This decision by the Queensland Court of Appeal on 20 December 2022 provides useful guidance on issues which regularly arise in construction projects, including:
a) The challenges in identifying the agreed scope of work when performance-based requirements are mixed with prescriptive requirements in clarifications schedules.
b) The risks in issuing notices to rectify works, where such requirements are uncertain.
c) For the purposes of EOT entitlements under a contract, which are dependent on when a contractor had knowledge of a qualifying delay event, the extent to which prior dealings inform knowledge prior to a formal direction.
d) Confirmation of the now well established view that EOT clauses based on the Australian Standards (for example clause 34.3 in AS4902-2000 (“is or will be delayed”)) permit an assessment of delay on a prospective or retrospective basis. While a court may step into the shoes of the superintendent, it is not limited to the basis of assessment so performed (or claimed), or material available at the time, where the contract permits a prospective, retrospective or incremental methodology.
e) Of particular significance for contractors on large projects involving multiple resources, the Court of Appeal found that it was not unreasonable for the contractor to prove its prolongation cost claim by demonstrating that:
i. its on-site costs recorded in an accounting system and for periods of critical delay were time, and not task, related; and
ii. it had to keep its site open and operating for the period of the EOT.
f) It was unnecessary for the Contractor to provide additional proof the tasks undertaken by staff the subject of the prolongation cost claim correspond to the reason(s) for delay or that the staff in question were actually employed on work the subject matter of a variation. A claim advanced on this basis is, in our view, unlikely to be regarded as ‘global’ and it is noteworthy neither the Court of Appeal nor the Principal contended that it was.
What happened
In April 2015, Built Qld Pty Limited (Contractor) entered into a contract with Pro-Invest Australian Hospitality Opportunity (ST) Pty Ltd (Principal) based on an AS 4902-2000, for the design and construction of a hotel in Spring Hill (Contract). The project spawned a number of claims by the Contractor for variations, extensions of time and delay damages, and by the Principal for defective works and liquidated damages.
On 20 December 2022, the Court of Appeal of Queensland overturned certain findings on 3 September 2021 by the Supreme Court of Queensland.
The appeal concerned the notice issued to the Contractor by the Principal on 11 August 2016 to install a different air conditioning system in the hotel to that installed by the Contractor (11 August Notice). The Contractor contended the Notice was a variation which entitled it to claim additional costs, extensions of time and delay damages, whereas the Principal argued such claims failed as, properly characterised, the 11 August Notice was a direction to rectify defective work under clause 29.3 under which the Contractor had to bear its own costs.
The primary judge found that the 11 August Notice was a notice to rectify.2 Although this was effectively the end of the matter as it extinguished the Contractor’s claims, the Court went on to provide reasons for also rejecting the Contractor’s extension of time and delay damages claims.
It firstly found that the Contractor’s claim was time barred. In the alternative, if the claim was not time barred, the Court:
a) preferred the retrospective delay methodology adopted by the Principal’s expert, Mr King, over the prospective delay methodology of the Contractor’s expert, Mr Bell, which had the effect of reducing the Contractor’s EOT entitlement from 117 days to 83 days; and
b) in any event, it considered insufficient evidence had been provided to establish the prolongation costs claimed in respect of these days were causally linked the installation of the alternative air conditioning system referred to in the 11 August Notice. Specifically, the Court was not satisfied that the claimed time related costs related to works on this system.
Was the Notice a variation or direction to rectify?
The Court of Appeal found that the 11 August Notice was not a direction to rectify under clause 29.3 of the Contract as the work required under it (being the replacement of the air conditioning system provided by the Contract with one alleged by the Principal to be required under the Contract) was, in fact, not required under the Contract. The 11 August Notice was, therefore, a direction to vary.
The issue is factually complex but in essence it turned on whether the Contractor had to comply with performance based rather than prescriptive requirements for the air-conditioning system to be supplied under the Contract. If it was performance based, the Contractor could supply the selected system provided it met the performance requirements in the Contract. If prescriptive, the Contractor had no choice and had to replace the system it had supplied.3
The Court found that the obligation was performance based. The poorly drafted tender clarification forming part of the Contract gave the Contractor an option of supplying an alternative air conditioning system, provided it meet the “the performance requirement of the tender drawings and specifications”. The difficulty was that some of the provisions in the specifications were performance based, while others were prescriptive (the drawings were irrelevant).
