10/07/2014 – Basetec Services Pty Ltd v Clough Downer Joint Venture

Basetec Services Pty Ltd v Clough Downer Joint Venture

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10/07/14 – Basetec Services Pty Ltd v Clough Downer Joint Venture

Authorised Nominating Authority

Adjudicator

Registration Number

Claimant

Respondent

Project

 

Payment Claim

 

Payment Schedule

Adjudication Application

Adjudicator’s Acceptance

Adjudication Response

Adjudication Decision

Adjudicated Amount

Due Date for Payment

Rate of Interest

Apportionment of Adjudication Fees

 

Queensland Law Society

Chris Lenz

J622914

Basetec Services Pty Ltd

Clough Downer Joint Venture

Fairview Gladstone LNG Upstream

Project

Served 21 May 2014 for $1,880,781.26

plus GST

Served 4 June 2014 for $NIL

19 June 2014

24 June 2014 (email and letter)

26 June 2014

10 July 2014

$1,558,773.62

20 June 2014

8.5%

Claimant 50%

Respondent 50%

Table of Contents

A. DECISION

B. REASONS

I. Background

II. Application to an ANA and appointment of Adjudicator

III. Material provided in the adjudication

a. Claimant’s Material

b. Respondent’s Material

IV. Is it a Construction Contract within BCIPA?

V. Payment Claim

VI. Payment Schedule

VII. Jurisdictional issues

c. Payment claim related to 2 contracts

d. Payment claim insufficiently detailed

VIII. Merits of the claim

e. Further terms of the contract

f. Leaks in keylock joints

g. Backfilling trenches prior to hydrotesting

h. Damage caused by rainfall event

i. Qualification testing

j. Allegations of misconduct and sabotage

IX. The amount of the progress payment

X. Due date for payment

XI. Rate of interest

XII. Authorised Nominating Authority and Adjudicator’s fees

and

Attachment: CGL 1 – series of calculations spreadsheets

A. DECISION

I have made a decision under the Building and Construction Industry Payments Act 2004 (“BCIPA”), and in respect of the claimant’s payment claim, that:

as shown on the first page of this decision.

B. REASONS

I. Background

  1. Basetec Services Pty Ltd (referred to in this adjudication as the “claimant”) was engaged by the Clough Downer Joint Venture (referred to in this adjudication as the “respondent”), to install glass reinforced piping (“GRE”) for the Fairview Gladstone LNG upstream project (the “work”).
  2. The respondent requested the claimant provide its tender for the work on 10 April 2013, and the claimant submitted a tender on 23 April 2013 and after subsequent negotiations, verbal instructions together with correspondence from the respondent, the claimant commenced the work after 9 September 2013.
  3. The claimant had submitted 8 payment claims, including payment claim 8 dated 21 May 2014 (which is the subject of this adjudication, and which included all previous payment claims).
  4. Differences arose between the parties regarding payment claim number 3, and thereafter.
  5. The respondent’s payment schedule dated 4 June 2014 identified that $NIL was payable, and the schedule identified a number of reasons for non-payment, including 2 important jurisdictional issues.
  6. These jurisdictional issues related to:

(i) an assertion that the claimant was making a payment claim for 2 separate contracts, which is contrary to the prevailing law;

(ii) the payment claim failed to identify that the work, goods and services, in contravention of section 17(2) of the Building and Construction Industry Payments Act 2004 (“BCIPA”)

  1. The claimant disputed the payment schedule in its adjudication application dated 19 June 2014, and the respondent provided its adjudication response on 26 June 2014, in which it reiterated its jurisdictional objections, and amplified its reasons for non-payment.

II. Application to an ANA and appointment of Adjudicator

  1. The claimant applied over the Internet to the Queensland Law Society (“QLS”) on 19 June 2014 for adjudication. By letter dated 20 June 2014, the QLS referred the adjudication application no. 289 for me to determine.
  2. The QLS is an Authorised Nominating Authority under BCIPA and I am a registered adjudicator under BCIPA with registration number J622914.
  3. On 23 June 2014 the QLS received the original adjudication application documents by post which were delivered to me.
  4. By letter dated 24 June 2014 sent by email and facsimile to the claimant and to the respondent, I accepted the Adjudication Application and thereby became the appointed Adjudicator.
  5. On 26 June 2014 the respondent delivered 3 folders of its adjudication response.
  6. I find therefore that an adjudication application was made to an authorised nominating authority on 19 June 2014, and that there was a reference to an appropriately registered adjudicator, and that the respondent provided its adjudication response all within the time limits prescribed under BCIPA.

