28 Oct 2021

Major Projects & Construction 5 Minute Fix 87: net zero in NSW, Market Capacity report, economic stimulus packages, tender costs

By THE MAJOR PROJECTS & CONSTRUCTION TEAM

Get your 5 Minute Fix of major projects and construction news. In this issue: NSW's policy steps towards net zero; the launch of Infrastructure Australia's first Market Capacity report; economic stimulus packages in NSW and Victoria to support the construction industry; Vic security of payment; the Queensland Court of Appeal considers whether a payment claim is invalid if it relates to two separate contracts; a builder's failed bid to recover tender costs; and the Queensland Supreme Court considers discretionary factors in play when deciding whether to remit a security of payment dispute to a different adjudicator.

NSW Government takes further policy steps towards net zero emissions

At the end of September, the NSW Government announced a commitment to an emissions reduction target, pledging to halve emissions by 2030 (which is in increase from the initial target of a 35% reduction over this timeframe).

In conjunction with that announcement the NSW Government released an "Implementation Update" to its "Net Zero Plan Stage 1: 2020-30" with the goal of growing the NSW economy while halving NSW's emissions by 2030.  The Implementation Update sets out a range of initiatives and is available here: Net Zero Plan Stage 1: 2020–30 Implementation Update.

The NSW Government has in recent days also released its NSW Hydrogen Strategy, which has a stated aim of supporting the development of a commercial "green" hydrogen industry in NSW.  The Strategy outlines 60 actions across three "key pillars":

  • enabling industry development;
  • laying industry foundations; and
  • seeking rapid scale.

The Strategy includes incentives to commercialise hydrogen supply chains in NSW, a target to reduce the production cost of green hydrogen and features investment in two "hydrogen hubs" to be established in the Illawarra and Hunter regions. 

Following the release of the Strategy, the NSW Chief Scientist released the "NSW Power to X Industry Pre-Feasibility Study: A Roadmap for a P2X economy in NSW", with a focus on processes and technologies that convert renewable energy and sustainable materials into power fuels and clean chemicals. 

Finally, the NSW Government is currently seeking input into a review of the Future Transport Strategy, which is a long-term plan for the future of transport across NSW.  The review is segmented into seven discrete topics.  Each topic paper identifies emerging trends and key issues that are under consideration for review, and emissions reduction goals are prominent among them.  The seven topics are:

  • funding the future network and operations;
  • how we travel;
  • parking in cities;
  • resilient transport network;
  • decarbonising freight;
  • sustainable travel; and
  • sustainable infrastructure and operations.

You can also have your say on the review here.

Finally, the Electric Vehicles (Revenue Arrangements) Bill 2021 (EVRA Bill) was passed by both Houses of the NSW Parliament on 20 October.  You can read our review of the EVRA Bill here.

Launch of the Infrastructure Market Capacity report 2021

Australia is currently experiencing a record level of investment in infrastructure and industry growth. However, there are risks and constraints in the markets ability to meet this growth in investment.  In order to understand the capacity of the market to deliver on investment pipelines, in March 2020 the Council of Australian Governments (COAG) requested that Infrastructure Australia provide regular reporting on market capacity.

On 13 October 2021 Infrastructure Australia launched the first of those reports, the "2021 Infrastructure Market Capacity report".

According to Infrastructure Australia Chief Executive Romilly Madew, the report “is an Australian-first and a new data capability for Infrastructure Australia. It provides a level of visibility of the major project pipeline and resulting demand for skills, labour and materials that governments have not had until now."