Deciding which was which was a tortuous process. The Court ultimately found that the mode control feature of the air conditioning system which was the subject of the 11 August Notice was a prescriptive requirement. The Contractor’s system complied with the performance requirements and did not have to comply with this prescriptive requirement. The works were not defective for the purposes of clause 29.3 and the 11 August Notice was, therefore, a direction to vary.
It is not uncommon for parties to agree on alternative forms of performance through a tender clarification process, which becomes a contractual document. It is also not uncommon for parties to require that those alternatives meet performance-based criteria in specifications. To avoid having to sift through reams of specifications to determine which performance criteria are relevant, this should always be clearly identified in the contract.
Was the claim time barred?
The Contract contained the standard wording in clause 34.3(b) of AS4902-2000 under which a notice (EOT Notice) evidencing the facts of causation and the delay to WUC (including extent) had to be given within 14 days of when the Contractor reasonably become aware of the qualifying cause of delay.
An EOT Notice was served on 26 August 2016. The primary judge held that it was one day late as the Contractor became aware of the qualifying cause of delay on when the 11 August Notice was served.
In reaching this conclusion, Her Honour referred to evidence showing that the Contractor had, from as early as 10 June 2016, been made aware that there was an issue with the air conditioning system. Furthermore, in response to a request from the Superintendent on 1 August 2016, the Contractor had on 5 August 2016 provided details of the time implications and had requested that a formal direction be issued.4 Furthermore, the evidence was that the Contractor’s project manager was waiting in the Contractor’s office for the notice on the evening of 11 August and had received it on that date.5 A flurry of notices under the Contract were served by the Contractor on 12 August 2016, including notices that the direction in the 11 August Notice was a variation and a notice under clause 34.2 that the direction was likely to cause delay.
On this basis, Her Honour found that the Contractor was aware that there was a qualifying cause of delay by at least 11 August and that the EOT Notice should have been served 14 days after 11 August, i.e., by 25 August 2016.6
The Court of Appeal agreed that time bar clauses of this nature are strictly enforced. However, it did not agree that the EOT Notice was served out of time. Their Honours considered that the 11 August Notice required the Contractor to consider a number of detailed matters, including engineering questions on whether the air-conditioning works were defective, the legal effect of the notice, delay and extensions of time entitlements, and lastly a commercial decision on how to respond. Only after these matters had been traversed could it be said that the Contractor reasonably aware of the qualifying cause of delay. The Court of Appeal held that this occurred by at least 12 August 2016 and not by 11 August 2016 as determined by the primary judge.7
With respect, the Court of Appeal’s conclusion is difficult to reconcile against the factual background. It appears the Contractor could see the 11 August Notice being issued (and its effect) well before it was issued. It was not unreasonable to assume that the Contractor had reasonable knowledge (that is, in all of the circumstances) by 11 August.
Prospective or retrospective methodology
The Court of Appeal considered that it was open to an expert to assess delay on a prospective or retrospective basis. This is consistent with the earlier decision of Civil Mining & Construction Pty Ltd v Wiggins Island Coal Export Terminal Pty Ltd (WICET).8 The use of the disjunctive ‘or’ in clause 34.3(a) gives the Contractor a choice.9
The Court of Appeal also rejected the related submission by the Contractor that a Court “stands in the shoes of the superintendent” and must assess the delay as only the superintendent could have assessed it, i.e., on a prospective basis.10 Further, even though the Contractor had chosen to submit a claim based on a prospective analysis, neither the superintendent nor the Court was required to assess the claim on a prospective basis.
Retrospective methodology favoured
The Court of Appeal preferred Mr King’s retrospective delay analysis based on an incremental or windows approach over the prospective analysis of Mr Bell. The Court noted at [127] that one difficulty with a prospective approach is it assumes the forecast of time necessary to attend to new activities is accurate. Mr Bell acknowledged, apart from the adjustment to account for late delivery of the condensers, he had simply adopted the appellant’s estimates of the activities, and durations of those activities.
The Court of Appeal found that a second factor capable of producing inaccuracy when a prospective approach is taken, is that events which occur after the impact analysis, and which delay the works, are ignored. However, the Court considered that it is possible to perform a prospective analysis and then, as an additional step, consider the later history of the works shown in revised programs to determine whether the criticality of the relevant activity is maintained, an approach that Mr King had adopted in the WICET case.