III. Material provided in the adjudication

  1. I received both an adjudication application and an adjudication response as follows:

a. Claimant’s Material

  1. Adjudication Application served on 19 June 2014 for $1,880,781.26 plus GST with the claimant’s submissions (the “application”) comprising 262 paragraphs of submissions as well as the 9 attachments.
  2. The attachments consisted of the following:

(i) attachment 2 (contract and/or evidence of contract);

(ii) attachment 3 (payment claim);

(iii) attachment 4 (payment claim – evidence of service);

(iv) attachment 5 (payment schedule);

(v) attachments 6 (payment schedule – evidence of service);

(vi) attachments 7 (written correspondence);

(vii) attachment 8 (photos);

(viii) attachment 9 (project documents A9–2 to A9–19);

(ix) attachment 9 – part 1 (progress payment claims 1 through to the payment claim 8);

(x) attachment 10 (costs and payments);

(xi) attachment 11 (meeting minutes).

b. Respondent’s Material

  1. Volume 1 – comprising adjudication response submissions , and statutory declarations of:

(i) attachment 2 – Ben Farren – Price;

(ii) attachment 3 – Grant Williams;

(iii) attachment 4 – Kevin Hicks;

(iv) attachment 5 – Nigel Condron;

  1. Volume 2 comprising:

(i) attachment 6 – statutory declaration of Alisha Moxon;

(ii) attachment 8 – LTR–CDJV–BAS–K128–L766;

(iii) attachment 9 – CDJV’ s progress and concerns report;

(iv) attachment 10 – “Basetec hours summary” which was submitted with progress claim 3;

(v) attachment 11 – email from David Reeves to Ryan Mah dated 24 November 2013;

(vi) attachment 12 – DAS records with respect to progress claim 3;

(vii) attachment 13 – letter from Basetec to CDJV dated 11 February 2014;

(viii) attachment 14 – DAS sheets for the period between 21 March to 9 April 2014;

(ix) attachment 15 – letter from Basetec dated 11 September 2013;

(x) attachment 16 – Basetec notification of variation 3;

(xi) attachment 17 – DAS records for progress claim 8;

(xii) attachment 18 – cases and commentaries relied upon by the respondent;

  1. Volume 3 – indexed copies of 18 documents referred to in the payment schedule.

IV. Is it a Construction Contract within BCIPA?

  1. There is a contest between the parties as to what constitutes the construction contract between them. It is evident that no contract document was signed between the parties, so that there is uncertainty as to precisely what constituted the contract, about which I must make a finding.
  2. In so doing I will need to have regard to the documents provided, together with correspondence and the conduct of the parties in deciding the ambit of the contract between the parties.
  3. At this stage, there is merely a need to ascertain whether there was a construction contract under BCIPA in order that I can be satisfied that I have jurisdiction to consider the matter further.
  4. I find that the claimant carried out the work for the respondent, which consisted of installation of GRE pipelines as a subcontractor. [Paragraph 16 of the adjudication application, and paragraph 2.9 of the payment schedule].
  5. I also find that the respondent had entered into a head contract with Fluor Australia Pty Ltd (“Flour”). [Paragraph 8 of the adjudication application and paragraph 2.3 of the payment schedule.]
  6. Before analysing the precise terms of the contract, which is carried out below, I am satisfied from the reviewing all the documents provided by the claimant and respondent, and their conduct by inference from these documents, that the mechanism for producing payment claims was based on the Daily Activity Statements (“DAS”), which included the hours worked by the claimant’s various personnel, together with certain items of equipment to carry out the work.
  7. I find the parties had agreed to rates for the claimant’s personnel (the “schedule of rates”) [paragraph 2.8 of the payment schedule]. However, there is some dispute about the description of personnel in the payment schedule and adjudication response, which are dealt with below.
  8. Nevertheless, I find that the monthly cost for the works were derived by multiplying the hours worked by the claimant’s personnel by their respective rates, and the hours for certain equipment being deployed by their respective rates, and then totalling the costs.
  9. I find that each payment claim was supported by a one sheet progress claim (to which I make reference in the “Payment Claim” heading below), which had the monthly costs calculated for the personnel and equipment deployed, to which a 12.5% markup was added.
  10. I find that the respondent agreed (as can be seen at paragraph 23.3 of the payment schedule) that a margin of 12.5%, was appropriate.
  11. Somewhat curiously, each one of the one sheet progress claims had an amount of retention of 5% ADDED to the progress claim, and I find that these amounts were paid by the respondent, because the payment contest between the parties commenced with payment claims 3 to 7, and the contest between the parties did not appear to deal with retention ADDED by the claimant. There is, however, some contest about claims for retention in payment claim 8 to which I will refer later.
  12. The contract therefore, whatever its terms, was a schedule of rates contract involving the claimant installing GRE pipeline on the project, and it is important to decide whether this contract falls within the definition of a “construction contract” under BCIPA, because it is only such a contract which can be adjudicated.
  13. Schedule 2 of BCIPA states that a construction contract means a “contract, agreement or other arrangement under which one party undertakes to carry outconstruction work for, or to supply related goods and servicesto, another party.”
  14. I must first consider whether the claimant carried out construction work or supplied related goods and services in relation to construction work. At paragraph 2 of the adjudication submissions, the claimant states that the work falls within sections 10 and 11 of BCIPA, and the respondent does not take issue with this in the adjudication response. Nevertheless, it is appropriate to ensure that what the claimant was providing was out construction work or supplied related goods and services in relation to construction work.
  15. Construction work is defined in section 10of BCIPA and from the material I am satisfied that the construction of the GRE pipeline falls within the meaning of section 10(1)(b) of BCIPA which provides:

