing general terms.

Following an early case (3), Lowry Consulting produced a term maintenance contract for airconditioning contractors, clarifying that all work ordered under the contract is part of a single contract where work under the contract, at different times, on different properties, or billed to different entities for the client’s convenience, may be included in a single payment claim. This approach saves a lot of administration and avoids mistakes in the event of a disputed invoice.

The Queensland Court of Appeal, in 2019 (2), upheld the position that an agreement to retain a crane onsite, for unrelated work, was part of the main contract and not a separate agreement, allowing the subcontractor to include the cost as a variation to the main contract.

In the recent decision(1) of the New South Wales Court of Appeal provided some relief when it questioned the validity of the “one contract rule” under the SOP Act (NSW). The Court rejected the notion that separate purchase orders under a contract necessarily create separate contracts for the purpose of recovering payments.

Importantly, the Court decided that a provision of the contract that stated a separate agreement would come into existence each time a work order was issued was inconsistent with the balance of the contract.

While the work orders may have been an integral part of some aspects of the contractual relationship, they, like other directions, did not give rise to a separate contract. The simple fact that the contract stated that each work order would, in turn, result in a separate contract is not sufficient to decide the real legal effect of separate work orders under a contract.

The Court of Appeal strongly intimated that there is no “one contract rule” and that the following three matters make it “inherently implausible” that there is any strict and precise notion of it:

  1. The object of the SOP Act is to ensure that persons carrying out work obtain regular payments on account and are subject to a final reckoning. However, the expansive definition of a construction contract under the SOP Act, i.e. to include both a contract and some other arrangement, directs attention to the carrying out of the work, for reward, rather than the legal characteristics of the source of the obligation to carry out the work and a party’s associated liability to make a payment.

  2. The stated requirements for a valid payment claim under the SOP Act do not include the identification of the source of the obligation to carry out the work or the source of payment. Notably, the Court of Appeal has been reluctant to read the SOP Act as containing implied limitations, such as permitting the conditions of the service of a payment claim to be qualified by a contract.

  3. The phrase “one contract rule” conveys a degree of precision as to its meaning, which fails to capture the expansive scope of practical commercial arrangements under which goods and services may be supplied.

This decision may bring some relief to parties of period contracts, who will no longer need to incur extra cost and time recovering monies owed by being required to create separate contract management systems and procedures for each purchase order.

Understanding the problem, and getting your contract right, will avoid cost and time in setting up and administering contracts, sending and collecting invoices, and the risk of losing a “global” adjudication application.

For more information on this topic, please contact me -

(1) [BSA Advanced Property Solutions (Fire) Pty Ltd v Ventia Australia Pty Ltd [2022] NSWCA 82],

(2) Ausipile Pty Ltd v Bothar Boring and Tunnelling (Australia) Pty Ltd[2021] QCA 223

(3) Matrix Projects (Qld) Pty Ltd v Luscombe [2013] QSC 4

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