What is a construction contract? An essential requirement for protection under the security of payment regime

16 October 2023


The recent decision by the Supreme Court of Queensland in GCB Constructions Pty Ltd v SEQ Formwork Pty Ltd [2023] QSC 71 demonstrates the importance of ensuring there is a construction contract in place which meets the definition under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act) to safeguard the protection provided to contractors by the security of payment regime.

What happened?

At the request of GCB Constructions Pty Ltd (GCB), the head contractor for the construction of two residential towers on the Gold Coast, SEQ Formwork Pty Ltd (SEQ) performed formwork and supplied materials.

Prior to works commencing, SEQ provided a tender quotation to GCB for formwork, which was followed by a letter of award issued to SEQ by GCB which was expressed to be subject to agreement about “the terms and conditions of the AS 4903-2000 Subcontract Agreement”.

Negotiations ensued between the parties and works commenced, but ultimately, no contract was executed.

In March 2022, SEQ issued a payment claim to GCB in the form of a tax invoice claiming $391,907.61. In response to the payment claim, GCB’s payment schedule asserted that SEQ had no entitlement to any payment.

On 14 April 2022, SEQ lodged an adjudication application in respect of its payment claim. Following further submissions being requested and received, the adjudicator delivered an adjudication decision in favour of SEQ awarding the majority of the claimed amount, $367,124.39.

Following delivery of the decision, GCB applied to the Supreme Court of Queensland seeking a declaration that the adjudication decision be found void and of no effect, contending that there was no construction contract within the meaning of the BIF Act and therefore, the adjudicator had no jurisdiction to make a determination.

What did the Court decide?

Justice Burns agreed with GCB concluding that an agreement of the kind found by the adjudicator could not amount to a construction contract within the meaning of the BIF Act and did not represent an “other arrangement”, the existence of which is an essential jurisdictional requirement for a valid adjudication.

Burns J said there must be a “sufficient degree of mutuality to serve the purposes for which the arrangement is required under the Act including, of particular resonance in this case, enough settled detail to enable the work and/or materials to be claimed with precision and then valued to the same standard“.

In determining that an agreement of the kind found by the adjudicator did not represent a contract, agreement or other arrangement, Burns J said that the arrangement between the parties failed to include enough settled detail to enable the work to be claimed with precision, including:

  • how materials would be supplied or paid for;
  • the scope of the works included in the agreement;
  • the rates to be charged for labour; and
  • the time for the performance of any of the work, the making of claims, the time for payment, retention money or the transfer of ownership of the formwork.

Why is this important?

Section 64 of the BIF Act defines a construction contract as ‘a contract, agreement or other arrangement under which 1 party undertakes to carry out construction work for, or to supply related goods and services to, another party’.

While the case discussed in this article has taken a somewhat narrow approach to this definition, there is case authority which supports a broader interpretation. The New South Wales Supreme Court has previously drawn a distinction between the requirements of a contract and an “other arrangement”, with Nicholas J interpreting an “other arrangement” as: “In deciding whether a contract or other arrangement is within the definition of construction contract the only matter for consideration is whether it is one under which one party undertakes to carry out construction work, or to supply related goods and services, for another party.”​1

What do you need to do?

Contractors should exercise caution when performing construction work pursuant to any oral or pre-contractual negotiations. To attract the protections given by the BIF Act, contractors should ensure there is a construction contract in place which meets the definition under the BIF Act with clear terms governing the works.

How can HWLE help you?

We have considerable experience in relation to the BIF Act and our lawyers can provide tailored advice at all stages.

This article was written by Colin Harris, Partner and Kelly Brook, Associate.

​1Okaroo Pty Ltd v Vos Construction and Joinery Pty Ltd [2005] NSWSC 45 at [42]

Subscribe to HWL Ebsworth Publications and Events

HWL Ebsworth regularly publishes articles and newsletters to keep our clients up to date on the latest legal developments and what this means for your business.

To receive these updates via email, please complete the subscription form and indicate which areas of law you would like to receive information on.

Contact us