26 Nov 2020

Major projects & construction 5 Minute Fix 66

By the major projects & construction team

Get your 5 Minute Fix of major projects and construction news. This issue: have your say on NSW's draft Design and Building Practitioners Regulation; update on Victoria's professional engineer registration scheme; new obligations for Authorised Nominating Authorities in NSW; the dangers of using cloud-based software for payment claims, and WA Government takes another step in its SOP reforms.

Draft Design and Building Practitioners Regulation brings NSW’s building reforms into focus

The NSW Government has launched a public consultation on its draft Design and Building Practitioners Regulation. The draft Regulation runs to nearly 80 pages and provides important details of the scheme introduced by the Design and Building Practitioners Act 2020 (NSW) (DBP Act). The focus of the draft Regulation is the residential apartment building sector.

As we noted in "New NSW legislation imposes obligations on construction industry and establishes new statutory duty owed to owners", the DBP Act is a vital plank in the NSW Government's building reforms to address widespread quality-related concerns.  We are preparing a more detailed note to supplement our Insight on the DBP Act. In the meantime, some notable elements of that Act, as now fleshed out in the draft Regulation, include:

  • the DBP Act’s statutory duty of care for pure economic loss will apply primarily to class 2 buildings (multi-dwelling buildings, including apartment buildings) and those which include class 2 buildings; hence, it is likely to cover a "mixed use" tower of the type which led to these reforms, as considered by the High Court in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36;
  • setting out the administrative requirements for regulated designs, including the form of "design compliance declarations" and the need to lodge for-construction designs (and variations to them) on the NSW planning portal before commencing building work (or within 1 day after commencing the relevant variation to building work);
  • there is now considerable detail around the registration requirements for design and building practitioners (the Regulation contemplates 15 classes of design practitioners and seven classes of professional engineer, along with registered principal design practitioners and building practitioners), including prescriptive skills, experience and continuing professional development requirements, and disciplinary and record-keeping arrangements; the Regulation also specifies a raft of information which is to be kept on the register in respect of each registered practitioner;
  • a scheme for recognition of professional bodies of engineers, including requirements for their governance and CPD activities;
  • building practitioners’ professional indemnity insurance requirements rest primarily upon the practitioner making an assessment of what is appropriate cover in the circumstances, taking into account factors including the risks typically undertaken by the practitioner and how long the practitioner has been registered.However, some overriding requirements for such insurance exist; including that indemnity under corporate and individual policies extends retrospectively to cover work done by the relevant practitioner (registered in the applicable category of design, professional engineering or building work) since they first undertook the relevant class of work;
  • codes of practice for various classes of registered practitioner, covering elements including confidentiality and conflicts of interest;
  • the civil penalty regime for offences under the DBP Act or the Regulation, with penalties generally at either the $1,500 or $5,500 mark for individuals and $5,000 or $16,500 for bodies corporate.

Submissions are invited (whether formal or via an electronic survey) by 11 January 2021. The Regulation's planned commencement date is 1 July 2021. The consultation website includes extensive explanatory material by way of the Regulatory Impact Statement.

The draft Regulation has, prior to the public consultation, been the subject of consultation with peak bodies across the industry. Given the wide-ranging nature of these reforms, they will no doubt be examined and debated widely, not just in NSW but also – given the ongoing reform processes in other States and Territories under the Building Ministers’ Forum’s "Building Confidence" process – across Australia as well.

Entities wishing to conduct an assessment scheme under the Professional Engineers Registration Act 2019 (Vic) may now apply for approval

Part 3 of the Professional Engineers Registration Act 2019 (Vic) has now commenced.

The Act establishes a mandatory registration scheme for all engineers working in prescribed areas of engineering (including structural, civil, mechanical, electrical and fire safety engineering). If a person wishes to work as a professional engineer in the building industry, he or she must either apply to the Business Licensing Authority to be registered as a professional engineer or provide those services under the direct supervision of a registered professional engineer.

In determining whether an applicant is eligible for registration under the scheme, the Business Licensing Authority must be satisfied that the applicant has the required qualifications and experience in respect of the relevant area of engineering, as prescribed or provided for in an assessment scheme approved under Part 3 of the Act.

While Part 2 of the Act (which establishes the registration scheme) has not yet commenced, Part 3 of the Act commenced on 10 November 2020. Part 3 provides that:

  • if an entity wishes to administer an assessment scheme, that entity may apply to the Business Licensing Authority for approval of the proposed assessment scheme, which may cover one or more of areas of engineering prescribed by the Act;
  • the Business Licensing Authority must approve the application (on a conditional or unconditional basis) if the Business Licensing Authority is satisfied that the proposed assessment scheme is suitable for approval; and
  • an assessment scheme will be suitable for approval if it meets the requirements set out in section 34 of the Act, including that:
    • it adequately provides for the assessment of qualifications and competencies of engineers in an identifiable area of engineering;
    • it is consistent with national and international standards for the recognition of professional engineers;
    • it includes procedures for the assessment of applications for registration to be conducted in an independent and professional manner;
    • any fees imposed under the scheme for the assessment of qualifications and competencies are reasonable having regard to the scope of the services being offered; and
    • the entity conducting the scheme engages competent persons to perform assessments of applicants for registration and has proven procedures for training and accrediting those persons.

