The case of Canterbury Bankstown Council v General Works and Construction Pty Ltd [2024] NSWSC 310
This article deals with whether submissions have been duly made under the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act) and what is necessary to establish losses where a precise calculation cannot be performed.
Background
On 5 July 2022, Canterbury Bankstown Council (Council) contracted with General Works and Construction Pty Ltd (GWAC) for the supply and delivery of culvert upgrades (Contract).
GWAC served the Council with a Payment Claim, to which the Council served a Payment Schedule of $0 in response. GWAC took the matter to adjudication, and the Council commenced proceedings to set aside the determination.
Issue
A key issue in the proceedings was the evidence required to substantiate escalation and production delay costs, particularly where a precise calculation could not be performed.
GWAC could not itself calculate its actual losses based on the evidence, so GWAC relied on calculations in a Quantity Surveyor Report (QS Report) to substantiate its losses. The claim for production delay costs included project-specific overheads, that is preliminaries, with respect to works subcontracted to another entity (Subcontracted Works). The Council contended that the QS Report methodology was not permitted by the Contract or referrable to the value of GWAC’s work. The Council concluded that no payment was due with respect to the escalation and production delay costs as there was no evidence of these costs.
Evidence
The QS Report:
- identified there was evidence that GWAC had incurred preliminary costs in respect of executive project management, clerical salaries, office occupancy and other costs during the delay to the Subcontracted Works;
- identified limitations in the record-keeping of GWAC which meant that a precise calculation of the increased costs could not be performed accurately;
- estimated the additional escalation costs by reference to the AIQS Building Cost Index, which is an indicator of the average cost movement over time of goods and services in the construction industry, rather than the actual losses incurred by GWAC; and
- estimated the production delay costs, in the form of preliminary costs, by reference to a calculation based on the Hudson Formula. The Hudson Formula calculates delay costs for overheads and profit in proportion to the value of the total turnover of the organisation, rather than using actual losses incurred.
The Council argued that the absence of primary records means there is no evidentiary basis upon which the adjudicator could determine the adjudication amount with respect to production delay and escalation costs.
The Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act)
S.22(2)(c) of the Act sets out that the adjudicator is permitted to consider:
“the payment claim to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the claimant in support of the claim”
The Supreme Court’s Decision
The adjudicator ultimately accepted the QS Report as evidence of delay costs and awarded a sum for escalation and production delay costs accordingly.
The Court agreed that there was evidence GWAC had incurred escalation and production delay costs and that the Adjudicator was entitled to rely on the QS Report methodology. The judgment confirmed that it was a matter for the adjudicator, drawing on his own experience and expertise, to assess whether submissions have been “duly made” under the Act. The Court reasoned that the eligibility requirements of an adjudicator suggest that their expertise and experience are expected to be utilised in adjudicating.
Key Takeaway
This case demonstrates that even if a contractor is unable to precisely calculate increased costs, it is open to the adjudicator to accept whether the submissions have been “duly made” under the Act. Contractors should ensure that any preliminary costs are included as part of delay claims, even if there are limitations in record-keeping. Contractors should seek to substantiate their claims with evidence of actual costs, but they may be able to fall back on industry-accepted methodology where a precise calculation of costs cannot be performed.
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