“the construction, …of any works forming, or to form, part of land, including…, pipelines;”

  1. In addition, section 11(1)(b) of BCIPA provides that related goods and services, in relation to construction work means-

…. .(b) services of the following kind –

(i) the provision of labour to carry out construction work;”

  1. I am therefore satisfied that by providing labour and some plant [which falls permitted the definition of s11(1)(a)(ii) of BCIPA] the claimant supplied related goods and services in relation to construction work in accordance with the definitions in section 11 (1) of BCIPA.
  2. I am satisfied that the contract, whereby the claimant undertook to carry out this work is a construction contract within the meaning of BCIPA.
  3. I am therefore satisfied that there was a construction contract to which the payment claim related and the respondent has not pointed to, nor have I found, that any of the exceptions under section 3 of BCIPA apply. Accordingly, I am satisfied that the matter can be adjudicated.
  4. I will now briefly examine the payment claim and payment schedules together with the respective submissions on jurisdiction, to identify the salient facts in order to consider the 2 important jurisdictional issues that have been raised by the respondent in the payment schedule and the adjudication response.
  5. It is only if I find that I have jurisdiction, that I will then consider the merits in more detail.

V. Payment Claim

  1. On 21 May 2014, the claimant served a payment claim relating to the work that it carried out, and I find this document in attachment 3 of the claimant’s application.
  2. The respondent takes issue with the contents of the payment claim in paragraphs 10 and 11 of the payment schedule as a jurisdictional issue (to which I make reference below) so it is important for me to make a finding about the contents of the payment claim, and this requires looking at it in some detail.
  3. The fax transmission dated 21 May 2013 attaching the payment claim contained the endorsement payment claim made under the Building and Construction Industry Payments Act 2004 QLD, so I am satisfied that the payment claim was endorsed as is required by section 17(2)(c) of BCIPA.
  4. The covering letter to the payment claim refers to work carried out pursuant to the respondent’s letter of intent dated 9 September 2013 and its letter of direction to proceed with mobilisation dated 16 October 2013, and these two documents were attached.
  5. The payment claim itself comprised a number of documents as follows:

(i) tax invoice number: 1054 dated 21 May 2014, claiming an amount of $1,880,781.26, together with $188,078.12 GST, totalling $2,068,859.38, which comprised a series of previous payment claims 1 through to 7 with reference to invoice numbers, and references to “retention amount”, “dispute amount”, “retention credit”, “approved amount to be paid” and “outstanding amount”. However, in relation to each invoice number, which relates to a particular payment claim there is reference “for description refer to attachment titled payment claim…”; and then behind this invoice are the following:

(ii) tax invoice number 1015 dated 21 October 2013, with attached one sheet progress claim 1 identifying amount received of $291,189.94, and retention withheld of $32,354.44;

(iii) tax invoice number 1023 dated 29 November 2013, with attached one sheet progress claim 2 identifying amount received of $478,071.90 and retention withheld of $53,119.10;

