Major projects & construction 5 Minute Fix 37

By the Major Projects & Construction Team
25 Jul 2019
It's been a busy time for construction law reforms!  The latest 5 Minute fix looks at the Building Ministers' pursuit of national building standards, Victoria's new commitment to fund private building cladding rectification, and the NSW Parliamentary inquiry into the regulation of building standards. Other topics include NSW's reforms to Security of Payment commence soon, a refresh of the NSW procurement framework, NSW calls for submissions on the feasibility of statutory trusts, and a recent NSW case involving the perils of sending a vague email when responding to an SOP claim.

Long-awaited consensus on need for national building standards

Following the latest meeting of Building Ministers in Sydney, the State Governments and Federal Government have announced that they will pursue nationally consistent building standards and jointly fund a team to implement the recommendations from the Building Confidence report by Peter Shergold and Bronwyn Weir in a consistent way across jurisdictions. 

The current combustible cladding crisis and well-publicised failures of high-rise apartment buildings have intensified calls for the adoption of a national harmonised approach to restore consumer confidence in the building and construction sector.  While building regulation is largely the responsibility of the States and Territories, the commitment to a national approach to building safety standards is welcome news for consumers.  Given the disparate State and Territory approaches to addressing the combustible cladding crisis, national oversight on uniform building and safety standards is viewed as critical if the Shergold-Weir recommendations are to be implemented in a meaningful and consistent way.

Further details can be found in our Insights article here.  

Victoria to fund private cladding rectification: No consistent position as yet by governments on cladding rectification

On Tuesday 16 July 2019, the Victorian Cladding Taskforce released its Final Report. The Victorian Government announced that it will implement certain key recommendations immediately, including establishing a new Cladding Safety Victoria authority and allocating $300 million in direct funding for building rectification works to higher risk buildings.  The Victorian Government has foreshadowed that a further $300 million funding will come from changes to building permit levies over the next five years.

The Queensland and Federal Governments, however, have declined to follow suit. In Queensland, Minister Mick de Brenni has said that Queensland taxpayers will not foot the bill for cladding problems created by developers pursuing profit over safety. Meanwhile, in Canberra, Treasurer Josh Frydenberg stated that the cladding issues are the States' responsibility.  NSW, which has a significant number of cladding-affected buildings, has not yet commented as to whether the State Government will fund cladding rectification works.

Further details can be found in our Insights article here.

Taking submissions: NSW building standards subject of Parliamentary inquiry

The NSW Upper House Public Accountability Committee has commenced an inquiry into the regulation of building standards, building quality and building disputes.  The Inquiry addresses public concern about substantial building defects identified in various buildings and the ongoing investigations related to flammable cladding. 

The Inquiry is independent of the current consultation conducted by NSW Fair Trading on reforms to the building and construction sector, "Building Stronger Foundations".

The Committee will consider four principal areas of concern:

  • the role of private certification in protecting building standards;
  • the adequacy of consumer protections for owners and purchasers of new buildings;
  • the limitations on building insurance and compensation schemes; and
  • the role of strata committees in responding to building defects and the protections offered for all strata owners in disputes.

In particular, the Committee will focus on case studies of flammable cladding on NSW buildings and building defects discovered in Mascot Towers and the Opal Tower.  The Committee will also review the status and degree of implementation of recommendations of reports into the building industry, including the Shergold-Weir report 2018 amongst others. 

The Committee is currently taking submissions for the Inquiry.  Submissions are due by Sunday, 28 July 2019.  As part of the Inquiry, the Committee is also seeking the views of interested stakeholders via an online questionnaire, responses for which are due by Sunday, 4 August 2019.  The questionnaire is not intended to replace the formal submission process.  Stakeholders that wish to provide more detailed responses to the Inquiry's terms of reference are encouraged to make a formal submission.  Hearings are scheduled for August.

The Committee is to publish the final report into the Inquiry by 14 February 2020.

To lodge a submission, visit the NSW Parliamentary website

NSW SOP Act updates to come into force on 21 October 2019

The NSW Government has announced that the Building and Construction Industry Security of Payment Amendment Act 2018 and the Building and Construction Industry Security of Payment Amendment Regulation 2019 will commence on 21 October 2019.

See our earlier Insights article for full details on the changes to be implemented here.