Key findings

As noted by Infrastructure Australia, the report forecasts "a surge in demand for skills, labour and materials due to the rapid increase in public infrastructure investment" and predicts that "[m]ajor public infrastructure activity will approximately double over the next three years, peaking at $52 billion in 2023". Among others, the report includes the following findings:

  • a need for substantial growth in the workforce to accommodate escalating activity in the infrastructure sector (an estimated additional 105,000 personnel by mid-2023);
  • at its peak, workforce demand is projected to be 48% higher than supply over the next 3 years;
  • potential shortages in "34 of the 50 public infrastructure occupations identified", with migration projected to account for only 6% of new workers in the industry over the next 15 years;
  • emerging risk associated with access to skilled professionals, including project managers, engineers and architects;
  • Victoria, Queensland and Tasmania will experience the greatest risk of personnel shortage, with workforce demand projected to be double that which is available within those jurisdictions;
  • skills shortages in some jurisdictions if professionals are monopolised by larger, east coast jurisdictions;
  • significant supply risk caused by strong growth in the demand for quarry products, cement and concrete;
  • an increasing reliance on imports potentially heightening global supply chain and price escalation risks; and
  • the transport sector is set to dominate demand.

Economic stimulus packages for the construction and building industry

The NSW and Victorian Governments have recently announced economic stimulus packages to boost the construction industry as both States emerge from recent lockdowns.

The NSW Government announced on 12 October 2021 that it will allocate $240 million to improve school infrastructure as part of its Regional and Metro Renewal Programs. The Programs will aim to use local contractors and suppliers where possible and the investments, according to Minister for Education Sarah Mitchell, will benefit "hundreds of businesses and will support more than 2,600 jobs".

Earlier this month, the Victorian Government announced a $196.6 million package to support construction businesses impacted by the industry shutdown that was imposed to contain COVID-19 transmission.  Eligible businesses will be entitled to a one-off payment, proportional to their payroll, as follows:

  • Sole traders: $2,000;
  • Businesses with an annual payroll of up to $650,000: $2,800;
  • Businesses with an annual payroll of up to $3 million: $5,600; and
  • Businesses with an annual payroll of up to $10 million: $8,400.

Pay now and argue now – a dual track approach to payment claims containing "excluded amounts"?

The High Court of Australia recently declined to hear an appeal of Yuanda Vic Pty Ltd v Façade Designs International Pty Ltd [2021] VSCA 44, which was considered in our earlier 5 Minute Fix here. Sean Kelly and Didi Levin discuss the practical implications of Yuanda, including a potential dual track approach to progress claims, and the lessons that should be learned and applied by project admin teams on construction projects.

The Queensland Court of Appeal considers: variation or new contract, will this nullify a payment claim, and does "ok" mean "accepted"?

In Ausipile Pty Ltd v Bothar Boring and Tunnelling (Australia) Pty Ltd [2021] QCA 223, the Queensland Court of Appeal considered whether an arrangement by Bothar (as head contractor) to hire a crawler crane from Ausipile (as subcontractor) constituted a separate contract or a variation under an existing, written subcontract between them. In that context the Court also considered whether a "payment claim" under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act) should be treated as a nullity if it purports to be made under one, but is in fact made under two separate contracts.

On the key issue of the arrangements between the parties, the Court found they had not entered into a separate contract but rather, had varied their existing agreement. As to the validity of a payment claim submitted by Ausipile under the subcontract, the Court held that even if it related to amounts under different contracts, it should not be treated as a nullity for failure to comply with the BIF Act unless that failure was "patent on its face".

Two contracts or a varied one?

Arrangements between Bothar and Ausipile in relation to the crane hire were mostly verbal. The Court's approach to whether these arrangements constituted a variation to the subcontract or a separate contract involved an examination of "all the relevant indicia, including the communications and the context in which they occurred" [paragraph 28]. In the circumstances, Morrison JA concluded the presumed intention of the parties was to vary the existing subcontract to cover the hire agreement.

In particular His Honour noted the existing subcontract addressed in detail such important issues as insurance, workers compensation and indemnities. Given the "not insignificant" value of the crane hire and the fact Bothar was hiring an operator as well as the crane, His Honour concluded "it is most unlikely that two such contracting parties, with the existing umbrella of the subcontract and all its terms, intended to enter into a contractual relationship standing outside all of those provisions."

Validity of a "payment claim"

At trial, the primary judge accepted Bothar's argument that a payment claim submitted by Ausipile under the subcontract was void under the BIF Act because it related to two separate contracts. Ausipile successfully appealed this decision.