(iv) tax invoice number 1024A dated 16 December 2013, claiming an amount of $643,226.77 plus GST, resulting in a total of $707,549.45;

(v) tax invoice number 1024B dated 16 December 2013, with attached one sheet progress claim 3 identifying an amount received of $643,226.77, and an amount of retention of $71,469.65 with an amount outstanding of $35,451.68 plus GST;

(vi) tax invoice number 1033A dated 22 January 2014, claiming an amount of $489,481.35, together with $48,948.14 GST, totalling a claim of $538,429.49;

(vii) tax invoice number 1033B dated 22 January 2014, with attached one sheet progress claim 4 for identifying an amount received of $489,481.35, and retention withheld of $54,386.82, with an amount outstanding of $30,629.22 plus GST;

(viii) tax invoice 1040A dated 1 March 2014, claiming an amount of $650,708.43 plus GST, totalling an amount of $715,779.27;

(ix) tax invoice 1040B, dated 1 March 2014, with attached one sheet progress claim 5 identifying an amount received of $650,708.43, an amount of $72,300.94 retention withheld, and an amount outstanding of $57,059.78 plus GST;

(x) tax invoice 1047A dated 1, April 2014, claiming an amount of $505,571.58 plus GST, totalling a claim of $556,128.74;

(xi) tax invoice 1047B dated 1, April 2014, with attached one sheet progress claim 6 identifying an amount received of $505,571.58, with nil retention withheld, and an amount outstanding of $298,025.56 plus GST;

(xii) tax invoice number 1053A dated 1, May 2014, claiming an amount of $431,262.00 plus GST amounting to a total claim of $474,388.20;

(xiii) tax invoice 1053B dated 1, May 2014 with attached one sheet progress claim 7 identifying an amount received of $431,262.00, with nil retention withheld, and an amount outstanding of $305,829.73 plus GST;

(xiv) one sheet progress claim 8 claiming a subtotal of $722,523.30 plus GST;

(xv)1 page summary spreadsheet for the claimant’s personnel between the dates of 21 April 2014 and 20 May 2014.

  1. There was an amount of $2,068,859.38 including GST identified in the payment claim, so I’m satisfied that the payment claim has identified an amount as required by section 17(2)(b) of BCIPA.
  2. I will go into further detail about the contents of the payment claim under the jurisdictional issues “Payment claim insufficiently detailed” discussed below.

VI. Payment Schedule

  1. On 4 June 2014 the respondent provided the claimant with a payment schedule comprising 26 submissions in 47 pages, together with 7 attachments.
  2. It referred to the payment claim and specified the schedule amount of $NIL, and I find that it was made within 10 business days of receipt of the payment claim.
  3. I’m satisfied therefore that the payment schedule complies with section 18(2) of BCIPA which can be adjudicated.
  4. I now turn to the jurisdictional issues raised in the payment schedule and the adjudication response.

VII. Jurisdictional issues

  1. In part A of the payment schedule headed “Jurisdictional Issues” in paragraph 5 through to 12 from pages 11 through to 17 the respondent argued that the payment claim was invalid because:

(i) it related to 2 separate contracts;

(ii) it failed to identify the construction work or related goods and services to which the progress claim related.

  1. In part B of the adjudication response headed “Jurisdictional Issues” in paragraph 11 through to 20 from pages 23 through to 31 of the adjudication submissions, the respondent reiterated the 2 jurisdictional issues that it had raised in the payment schedule, namely that the payment claim:

(i) related to 2 separate contracts and was therefore invalid (the “payment claim related to 2 contracts issue”; and

(ii) failed to identify the construction work or related goods and services to which the payment claim related, and was therefore invalid (the “payment claim insufficiently detailed issue”).

  1. These are 2 important jurisdictional matters, which if they are made out, preclude an adjudicator from having jurisdiction. I will consider each in turn.

c. Payment claim related to 2 contracts

  1. I agree with the respondent that if I find that there are 2 contracts to which the payment claim relates, I do not have jurisdiction.
  2. I therefore need to consider the purported novation of the contract by the respondent to Fluor in some detail, because it goes to the heart of jurisdiction.
  3. In order to assess the issue of novation, it is necessary to some extent to determine the terms of the contract, because novation is alleged pursuant to a term of the contract.

