Prin­ci­pal Con­trac­tors: The Rules of Engagement

The role of prin­ci­pal con­trac­tor is crit­i­cal in man­ag­ing the work health and safe­ty risks on con­struc­tion projects.

Even so, mis­un­der­stand­ings still arise as to the appli­ca­tion of the rules relat­ing to the engage­ment of prin­ci­pal con­trac­tors under the Work Health & Safe­ty Reg­u­la­tions 2017 (NSW) (WHS Reg­u­la­tions). (These rules are in iden­ti­cal or mate­ri­al­ly sim­i­lar terms in the states and ter­ri­to­ries that have adopt­ed the har­monised WHS régime.)

The fun­da­men­tals

Every con­struc­tion project must have a prin­ci­pal contractor.

A ​“con­struc­tion project” is defined by the WHS Reg­u­la­tions as a project that involves ​“con­struc­tion work” where the cost of the con­struc­tion work exceeds $250,000.

The prin­ci­pal con­trac­tor on a con­struc­tion project must man­age and con­trol the WHS risks asso­ci­at­ed with that work, as well as per­form spe­cif­ic duties addi­tion­al to those ordi­nar­i­ly imposed upon a per­son con­duct­ing busi­ness or under­tak­ing (PCBU) under the WHS Reg­u­la­tions and Work Health & Safe­ty Act 2011 (NSW) (WHS Act), includ­ing duties in rela­tion to sig­nage and WHS man­age­ment plans.

Who is the prin­ci­pal contractor?

The PCBU that ​“com­mis­sions” a con­struc­tion project is, at least ini­tial­ly, the prin­ci­pal con­trac­tor for the project. It is the default prin­ci­pal contractor.

The word ​“com­mis­sions” is not defined in either the WHS Act or the WHS Reg­u­la­tions. Fur­ther, the term ​“com­mis­sions” in this con­text has not been judi­cial­ly considered. 

Apply­ing the Oxford Dic­tio­nary def­i­n­i­tion of the verb ​“com­mis­sion”, the ques­tion to deter­mine the default prin­ci­pal con­trac­tor can be for­mu­lat­ed as ​“Which PCBU is order­ing or autho­ris­ing the con­struc­tion project?” 
A few exam­ples help illus­trate the issue.

Exam­ple One – The Lease: The land­lord of a build­ing under­takes struc­tur­al repairs to the build­ing dur­ing the course of a lease; as the com­mis­sion­ing PCBU, it becomes the default prin­ci­pal con­trac­tor. If the ten­ant under­takes major fit-out works dur­ing the lease then it, as the com­mis­sion­ing PCBU, becomes the default prin­ci­pal contractor.

Exam­ple Two – The Devel­op­ment: A landown­er engages a devel­op­er to com­mer­cial­ly devel­op its land. To achieve this the devel­op­er, pur­suant to a design and con­struct con­tract, engages a con­trac­tor to design and con­struct a com­mer­cial build­ing to its spec­i­fi­ca­tions on that land. The devel­op­er, as the com­mis­sion­ing PCBU, becomes the default prin­ci­pal contractor. 

Iden­ti­fy­ing the com­mis­sion­ing PCBU will not, how­ev­er, always be beyond doubt hav­ing regard to the dif­fer­ent mod­els and struc­tures used for con­struc­tion projects and the many types of such projects. It is a mat­ter war­rant­i­ng seri­ous con­sid­er­a­tion in every case, par­tic­u­lar­ly giv­en the restric­tion (dis­cussed below) on engag­ing a dif­fer­ent PCBU to be the prin­ci­pal contractor.

The right to engage anoth­er prin­ci­pal contractor

Under the WHS Reg­u­la­tions the default prin­ci­pal con­trac­tor has the right to engage anoth­er PCBU as prin­ci­pal con­trac­tor for the con­struc­tion project. To effec­tive­ly do this the default prin­ci­pal con­trac­tor must also give the PCBU it so engages autho­ri­sa­tion to have man­age­ment or con­trol of the work­place and to dis­charge the duties of prin­ci­pal con­trac­tor under the WHS Regulation.

Only the default PCBU, how­ev­er, has the right to engage anoth­er PCBU as prin­ci­pal con­trac­tor. If the default prin­ci­pal con­trac­tor engages a PCBU to be prin­ci­pal con­trac­tor, that PCBU can­not in turn appoint a third par­ty to be the prin­ci­pal con­trac­tor. This restric­tion, which does­n’t always neat­ly align with com­mer­cial real­i­ty, is some­times over­looked or disregarded.