Following the reasoning in TFM Epping Land Pty Ltd v Decon Australia Pty Ltd [2020] NSWCA 93 and the "evident scheme" of the BIF Act, the Court held that a payment claim will not be rendered invalid "simply because at a later time … it is determined that part of the claim was, in fact, a claim under a different contract." So long as the payment claim "is made in good faith and purports to comply" with the BIF Act, its merits, including any questions as to its compliance with the BIF Act, are matters "for adjudication after having been raised in a payment schedule".

Does "OK" mean "accepted"?

By way of an interesting aside, the Court also dismissed an argument by Bothar (here, essentially upholding the finding at trial) that it did not submit a payment schedule responding to Ausipile's payment claim due to misleading and deceptive conduct by Ausipile under s 18 of the Australian Consumer Law.

This claim revolved around a conversation during which Ausipile's representative said something to the effect (the exact wording was contentious): "OK - I understand where you are coming from" in response to the Bothar representative indicating that he would withhold payment because of defects in the work. Again, Morrison JA examined the relevant context, ultimately finding that, here, "the word 'okay' could not have conveyed acceptance" - rather, Ausipile's representative was indicating that he "understood what was being said even though he did not agree to it".

Read our note about a related decision in this matter [2021] QSC 122 (on Calderbank offers) in 5MF 77.

Failed bid by builder to recover tender costs

It is often the case that a construction project party is disappointed when a project for which it has undertaken substantial work during the tender phase either does not go ahead or is awarded to a different party. Dyna Constructions Pty Ltd v Bocco Developments Pty Ltd [2021] NSWDC 507 provides an interesting case study, in the context of a residential project on Sydney's Northern Beaches, where the developers ran a tender, received a bid from a builder (Dyna), then had an extensive exchange of correspondence with, but ultimately did not engage, Dyna.

Dyna then sued to recover its bid costs based upon breach of contract and misleading and deceptive conduct under sections 18 and 236 of the Australian Consumer Law. It did not succeed on any of its claims.

Dyna's breach of contract claim was based on the allegation an agreement had been entered into by the parties in March 2019 when the developers informed Dyna that its tender had been successful. Scotting DCJ, however, held that there was no contract between Dyna and the developers because none of the requirements for formal acceptance set out in the Invitation for Tender had been met. Scotting DCJ also noted that essential terms had not been concluded, such as price.

In pleading misleading and deceptive conduct Dyna alleged the developers, by the Invitation to Tender, indicated that they had adequate financing for the project (whereas they were not, at that stage, able to secure committed finance). Scotting DCJ also rejected this argument, finding that the developers had reasonable grounds to believe they did have adequate financing at the relevant time.

The case provides a useful summary of the relevant caselaw around interpretation of offer documentation and misleading and deceptive conduct, as well as a reminder that disgruntled tenderers face significant legal hurdles in bringing claims.

Discretionary considerations when remitting disputes to an alternative adjudicator

In proceedings before the Queensland Supreme Court, parts of an adjudication under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) were declared void. It subsequently fell to the Court to determine whether to remit the matter to the original, or to a different, adjudicator.

In Total Lifestyle Windows Pty Ltd v Aniko Constructions Pty Ltd (No 3) [2021] QSC 238, having earlier determined that the Court has "an inherent and discretionary power to remit" proceedings back to the original adjudicator, the Court usefully canvasses the discretionary factors to be considered in deciding whether or not to exercise that power. The relevant factors include:

  • the utility in having another adjudicator consider the issues in dispute between the parties;
  • whether there is a likelihood of further contest between the parties should the matter be remitted to a different adjudicator;
  • the provisional nature of adjudications;
  • whether remitting the proceeding to another adjudicator is likely to resolve any disputes, even on an interim basis;
  • whether the cost of remitting the dispute to a different adjudicator, in addition to costs already incurred, is likely to be disproportionate to the amount in issue; and
  • whether remitting the proceeding to a different adjudicator would bring a fresh and expert perspective to the dispute, or at least one part of the dispute.

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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.