NSW Government Procurement Policy Framework: July 2019 refresh

Important updates have been made to the NSW Government Procurement Policy Framework.  From 1 July, all new government goods and services and construction procurement will be governed by the revised Framework. The Framework provides a consolidated view of government procurement objectives and requirements. It sets out the policy and operating framework for the NSW public sector procurement system and provides a single source of guidance on the rules for procurement in NSW.

What are the key changes?  Amongst a range of updates and consolidations, changes of note include.

  • Open tendering is now the default procurement method for procurements covered by International Procurement Agreements, which fall under "covered procurements" in the Framework. Section 2.01 of the Framework sets out the thresholds above which open tendering is mandated for certain procurements. Limited tendering remains permitted under the Framework. However, its availability is restricted. For further information see section 5.5 of the International Procurement Agreement guidelines. For procurements that fall under the relevant IPA Guidelines threshold or that are exempt procurements, flexible and alternative procurement methods may be used.  
  • The requirements of the Small and Medium Enterprise and Regional Procurement Policy, Aboriginal Procurement Policy and Aboriginal Participation in Construction Policy have been integrated into the Framework to apply to procurement planning, selection of procurement method, tender evaluation and reporting under the contract for tender.

The Framework is reviewed each quarter to incorporate new policy requirements and Procurement Board Directions.  If needed, the next update is scheduled for 1 October 2019.  We will keep you abreast of further changes in procurement practice. 

Industry consultation: Security of payment reform and the introduction of statutory trust schemes in the NSW building and construction industry

The Department of Finance, Services and Innovation (DFSI) is carrying out external industry consultation regarding the proposal to introduce a statutory trust scheme into the NSW security of payment legislation.

The concept of statutory trust schemes in the construction sector is not new, and there have been extensive papers published on this topic in recent years, with the States and Territories adopting different approaches. Notably, in December 2018, the WA State Government released John Fiocco's report on payment reform in WA, that recommended introducing legislation to establish a deemed statutory trust scheme. One alternative to deemed statutory trusts is the introduction of project bank accounts. This method is being trialled in several States, and is required in Queensland on certain State projects which meet a minimum monetary threshold.

In NSW, consultation on the introduction of statutory trust schemes is ongoing and DFSI is seeking feedback from industry via an online questionnaire (submissions close on 25 July 2019).  Responses will assist in informing the Government whether the introduction of a statutory trust scheme is regarded as feasible by industry.  

The pitfalls of vague emails: email insufficient to amount to a payment schedule for the purposes of the Building and Construction Industry Security of Payment Act 1999 (NSW)

The Court of Appeal of the New South Wales Supreme Court recently found in Style Timber Floor Pty Ltd v Krivosudsky [2019] NSWCA 171 that an imprecise and vague email response was not a payment schedule for the purposes of section 14(3) of the Building and Construction Industry Security of Payment Act 1999 (NSW).

The principal Style Timber Floor Pty Ltd engaged Mr Krivosudsky to perform floor grinding and topping work at various sites in Sydney.  Style Timber disputed the quality of the work and refused to pay certain invoices.  Mr Krivosudsky served a payment claim via email in accordance with section 13 of the Act for $106,166.50.

Under section 14 of the Act, Style Timber had 10 business days to serve a "payment schedule" that was required to "indicate why the scheduled amount is less [than the Claimed Amount] and […] the respondent's reasons for withholding payment" [s.14(3)].

Style Timber's email in response to Mr Krivosudsky's payment claim stated:

"I will show you the working agreement […] many emails, photos, videos, back charges from builders and other trades, complains from my clients.  You will understand why I can’t pay you.  The damages you done is more than what you claimed.  Then, it’s up to you want you want to do next."

Style Timber submitted that the email, when read with the totality of the correspondence, satisfied the requirements of the Act.  At first instance, summary judgement was given for Mr Krivosudsky.  Granting leave for the appeal but dismissing the appeal, the Court of Appeal held that the email was too vague and imprecise to constitute a valid payment schedule. The email neither stated what works were deficient nor at which particular sites work was deficient.  The generality of matters raised in the email rendered it impossible to determine the scope of the dispute.  To be a valid payment schedule, the email must have sufficiently described the dispute to enable Mr Krivosudsky to determine whether to proceed in the knowledge of the nature of the case he would have to meet. 

Also the vague reference to additional documents in the email was found to be insufficient to allow a recipient to identify which particular documents were being referred to so as to create an adequate link between them.  For section 14(3) of the Act to be satisfied via incorporating another document by reference, Bell P observed that such documents must be identified with sufficient particularity so that the recipient of the payment schedule knew what was being incorporated. 

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.