Claimant’s submissions about terms of contract

  1. At paragraph 30 of the adjudication application submissions, the claimant identified the following documents comprising the terms of the contract:

Written terms

(i) scope of work, to which it attached the scope at A2–6 and the full scope of work at A2 – 11;

(ii) schedule of rates and cost reimbursable items, to which it attached the documents at A2–8;

(iii) ongoing correspondence between the parties;

(iv) submitted variations to which it referred to attachments A7–9A through to A7-12 and A7–15.

  1. At paragraph 31 of the adjudication application submissions, the claimant referred to the oral terms that:

Oral terms

(i) monthly progress claims were to be submitted on the 21st of each month and payable monthly;

(ii) white-collar workers travel time was to be paid similar to the blue-collar workers;

(iii) the personnel (both white blue-collar) would work the hours permitted in the EBA.

Respondent’s submissions about terms of contract

  1. Paragraph 5 of the respondent’s adjudication response submissions from pages 5 through to 7 deals with the respondent’s version of the contract and essentially argued that revision 3 of the draft sub contract (the “revision 3 contract”) that went between the parties evidenced the terms of the contract about which agreement had been reached. [Paragraph 5.4 of the response submissions].
  2. In paragraph 5.3 of the adjudication response, the respondent refers to its submissions in the payment schedule (paragraph 2.15) in which it asserted what terms had been agreed between the parties as follows:

(i) the claimant was to endeavour to achieve an average minimum installation rate of 250 m of GRE type per day;

(ii) the respondent was entitled to deduct retention up to the value of 5% of the contract sum by deducting 10% from each progress claim until the 5% amount had been reached;

(iii) the respondent was entitled to instruct the claimant to vary the work, but only in writing;

(iv) the respondent was entitled to set off amounts that it asserts became payable to the respondent.

  1. In paragraph 5.10 of the response submissions, the respondent reiterated its list identified in the payment schedule above in 5.10(a) through to 5.10(d), but then added other terms identified in 5.10(e) through to 5.10(h) (the “additional terms”).
  2. These additional terms were:

(i) 5.10(e)- the claimant must rectify any damage caused to the works by weather events, including flooding, at its own cost;

(ii) 5.10(f) – the respondent could novate the contract to Fluor at any time, without the claimant’s consent;

(iii) the respondent could direct the claimant to remove any of the claimant’s personnel if they were deemed objectionable;

(iv) if any of the claimant’s work contained any omission, defect or damage due to an omission or defect, the claimant must, upon giving written notice by the respondent, rectify the defect, omission or damage at its own cost.

  1. If any of these additional terms have become a basis for non-payment, it will be necessary to more closely examine the payment schedule, to ascertain whether these issues had previously been raised as a reason for non-payment. If it is the case that any of these additional terms become a fresh reason, they will be excluded, because section 25 (4) of BCIPA prevents a respondent from introducing fresh reasons for non-payment in the adjudication response.
  2. Nevertheless, for present purposes the issue is whether:

(i) the contract contained the novation term; and if it did

(ii) whether the facts demonstrate that a novation occurred.

Novation term

  1. In paragraph 5.9 of the response submissions, the respondent says that if neither party rejected or demurred to a particular clause, then this clause formed part of the contract between the parties. It provided no authority in support of this important submission, so I find that I’m not constrained by authority to accept this submission. However, neither do I have any guidance as to how to analyse the respondent’s submissions.
  2. Unfortunately, in paragraphs 25 through to 46 in the application, the claimant does not deal with any authorities in support of its assertions regarding the terms of the contract; so neither side has provided assistance in determining the terms of the contract asserted by each party.
  3. In my view, therefore, it is necessary to consider this issue as a matter of principle, but for present purposes, the analysis is confined to the novation term, because this is the term that supports the jurisdictional objection.
  4. In the text, Cheshire and Fifoot: Law of Contract (2008) (9th Australian edition) (“C&F”), at paragraph 3.5 (pages 96 to 98), the learned authors said, “The rigidity of offer and acceptance is sometimes ill suited to what people actually do….This is particularly evident with the ‘battle of the forms’… From time to time attempts have been made to escape the straitjacket of offer and acceptance by accepting a ‘global’ approach to negotiations between the parties. On this approach the court’s task is to ask whether, objectively and having regard to the totality of the dealings between the parties, they should be considered to have entered into a contractual relationship without enquiring too closely into the formalities of offer and acceptance….. These approaches, as alternatives to the offer – acceptance model, to determining contract formation are well – established in Australia. It is a beneficial development in the law, reflecting what many commercial people actually do rather than artificially analysing their interactions by reference to the traditional offer and acceptance model.
  5. At paragraph 3.9 of C&F, at pages 102 and 103. The learned authors continue,

When there are protracted or imprecise negotiations, there will often be doubt about whether finality of agreement has been reached. This problem has generated a very large number of reported cases. The court’s task is to ascertain from the dealings between the parties, whether they intended to make a concluded bargain or not. That intention is, of course, tested objectively by reference to what a reasonable observer would have concluded. This kind of problem potentially involves at least 3 areas of contract law:

  1. contract formation (often in the absence of identifiable offer and acceptance);
  2. intention to create legal relations; and
  3. agreements to agree.