Part 3 also sets out:

  • the process by which an entity may apply for renewal or variation of an approved assessment scheme or surrender an approved assessment scheme;
  • the grounds on which the Business Licensing Authority may cancel or suspend an approved assessment scheme and the process for cancellation or suspension; and
  • the process by which an entity may apply to VCAT for a review of a decision by the Business Licensing Authority to refuse approval to a proposed assessment scheme, to suspend or cancel an approved assessment scheme or to approve a proposed assessment scheme on a conditional basis.

New obligations for NSW Authorised Nominating Authorities

From 1 January 2021, all persons authorised to refer adjudication applications to adjudicators under section 28 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (Authorised Nominating Authorities or ANAs) must adhere to the Building and Construction Industry Security of Payment – Authorised Nominating Authorities (Code of Practice) Order 2020. The Code sets out the standards to which ANAs must carry out their functions.

ANAs should review the Code now and ensure that they are ready to comply with the Code from the start of next year. The Code imposes a number of new obligations on ANAs, including:

Standards of conduct: ANAs will be required to exercise all reasonable skill, care and diligence when exercising their functions under the Act and act honestly, fairly, transparently and professionally in all dealings with adjudicators, claimants and respondents (Interested Persons). ANAs must not compromise their professional independence or integrity, engage in disreputable or unconscionable conduct or confer an unfair advantage on a person in dealings with an Interested Person.

Confidential information: AMAs must not use or disclose confidential information about an Interested Person without that person's consent or a lawful excuse, and must take all reasonable steps to ensure the security of any confidential information in their possession or control.

Avoiding conflicts of interest: ANAs must not refer an adjudication application to an adjudicator if they have a conflict of interest or perceived conflict of interest with an Interested Person or accept bribes or other inducements to refer an adjudication application to a particular adjudicator or provide an adjudication certificate.

Adjudication applications and certificates: Immediately after receiving an adjudication application, the ANA must notify the claimant and respondent of the fees for the adjudication application and adjudication certificate. Within three business days of receiving a claimant's request for an adjudication certificate, or of receiving the fee for the provision of an adjudication certificate, the ANA must provide an adjudication certificate.

Before an ANA refers an adjudication application, the ANA must consider:

  • if additional qualifications, skills, knowledge and experience are required to adjudicate the dispute;
  • the amount claimed;
  • the complexity of the issues in dispute; and
  • whether the adjudicator is able to determine the adjudication application as expediently as possible.

Policies: ANAs must implement policies:

  • to identify and manage actual and perceived conflicts of interest that affect or are perceived to affect the ability of the ANA to carry out its role impartially and in the interests of the parties to the adjudication;
  • with respect to the management of adjudication applications (including referral to adjudicators), confidential information and business continuity risk; and
  • the resolution of complaints made by Interested Persons and the resolution of disputes between adjudicators and ANAs.

Reporting: ANAs must provide the Secretary with:

  • quarterly reports which set out details of each adjudication application received and each claim for which the ANA provided an adjudication certificate; and
  • annual reports detailing each adjudicator to whom the ANA referred an adjudication application and any information about changes to the authority's policies and procedures.

Court endorses narrow construction of the "Mining Exemption" in the NSW SOP Act

Cadia Holdings Pty Ltd v Downer EDI Mining Pty Ltd [2020] NSWSC 1588 is the first case to consider the interpretation of the so-called "Mining Exception" in section 5(2)(b) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act).

In that case, the plaintiff, Cadia Holdings, operated the largest underground mine in Australia and had entered into a contract with Downer EDI for the provision of "lateral development works" at the mine, which included tunnelling and boring works and the construction of underground works. Downer referred a disputed payment claim for adjudication under the SOP Act and the adjudicator determined that an amount of $1,017,741.72 was payable by Cadia Holdings to Downer.

Cadia Holdings challenged that determination on the basis that its contract with Downer was not a "construction contract" for the purposes of the SOP Act. In particular, Cadia asserted that the work performed by Downer under the contract was not “construction work” within the meaning of section 5 of the SOP Act due to the “Mining Exception” in section 5(2)(b). 

Section 5(2)(b) provides that "construction work" does not include "the extraction (whether by underground or surface working) of minerals, including tunnelling or boring, or constructing underground works, for that purpose".

The Court held that works will fall within the scope of the Mining Exception, and be excluded from the definition of "construction work", if they comprise:

  • extraction (whether by underground or surface working) of minerals;
  • tunnelling or boring (whether by underground or surface working) of minerals; or
  • constructing underground works for the purposes of extraction (whether by underground or surface working) of minerals.

As Cadia Holdings did not contend that the work under the contract amounted to the “extraction” of minerals, the relevant question was whether or not the works were tunnelling, boring or the constructing of underground works for the purpose of extraction of minerals.

