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Construction Law News October 2012

Payment claim entitlements of contractors

In Edelbrand Pty Ltd v HM Australia Holdings Pty Ltd [2012], the NSW Court of Appeal held that payment claims under the Building and Construction Industry Security of Payment Act could validly be submitted and relied upon in the following circumstances:

  • Where the contractor submitting the payment claim is contracted only to manage construction work and to oversee the administration of the job; and
  • Where the contract provides that payment of the contractor will include a bonus or a "share of saving" payment calculated on a percentage basis where the job is brought in under budget.

The facts of the case were that Edelbrand had contracted with HM Australia to provide "construction management" services in respect of the construction of a factory complex. Under the contract between the parties, Edelbrand was to be paid both a lump sum and a bonus – the bonus was to apply in the event that Edelbrand delivered the completed project under a target cost. The bonus was to be calculated at 50% of the saving to HM Australia.

Upon completion of construction, Edelbrand served on HM Australia a payment claim in respect of the bonus, totalling $214,913.60. HM did not serve a payment schedule in time, and Edelbrand's claim went to adjudication. The adjudicator upheld Edelbrand's payment claim in full, but was overruled in the Supreme Court – the Court held that the contract between the parties was not a "construction contract" to which the Act applied.

Vital to Edelbrand's case in the Court of Appeal was demonstrating that the contract was, in fact, a construction contract pursuant to section 6 of the Act. To this end, Edelbrand argued that the management and administrative functions it had been contracted to undertake represented "building advisory services" under s6(1)(b) of the Act. The Court of Appeal held that the words "building advisory services" should be given their ordinary meaning "liberally construed". On this basis, the Court held that Edelbrand's administrative and management responsibilities under the contract involved the provision of "building advisory services" sufficient for the contract to be caught by the Act as a "construction contract". This was true of the whole contract, notwithstanding some of the administrative and management functions contracted for were not caught by the Act.

Edelbrand also had to overcome s7(2)(c) of the Act, which excludes from the Act any contract that provides that the contractor is to be paid an amount that is calculated in any way other than by reference to the value of the services supplied. The Court held that the contract was not excluded by s7(2)(c), since the method of calculating and valuing the bonus was clearly set out in and was part of the contract. The Court stated that the s7(2)(c) exclusion will only apply where the payment to the contractor cannot be determined under the terms of the contract.

The decision in Edelbrand should come as welcome news to contractors, as it effectively expands the range of situations in which contractors may rely upon the provisions of the Act which are designed to ensure ongoing cash-flow over the course of a job.

If you require assistance with serving, enforcing or responding to a payment claim, please contact Forum Law at your earliest convenience to arrange a consultation.

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