In addition, misleading conduct and estoppel very frequently feature in cases of this kind.

If the parties have expressly indicated that the negotiations are ‘subject to contract’ then there is a very strong presumption that contractual relations will not be established. Unless and until a formal contract has been executed (or, in some cases, exchange of contracts have taken place).”

  1. I am satisfied that this text provides a suitable framework within which to analyse the parties’ negotiations and the documentary “ping pong” in order to determine the terms upon which they agreed.
  2. At paragraph 28 of the adjudication submissions, the claimant identified that it commenced the site work on the basis of verbal instructions as well, as a letter of intent dated 9 September 2013 and a further letter dated 16 October 2013. It attached both letters at attachments A7 – 4A and A7 – 9 of its application.
  3. The respondent’s letter of intent dated 9 September 2013 stated that the respondent intended to enter into a binding agreement subject to the parties reaching agreement and mutually acceptance of material terms in good faith.
  4. The respondent’s 16 October 2013 letter contained the instruction for the claimant to proceed with mobilisation and made reference to, “In doing so, subcontractor is entitled to submit a claim for applicable lump-sum costs in accordance with unexecuted subcontract rates, the subcontract being currently subject to ongoing negotiations.
  5. The letter of intent demonstrated that no agreement had been entered into, but that the respondent intended to do so. Neither the claimant nor the respondent has asserted that until the contract was signed, there was no agreement between the parties, so that presumption identified by the learned authors in paragraph 3.9 (extracted above) does not apply.
  6. Some of the documents reflecting the contract negotiations had been provided by the parties. The following documents are in evidence:

(i) on 9 September 2013, the respondent issued a letter of intent [attachment A2 – 1 in adjudication application];

(ii) on 11 September 2013, the claimant’s response to the letter of intent and direction to proceed, confirming that it also intended to work towards an agreement within 28 days in good faith. [Attachment A2 .2 in adjudication application];

(iii) on 18 September 2013, the respondent responded to its earlier letter of intent and requested the claimant provide a tracked draft form a sub contract (which had been previously issued) [attachment A2 – 3 in adjudication submissions];

(iv) on 20 September 2013 the claimant attached its comments against the subcontract in an attached spreadsheet. [Attachment A2 – 4 in the adjudication application]. The attached spreadsheet was not provided in the adjudication submission material;

(v) on 16 October 2013 the respondent sent a letter of direction to proceed with mobilisation. [Attachment A2 – 5 in adjudication application];

(vi) undated Scope of Work (revision 1) (“SOW1”) [Attachments A 2 – 6 and A 2 – 11 in the adjudication submissions]. In this document:

  1. the “qualification joints and testing”, which was a claimant responsibility was included;
  2. furthermore, the activity “padding, backfill and compaction”, was a respondent responsibility;
  3. in paragraph 5.2 on page 7 there was reference to “joint repairs and cutouts if required,”, and “repairs to defective or damage pipe, if required”;

(vii) in submission 2.12 of the payment schedule, the respondent stated that the claimant had proposed amendments to the terms of the contract on 4 October 2013 and the respondent had made further amendments on or about 18 October 2013. In paragraph 5.4 of the adjudication response the respondent reiterated that the revision 3 of the sub contract took place on 18 October 2013. However, no documents were attached. However, there is a notation on the revision 3 document referred to in the next paragraph, which had a date of 18 October 2013, so I find that the revision was made on that date;

(viii) on 23 January 2014, in an email the claimant alleged that there had been an agreement that a minor works contract with additional clauses would be reviewed, and Mr Paul Figallo asked when he could expect the contract [Attachment 11 – adjudication response Volume 3];