While there does seem to be a growing trend against the use of a prospective methodology time distant from delay events (eg, during proceedings many months or years after the events in question)11 the following qualifications are noted:
a) A prospective methodology, such as a time impact analysis (TIA), remains a useful and recognised tool for measuring the impact of a delay event at the time the delay events arose and is likely to be the methodology of choice at that point in time provided updated programs have been kept. Changing delay methodologies simply because the principal or the Court assesses the claim at a much later date, is costly and often impractical for a contractor.
b) As noted by the Court of Appeal it is possible to perform additional steps which take into account later history. For example, there are steps recommended in guidance by the Association for the Advancement of Cost Engineering International (AACE International) Recommended Practice No. 29R-03 (paragraph 3.7 Additive ‐ Multi Base) that enables a prospective analysis such as a TIA to factor in actually occurring concurrent events.12
c) Lastly, the contract remains king. It is submitted that if it is clear that the wording prescribes the use of a particular methodology, an expert should remain faithful to it unless this produces an unreasonable or illogical result.
Delay damages
The Contractor’s delay damages claim was advanced on the basis that, as compliance with the 11 August notice caused it to take extra time to achieve practical completion thus justifying an EOT, it incurred a corresponding number of additional days on-site overheads.13
Applying a commonly adopted methodology,14 Mr Bell for the Contractor determined delay costs as follows:15
a) From the Contractor’s cost records, he used cost codes to identify costs which were an onsite overhead and time related in the period of the claimed critical delay and excluded those that he considered were not time related;
b) He then calculated the average daily time related cost rate from the identified onsite actual costs based on calendar days for each month in the period of critical delay; and
c) He then applied the average daily time related onsite cost rate to the number of critical delay days claimed (117) in each of the months.
The Court of Appeal considered that the Contractor had proven that the costs in the cost records provided to Mr Bell were actually incurred, as that document was tendered by consent. It was thus evidence of what it appeared to be. It was not put to any witness that the costs were not actually incurred.
There were two primary issues in contention:
Firstly, Mr Bell, for the Contractor had calculated delay damages during the period of critical delay, whereas Mr Hardiman, for the Principal had been instructed to assume that it was the period at the end of the project up to the adjusted date for practical completion. The Court of Appeal found that Mr Hardiman had been incorrectly instructed and there was authority to support Mr Bell’s position.16
The second substantial issue in contention centred around Mr Hardiman’s view that:
a) a delay to construction work does not automatically produce a commensurate retention of all site overhead resources throughout a period of prolongation; and
b) to determine whether the ‘time related site overheads’ are actual costs which were reasonably and necessarily incurred by reason of the 11 August notice under clause, he had to considered whether there is any evidence to show each item of time related overhead resource was on site during the critical period because of the 11 August notice and not for other unrelated reasons.17
The Contractor’s case was it had to keep its site open and operating for the period of the EOT, and that it should be entitled to its time-related on-site overhead costs of doing so. Mr Bell did not regard as relevant the question of whether the Contractor’s project manager was supervising air conditioning works for the period of the delay costs. His point was that to have the site open and functioning, the project manager needed to be there, and that because of the 11 August notice that requirement was extended for the period of the EOT granted.18
For the following reasons, the Court of Appeal agreed with Mr Bell’s approach.
a) Their Honours disagreed with a passage cited by the Principal from Mr Gemmell’s text, Quantification of Delay and Disruption in Construction and Engineering Projects, that in relation to site staff, it will be necessary to identify not only the functions of the staff being claimed but also that their tasks undertaken correspond to the reasons for delay19; and
b) Relying on dicta from Giles J in Thiess Watkins White, the Court noted that whether or not costs are caused by delay, is a question of fact and what will amount to sufficient proof in one case may not be sufficient in another. Here, there was a relatively large project underway, involving a large building site and many different resources deployed on it. It took seven months to complete the works after the 11 August Notice. In these circumstances the Court found that it was not unreasonable for the Contractor to have put forward its delay damages claim based on the need to retain staff for the extended duration of the project.
The Court of Appeal held that had the Principal wished to argue that some of the resources (human or otherwise) claimed by the Contractor as preliminaries ought to have been otherwise classified, it was open for it to do that. Similarly, if the Principal required supporting documents to substantiate costs these could be requested.20
The Court rejected Mr Hardiman’s opinion that Mr Bell should have gone beyond the cost accounting document and looked at timesheets, invoices, workplace diaries etc. It considered that this was based on the wrong assumption it was necessary for the Contractor to prove the time-related resources were working the air conditioning system the subject of the 11 August Notice.