Ultimately, the Court found that the works performed by Downer were not “for the purpose of” extraction of minerals because they did not lead to a situation where mineral extraction could take place immediately. As those works were in preparation for and in anticipation of the later extraction of minerals from the mine, they did not fall within the scope of the Mining Exception. In reaching this conclusion, the Court endorsed the views expressed by the Queensland Court of Appeal and Queensland Supreme Court in decisions concerning equivalent provisions of the Queensland SOP Act that the Mining Exception should be construed narrowly and beneficially to the subcontractor in order to give effect to the objects of the SOP Act.

The Court also found that even if the relevant works had fallen within the scope of the Mining Exception, the contract would be classified as a "construction contract" because the other works carried out by Downer under it clearly fell within the definition of "construction work".

Service by uploading a payment claim to a cloud-based information system not effective until the payment claim was identified and read

In the recent case of BCS Infrastructure Support Pty Ltd v Jones Lang Lasalle (NSW) Pty Ltd [2020] VSC 739, the defendant, JLL, had requested BCS use a cloud-based information system, Corrigo, for the purposes of invoicing JLL under a contract. BCS uploaded its payment claim to Corrigo on 16 January 2020. However, JLL did not open or read the payment claim until 11 February 2020, and did not issue a payment statement to BCS until 18 February 2020.

BCS claimed that JLL had failed to provide a payment schedule in response to, or pay the amount claimed in, BCS's payment claim within the time periods specified in the Building and Construction Industry Security of Payment Act 2002 (Vic) (the SOP Act).

The Court noted that section 50 of the SOP Act describes how notices or documents under the SOP Act may be served and that the service of notices via uploads to cloud-based information systems is not expressly contemplated in that section. Nonetheless, it found that the methods of service set out in section 50 do not limit or exclude the common law or the provisions of other applicable legislation in respect of the service of notices and that Corrigo was a valid means of electronic delivery.

However, the Court found that, in order for a payment claim to be served on a party, that party must actually receive the payment claim. In this case, that would require JLL to log into Corrigo and identify and open the file containing the payment claim. Accordingly, JLL could not be said to have received the payment claim on the date that it was uploaded to Corrigo by BCS – instead, the date on which JLL received the payment claim was 11 February 2020. As JLL issued a payment statement on 18 February 2020, that payment statement had been issued within the 10 business day time period required by section 15 of the SOP Act.

In its reasoning, the Court was critical of the manner in which BCS chose to deliver the payment claim. BCS had not used Corrigo for the service of payment claims before and alternative means of service such as email were available to it. The Court also noted that BCS had attached the payment claim to an invoice with a different sum and entered the payment claim into the online system in response to an unrelated work order. Accordingly, the Court held that JLL's failure to identify and read the payment claim was not unreasonable, but a consequence of the manner in which BCS chose to deliver the payment claim.

Building and Construction Industry (Security of Payment) Bill 2020 (WA) one step closer to replacing the Construction Contracts Act 2004

The Building and Construction Industry (Security of Payment) Bill 2020 (WA) is one step closer to replacing the Construction Contracts Act 2004 (WA) (CCA) after it was passed by the WA Legislative Assembly on 10 November 2020.

The Proposed SOPA is intended to bring WA's regime more closely into alignment with the "East Coast" security of payment model and will apply to all "construction contracts", being any contract, agreement or other arrangement to carry out construction work, or to supply related goods and services, entered into after commencement of the Bill.

This means that parties which are currently negotiating construction contracts in Western Australia should take note of the requirements of the Bill and, if their contract is to be executed at or following the time of commencement, ensure that the drafting adequately provides for the new requirements. Among other things, the Bill would:

  • reduce the time limits for progress payments: progress payments must be made within 20 business days (for a payment due to a head contractor) or 25 business days (for a payment due to a subcontractor, down from 30 in the exposure draft), unless the contract provides for an earlier date.
  • set out a detailed framework for payment claims, payment schedules and consequences of failure to pay: payment claims are to be made on or after the last day of each month during a project, unless an earlier date is agreed.

    The respondent may either pay the claim in full by the due date or issue a payment schedule within 15 business days of the payment claim, unless an earlier date is agreed in the contract.

    If the respondent does not give a payment schedule within required timeframe or pay the full amount claimed, the claimant may elect to recover the full amount as a debt owed through the courts or apply for adjudication. The claimant must notify the respondent of its intention to apply for adjudication and if the respondent fails to provide a payment schedule within 5 business days of that notification, it will be barred from filing a response in the adjudication.

  • include a rapid adjudication process: the rapid adjudication process, as under the CCA, remains a “pay now, argue later” scheme. Any review of an adjudication determination will be conducted by a senior adjudicator in a strictly limited scope of review, instead of the State Administrative Tribunal.
  • prohibit unfair time bars and pay when paid provisions: notice-based time bars may be declared void and unfair if compliance with the provision is not reasonably possible or would be unreasonably onerous. The Bill would also enact a broader prohibition on pay when-paid provisions and require certain contracts to be put in written form and meet minimum standards.
  • include new requirements for retention money to be held on trust: retention money must be placed into a separate trust account with limited access rights and a party seeking recourse to performance security must provide five business days' notice to the party which provided the security.

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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.