A supply chain logistics system is a significant investment for any business.  It forms an important part of a company’s long-term supply-chain strategy.  To deliver on the business case, you need to know you’re getting what you are expecting.

Assume you’ve already carefully chosen the supplier and solution carefully.  Now it’s time so start developing a deeper relationship with that supplier. You’ll be depending on them heavily for the long term.  And one of the first exercises to work through together will be negotiating the contract.  This is the document defining the framework for the parties’ relationship.  More specifically it sets out the parties’ responsibilities for the design, supply and installation of the system, and for paying for it.

In this post, I provide an introduction to the AS 4910 – the Australian Standard contract often used for the supply of logistics systems. 

Introducing the AS 4910 contract

It is common in Australia to purchase warehouse or supply chain systems using a contract based on an industry standard, published by Standards Australia.  To give its full name, it’s Australian Standard^TM 4910-2002 General conditions of contract for the supply of equipment with installation (incorporating Amendment No.1).  Most people know it as the AS 4910.  If the project doesn’t include installation, there is a related standard, AS 4911.  This is a simpler contract and only covers the supply of equipment.

The AS 4910 standard contract forms part of a range of other Australian Standards, known as the AS 4000 suite.  These are predominantly used in the construction industry, and cover, for example, design, construction and project management type services.  As AS4910 involves physical installation of a system at the customer’s site, the contract relies on concepts from the construction sector.  If these concepts are unfamiliar, these can take some time to understand and get to grips with. 

Downloading and using the AS 4910 contract PDF

You can find AS 4910 in the Standards Australia catalogue.  Before using this Standard in a real project, the user needs to purchase a licence from an authorised distributor, such as SAI Global.  The contract can then be downloaded as an editable PDF document.  A reference copy, for “internal purposes” only, is available for a lower price.

Although AS 4910 is promoted as being “standard”, it is common for the document to be heavily amended.  Some of the amendments come from the fact that the standard terms are now quite old.  There have been changes in the law and previous disputes have made it sensible to alter or supplement the “standard” position.  Other amendments come from the fact that the AS 4910 is generally regarded as favourable to the supplier, and changes are needed to restore the balance in favour of the customer.  Some amendments to the standard position have almost become “standard” in themselves.

Structure of an AS 4910 contract

Contracts based on AS4910 are usually structured as follows:

Formal Instrument of Agreement

Technically this isn’t part of the AS4910 document itself.  It is a short contractual document that goes at the front.  It outlines who the parties are, and that the parties have agreed to use the AS4910 general conditions (as amended).  It also provides the space for the parties to sign.  It may also contain one or two other important clauses, such as which documents take precedence if there is a conflict.  Less commonly, this part of the agreement may take the form of a simple letter signed by the parties.  The letter sets out the key terms and agrees to use the AS4910 conditions.

General conditions

These are the standard terms of contract as provided by Australian Standards.  It comprises 44 clauses.  These range in length from a few lines of text up to clauses that run for a few pages.

Annexure A – Contract details

This is where the parties get to fill in the blanks with details of their specific project.  This includes details such as the site address, the delivery date, any agreed security and so on.  It will be one of the key documents used to work out what the parties intended, so must be carefully completed.  For larger projects to be completed in different phases, the parties can complete a separate annexure for each phase.  This is called a Separable Portion.  It allows the parties to specify different details relevant for each phase.  For example, there might be a different delivery date or different liquidated damages for late completion of that phase of the works.

Annexure B – Approved form of unconditional undertaking

This provides a template undertaking in favour of the Purchaser to be provided by a financial institution.  This undertaking provides the Purchaser with additional security if the Supplier fails to perform.  This annexure is commonly amended to match the actual terms on which a financial institution will provide the security.

Annexure C – Deletions, amendments and additions

This is where the parties have an opportunity to specify any changes they want to make to the General Conditions.  These changes are usually referred to as Special Conditions. 

There are two approaches here:

• One approach is to make the changes in the body of the General Conditions themselves, so there is one set of terms and conditions that has become bespoke to the project.  Under this approach, Annexure C is usually used as a catalogue. It simply lists which of the General Conditions have been amended.
• The alternative approach is to document all the deletions and amendments in Annexure C. For example, it may say “Delete clause 2.3 and replace with […]” or “Insert a new clause 2A as follows: […]“).  This approach has the benefit that all the contract negotiations can focus on getting this one Annexure document right.  However, it can become difficult to manage.  Annexure C often ends up being a longer document than the General Conditions themselves.  Users of the contract also regularly need to read the General and Special Conditions together to work out what has been agreed.

Adding more Annexures to the AS 4910 Contract

The parties can add their own Annexures to the contract.  Common examples include payment schedules, system specifications, acceptance test procedures or performance criteria.  The parties might also agree in advance on the form of other key documents.  Examples include a software licence, maintenance contract or a parent company guarantee.

If adding new Annexures, the parties should specifically incorporate these into the contract by including reference in the Special Conditions.  This means you shouldn’t simply attach a document on the back of the contract.  You need to explain in the contract why it’s there and how it’s intended to be used.  This will save disputes later about the significance of that document.

Be careful before using an Annexure

It is common for documents created during the tender or sale process to be recycled and for the parties to want to use them in the final contract.  This is fine if they reflect what is agreed, but care needs to be taken.  Watch out for:

• Stray references to one of the party’s other terms and conditions.
• “Contractual” language, or obligations that don’t match those found in the main contract.
• Key commercial terms or obligations or design or performance criteria that have been buried away.

It is best that these be extracted and if intended to be part of the contract, included in the appropriate part of the contract.

Final word

Although not perfect, using the AS 4910 contract does have the advantage that many in the Australian supply chain industry are familiar with the terms.  Some suppliers and customers have even developed their own inhouse changes to the standard conditions.  This makes their future projects and negotiations more streamlined. It can take some time to learn how an AS 4910 contract works – but if you’re working on this type of project, that will be worth the investment.

Please note: The articles published on this blog are for general information purposes only. They are not legal advice! You should always obtain your own legal advice about your specific circumstances.