05 May 2005
Key Points:
An adjudicator's erroneous assessment of delay costs as variation claims and the consequential award of those costs in the determination does not render the determination void. Delay costs are claimable under the NSW Security of Payment Act 1999 in certain circumstances.
Contractors may have valid claims for delay costs, but are they recoverable in a payment claim made under the Building and Construction Industry Security of Payment Act (NSW)? This issue arose in the recent case of Co-ordinated Construction Co Pty Limited v Climatech (Canberra) Pty Limited [2005] NSWSC 312 before Justice Bergin.
The first question for Justice Bergin was whether an adjudication determination which allowed claims for costs relating to delays for which extensions of time (EOT) had been granted failed to comply with the basic and essential requirements of the Act and therefore was void. The second question was whether claims for delay costs are properly the subject of payment claims under the Act. In an unveiled request for judicial guidance, the parties raised this second question "because claims for EOT and delay damages or delay costs make up a large proportion of claims in the construction industry and there needs to be some certainty as to whether such claims are appropriately the subject of payment claims and determinations under the Act."
The contract and the claims for delay costs
By written contract incorporating subcontract conditions AS 4903 - 2000, as amended, Co-ordinated engaged Climatech to provide air conditioning and mechanical services for the refurbishment of a Sydney hotel. There were delays on the project and the Superintendent of the subcontract extended the time for practical completion. Climatech then submitted claims for its costs associated with the delays as "variation claims". The claims, which were made under the contract and then the Act, related to "site supervision costs" for two employees and "office overheads".
The adjudication determination ...
Co-ordinated did not pay Climatech's payment claim comprising the delay costs, so Climatech made an adjudication application. The adjudicator determined that:
... and why Co-ordinated went to court
Co-ordinated then commenced proceedings in the Supreme Court for a permanent injunction restraining Climatech from obtaining an adjudication certificate. The crux of
Co-ordinated's argument was that:
Co-ordinated argued that, by allowing the amounts for delay costs, the adjudicator's determination was void.
Delay costs not "variation claims" but determination not void
Justice Bergin accepted that the delay costs could not be properly considered variation claims under the contract. An instruction to complete works by new dates for practical completion does not, of itself, amount to "an increase, decrease or omission of any part of the work". It is merely "the same work but to be completed by a later date." Here, the adjudicator fell into error by not analysing how the delay costs which had been claimed "were properly categorised as variations, other than to say that they arose out of extensions of time."
Following the Court of Appeal's decision in Brodyn Pty Limited v Davenport [2004] NSWCA 394, the Court can declare a determination void, or enjoin a party from acting on it, only when the adjudicator has:
According to Justice Bergin, the adjudicator's erroneous assessment of the claims for delay costs as variations claims did not amount to a failure to comply with the "basic and essential requirements" of the Act. The determination was not void because the adjudicator "was making a bona fide attempt to comply with his obligations under the Act and all other ancillary matters to give him the jurisdication to do so had been complied with".
Surplus labour a "related service" to construction work
Justice Bergin refused to consider whether the Brodyn categories rendering a determination void should be extended to include circumstances where an adjudicator has erroneously determined the contractual basis for the progress claims that had been allowed. This was because the adjudicator had another peg to hang the claims for delay costs on. Under section 6(1)(b), "the provision of labour to carry out construction work" is a "related service" to construction work. That being the case, a payment claim under section 13 of the Act can, uncontroversially, include a claim for this amount. The delay costs incurred by Climatech is this matter primarily related to increased costs in the provision of labour to carry out the construction work. Thus, according to Justice Bergin:
"If the labour force is provided on days when there is no "construction work" for it to carry out on the site caused by any qualifying reasons under the relevant contract, then it seems to me that the Act contemplates that, because labour was "provided" on site "to carry out construction work", the contractor is still entitled to be paid for the cost of that provision as a "related service". If the Superintendent awards an EOT, delay damages or costs may be claimed as an amount for that related service. However this must be subject to the terms of the particular contract between the parties."
On Justice Bergin's analysis of AS 4903 - 2000 there was a basis under the Act for the adjudicator to allow the delay costs per se as a "related service", irrespective of whether those costs were variations.
So where does this leave claims for delay costs?
Co-ordinated Construction Co Pty Limited v Climatech (Canberra) Pty Limited is only authority for the proposition that a determination is not void simply because an adjudicator wrongly assessed delay costs as variation claims. Nevertheless it is an illuminating guide for claimants and respondents considering whether delay costs can be properly made.
The principal matters to consider are whether the contract entitles the delay costs which have been claimed to be made and whether a proper basis can be established under the Act for the adjudicator to allow the delay costs.
For further information, please contact Frank Bannon.