Discussion – delay damages / prolongation costs
It is respectfully submitted that the Court of Appeal’s approach was a sensible and pragmatic one that recognises the challenges faced by contractors on particularly large projects and disputes where the time and costs involved in proving every causal link between a claimable delay and prolongation costs will be disproportionate.
The Contractor’s approach as endorsed by the Court does not, in our view, involve a reversal of the usual onus of proof or result in prejudice. The onus of proof was discharged by establishing that but for the extended duration of the project, the resources would not have been required. The Court of Appeal addressed any issue of prejudice by upholding the Principal’s right to assert that some of the resources claimed by the Contractor as preliminaries ought to have been otherwise classified. The reference to the classification of preliminaries is not in our view limited to a challenge based on whether the resource was time or task related. For example, if a principal could provide evidence that the resource was clearly working on unrelated activities and would have done so regardless of the EOT, we see no reason why a principal ought not to be entitled to do so. However, the onus would be upon the principal to make out such a case. If it was able to do so, the evidential burden would shift to the contractor to disprove it.
We have seen attempts to characterise contractor claims advanced on the same basis as ‘global’ claims. In our view, they are not, at least not ones liable to be struck out as embarrassing or prejudicial. Tellingly, the Principal did not contend that it was, and the primary judge and the Court of Appeal also did not address it as one. The SCL Protocol defines a “global claim” as follows:
A global claim is one in which the contractor seeks compensation for a group of Employer Risk Events but does not or cannot demonstrate a direct link between the loss incurred and the individual Employer Risk Events.
Unlike a global claim, the Contractor’s claim involved a direct link between the loss incurred (additional time related resources) and an Employer Risk Event (a variation) arising from the extended duration of the project. In any event, to the extent such a claim was global, it ought to be permissible to avoid a strike out by demonstrating that it is impractical to disentangle the causal nexus and this situation has not been brought about by delay or other conduct of the Contractor.21
In conclusion, this is an important decision for both principals and contractors and will no doubt spur debate and discussion.
This article was written by Brian Rom, Special Counsel and reviewed by Theo Kalyvas, Partner.
1 [2022] QCA 266 (20 December 2022) (Built QCA)
2 Built Qld Pty Ltd v Pro-invest Australian Hospitality Opportunity (St) Pty Ltd [2021] QSC 224 (Built QSC), [173] – [185]
3 Built QCA, at [30] referencing Johnson Controls Australia Pty Ltd v Webb Australia Group (NSW) Pty Ltd (2003) 96 ACSR 640 , 663–664, [145]–[146].
4 Built QSC, [1013]
5 Ibid, [1026]
6 Ibid, [1039]
7 Built QCA, [66] – [67]
8 [2017] QSC 85, [657]
9 Ibid, [660]
10 Built QCA, [112] – [117], referencing Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd [1999] 1 AC 266 and Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co [1903] AC 426
11 See V601 v Probuild [2021] VSC 849 at [588] and Catherine Williams, Is it Ever Appropriate to Employ a Prospective Delay Analysis for a Time Distant Event, in a Dispute Context?, Australian Construction Law Newsletter # 193 July / August 2020
12 Paragraph 3.7, I(1)
13 The same argument accepted in WICET
14 Dr Ronan Champion, Prolongation Costs: Where now after Costain v Haswell? Society of Construction Law paper, September 2011, 170
15 Built QSC, [1214]
16 Thiess Watkins White Construction Ltd v Commonwealth (1998) 14 BCL 61 (Thiess Watkins White), 67, per Giles J cited at [807] of WICET; Ascon Contracting Ltd v Alfred McAlpine Construction Isle of Man Ltd (1999) 66 Con LR 119, [43].
17 Built QCA, [157]
18 Built QCA, [161]
19 Robert J Gemmell, Quantification of Delay and Disruption in Construction and Engineering Projects Lawbook, 2nd ed, 2021, p558
20 Mr Hardiman, stated in his report that he did not have the accounting documents showing the Contractors preliminaries. The Court of Appeal considered that he should have called for it before he signed his report, and the Contractor’s solicitors should have provided it to him if requested.
21 John Holland Construction & Engineering Pty Ltd v Kvaerner RJ Brown Pty Ltd (1996) 8 VR 681 at [23]; Walter Lilly & Company Ltd v Mackay [2012] BLR 503 at [486]