Apply­ing this prin­ci­ple to Exam­ple Two above the con­trac­tor could not appoint anoth­er par­ty to become the prin­ci­pal con­trac­tor. That right sits with the devel­op­er and is non-trans­fer­able. The devel­op­er would to make any such engagement.
There are oth­er prin­ci­pal con­trac­tor rules of engage­ment under the WHS Reg­u­la­tions that are some­times breached as well. 

One prin­ci­pal con­trac­tor at a time

A con­struc­tion project can only have one prin­ci­pal con­trac­tor at any giv­en time.

The con­cep­tu­al ratio­nale for this is clear. The prin­ci­pal con­trac­tor has man­age­ment or con­trol of the work­place and it would there­fore be incon­sis­tent with that pow­er if it was con­ferred upon more than one PCBU at any giv­en point in time.

There are, how­ev­er, a num­ber of con­sid­er­a­tions that arise from this rule.

First, there is noth­ing pre­vent­ing more than one prin­ci­pal con­trac­tor being engaged for a project pro­vid­ed there is not more than one engaged at any giv­en time dur­ing the life of the project. One prin­ci­pal con­trac­tor can ​“pass the baton” to anoth­er (although, as dis­cussed above, the engage­ment of any prin­ci­pal con­trac­tor must be made by the default prin­ci­pal contractor). 

If more than one prin­ci­pal con­trac­tor is engaged, it is very impor­tant that there be a clear­ly iden­ti­fied time at which the prin­ci­pal con­trac­tor changes, with an effec­tive tran­si­tion pro­to­col in place to give effect to the change.

Sec­ond, there might be scope for a def­i­n­i­tion of ​“project” to be legit­i­mate­ly adopt­ed for the pur­pose of WHS Reg­u­la­tions that is nar­row­er than the col­lo­qui­al or even com­mer­cial use of the term (although there is val­ue in con­sis­ten­cy, which should always be an objec­tive). There could, for instance, be a num­ber of projects with­in a broad­er pro­gram of works enabling the appoint­ment of mul­ti­ple prin­ci­pal con­trac­tors for the pro­gram but one for each ​“project” con­sis­tent with the rule in the WHS Regulations.

That said, such an approach should be adopt­ed with care and only after tak­ing spe­cif­ic advice on the par­tic­u­lar cir­cum­stances of the broad­er devel­op­ment being under­tak­en. The def­i­n­i­tion of ​“project” adopt­ed needs to have a gen­uine basis with a clear delin­eation between projects (and phys­i­cal bar­ri­ers between the projects reflect­ing this delineation).

Where there are projects being under­tak­en side-by-side (or in close prox­im­i­ty) with dif­fer­ent prin­ci­pal con­trac­tors as part of a pro­gram of works it is imper­a­tive that all of them com­ply with the oblig­a­tion under the WHS Act for each PCBU to, as far as rea­son­ably prac­ti­ca­ble, con­sult, co-oper­ate and co-ordi­nate activ­i­ties with the oth­ers . For exam­ple, con­sid­er­a­tion needs to be giv­en to the man­age­ment of com­mon access and egress points to each project workplace.

Are you play­ing by the rules?

The prop­er engage­ment of a prin­ci­pal con­trac­tor is fun­da­men­tal to man­ag­ing WHS risk in con­struc­tion projects.

In an under­stand­able desire to achieve com­mer­cial out­comes, some devel­op­ment agree­ments (and oth­er prop­er­ty relat­ed agree­ments) dis­re­gard one of more of the rules because they are incon­ve­nient or incon­sis­tent with the par­tic­u­lar mod­el or struc­ture being adopt­ed. That is a prob­lem­at­ic sce­nario which can leave par­ties, par­tic­u­lar­ly the PCBU that com­mis­sions a con­struc­tion project and is there­fore the default prin­ci­pal con­trac­tor, dan­ger­ous­ly exposed.

As such, when prepar­ing or review­ing such agree­ments care­ful con­sid­er­a­tion should be giv­en to ensur­ing that their terms are con­sis­tent with the prin­ci­pal con­trac­tor pro­vi­sions of the WHS Reg­u­la­tions. Com­pre­hen­sive­ly address­ing these con­sid­er­a­tions at the begin­ning can help avoid­ing enor­mous pain down the track. An inabil­i­ty to quick­ly and unequiv­o­cal­ly iden­ti­fy the prin­ci­pal con­trac­tor in the event of an inci­dent can be a ​“red flag” to the reg­u­la­tor that safe­ty risks have not been prop­er­ly managed.