Projects & Construction - Australia
2022 saw a significant number of contractors in distressed situations. The year was marked by not only the collapses of giants such as Probuild, Grocon, Condev and Clough but also over 900 construction companies entering into administration.
Although the construction industry was largely resilient to COVID-19 restrictions in New South Wales and Victoria due to extensive COVID-19 relief granted to contractors (on grounds of changes in law or force majeure), business uncertainty has been an ongoing concern.
A major contributing factor of this has been the significant increased cost of and shortages in materials and labour.
Further, there are other challenges for the industry such as owners and developers continuing to pass down inappropriate risks to contractors, including by adopting risk averse contracting models, increased professional indemnity premiums and geopolitical risks giving pressure on pricing at a time where there is an increased demand as a result of government-led infrastructure projects.
Legislation / guidance updates
Significant legislative changes were enacted in 2022, including:
- the abolition of the Australian Building and Construction Commission;
- further changes to the legal landscape in respect of defective building work following the fires at Lacrosse in Melbourne and Grenfell Towers in London. For example, in Victoria, the Building Act 1993 (Vic) was amended to extend the time for bringing a building cladding action from 12 years to 15 years. Meanwhile, in New South Wales, proposed legislative changes have included a consideration of extending the time frame for bringing claims for breach of statutory warranties to 10 years for major defects and 3 years for other defects; and
- Western Australian reforms to the Security of Payment regime. This has included implementing a revised statutory adjudication process, which differs to the existing process under the Construction Contracts Act 2004 (WA). That is in line with the adjudication process operating on the East Coast. The Security of Payment regime in New South Wales is also set to undergo further reforms, including establishing an ‘adjudication review model’ and strengthening the powers for adjudicators.
Updates from the Court
The Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) was subject to much focus in 2022.
The NSW Supreme Court in Piety Constructions Pty Ltd v Hville FCP Pty Ltd [2022] NSWSC 1318 clarified the 10-day notice period to lodge a payment schedule pursuant to section 14(4)(b) of SOPA. The Court accepted that delivery of a payment schedule received and considered by the plaintiff (or more generally speaking the principal/contractor) at 6:30pm at the expiry of the 10-day notice period did not invalidate service. This was so, even where the relevant building contract required that the payment schedule be delivered by the defendant (or the contractor/subcontractor) at or before 4:30pm on that same day. The Court held that this was necessary to avoid coming to a legal conclusion that was divorced from the reality of what had occurred.
Interestingly, in BSA Advanced Property Solutions (Fire) Pty Ltd v Ventia Australia Pty Ltd [2022] NSWCA 82, the NSW Court of Appeal held (in obiter) that there is no requirement for a payment claim to be made only for work carried out under one construction contract. Instead, amounts due and payable under multiple contracts, where there is a singular reference date for the construction works performed, may be included in a single payment claim.
In respect of the formation of a construction contract, in Forte Sydney Construction Pty Ltd N Moits & Cons (NSW) Pty Ltd [2022] NSWCA 186, the NSW Court of Appeal has sought to remind us that where an offer is neither expressly accepted nor rejected, an offeree’s subsequent conduct in performing contractual services will be key. Such conduct may affirm the existence of a contract despite there being no express acceptance or rejection. Where conduct portrays to a reasonable person that an offer has been accepted, that acceptance is taken to have been communicated.
In respect of arbitration, the NSW Supreme Court in WCX M4-M5 Link AT Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd (No 2) [2022] NSWSC 505 confirmed the longstanding legal position that the parties would be bound by the contractual dispute resolution process, primarily on the basis that not doing so would allow the Plaintiff to escape from its “contractual bargain”.
In respect of the COVID-19 pandemic, in Acciona Industrial Australia Pty Ltd v Kwiwana WTC Project Co Pty Ltd [2022] WASC 380, the plaintiff sought declaratory relief as to whether certain agreed facts related to the COVID-19 pandemic amounted to a force majeure event as defined by the Contract. The WA Supreme Court declined to grant the relief sought, because doing so in substance “amounts to the seeking of an advisory opinion”. Further and in obiter, his Honour noted that the party seeking to rely on a force majeure clause (for events such as increased supply chain costs or related delays) must establish a causal link between these kinds of adverse circumstances and the pandemic itself.
Trends in Construction Contracts
In 2022, there have been 5 key trends in the drafting of construction contracts, including:
- alliance or partnering procurement models;
- force majeure clauses;
- rise and fall clauses;
- advance payment clauses; and
- GMP contracts.
Key predictions for 2023
Key predictions include:
- pressure on contractors and their supply chains due to continued shortages and increased costs of materials and labour, which is likely to see an increase in both claims and insolvencies;
- significant investment in, and development of renewable projects; and
- continued significant investment in government infrastructure projects, and procuring those projects using more collaborative procurement models (e.g. alliances or partnering).