(ix) on 22 January 2014 in minutes of a meeting with the claimant, Nigel Condon of the respondent it was reported, “Nigel mentioned CDJV’s contract with Fluor is based on reimbursable items regarding labour, materials, etc. Supplied for the project. As a result Basetec’s hours worked are covered under the reimbursable contract between CDJV and Fluor and therefore these hours will be paid by CDJV when signed off.” [Attachment A11-1 in adjudication application];

(x) on 12 February 2014, the claimant asked about the whereabouts of the contract and requesting one be put in place [Attachment 11 – adjudication response Volume 3];

(xi) on 13 February 2014 in minutes of a meeting between the claimant and respondent, it was reported, “Nigel said Basetec will be paid for whatever the Basetec crew is instructed to do on site, whether it is Basetec’s current scope or not.” [Attachment A11-2 in adjudication application];

(xii) on 13 February 2014 the respondent attached revision 3 of the final subcontract (the “revision 3 contract”) and added that it was prepared to accept this contract without deviation. [Attachment 11 – adjudication response Volume 3]. In this document:

  1. the scope of work in section 4 is similar to SOW1, although it is more prescriptive, and on page 85 contains the opening words, “The scope of service includes, but is not necessary limited to, the appropriate provision of resources to complete the scope of works as listed below.” These opening words were not in SOW1;
  2. however, “Qualification joints and testing”, which was a claimant responsibility was not included;
  3. furthermore, the activity “padding” had been allocated as a claimant responsibility, and the claimant challenged this inclusion in a comment;
  4. the activity “backfill and compaction” remained a respondent responsibility;

(xiii) clause 10.1 of the revision 3 contract provided for novation of the subcontract, and there was a comment [DS 44: accepted] in response to comment [CL 43], which was dealing with an objection by the respondent to the claimant having the right to assign and novate the contract, and that it was a flowdown clause from the main contract that had to remain;

(xiv) on 15 February 2014 in minutes of a meeting between the claimant and respondent it was reported that, “Nigel mentioned that commercially it was very simple and that Basetec will get paid for hours worked on site.” [Attachment A11-3 in adjudication application]. This was in the context of discussions about “padding” and the disagreement about which party had that work in its scope;

(xv) on Thursday 6th of March 2014, in Paul Figallo’s email to Alisha Moxon, he said at item number 1, “I understand that a contract hasn’t been accepted by either party at this stage…” [Attachment 12 in the adjudication response submissions, volume 3];

(xvi) On 16 March 2014, Mr Paul Figallo wrote to Mr Nigel Condron of the respondent, and said that, “Basetec notes that CDJV has failed to enter into a formal contract agreement with basic services for the ‘GRE pipelines installation’… Basetec again highlights that subcontract document number: 08363–G–7062 is not agreeable in any form. Our current scope of works and current resources are not sufficient enough to warrant’s acceptance of such a document, we have clarified this several times.” [Attachment 14 in adjudication response volume 3]. In this document, the claimant accepted responsibility for pipeline repairs which were limited to its scope of works and did not accept any cost or liabilities for work outside the scope;

(xvii) on 24 March 2014 the respondent’s operations and business manager, Brett Sangster rejected the claimant’s allegations in its 16 March 2014 letter and reiterated the direction for the defects to be rectified, which he said were on the critical path, and that all direct and consequential costs for this work were to be borne by the claimant. In addition, he said that no further commercial discussions whatsoever would take place until the defects had been rectified to the respondent’s sole satisfaction.

  1. When reviewing the revision 3 contract, it is evident that the majority of the comments identified in it reflect that the parties had not agreed to the clauses where comments were provided.
  2. Furthermore, after 13 February when the revision 3 contract had been again provided to the claimant, it can be seen from correspondence from the claimant from at least March 2014 onwards that the parties were no closer to a signed agreement. In fact in the 24 March 2014 letter from the respondent it made no reference to a particular clause in the contract in support of the direction to rectify defects.
  3. Given that I’ve been provided with no authority in support of the respondent’s submission in paragraph 5.9 of the adjudication response that, if a clause contains no rejection or demurrer comments that this meant that the parties had accepted that clause (the “silence submission”), I am not prepared to accept this proposition without specific analysis of the facts relating to the specific clause.
  4. One example to illustrate the inappropriateness of the silence submission is that the SOW 1 provided that, “Qualification joints and testing” was to be provided by the claimant. However, in the revision 3 contract containing the scope of work this activity was missing, and the revision 3 contract had been proffered by the respondent to be accepted without deviation, so if one accepted the respondent’s silence submission, then qualification joints and testing would not be a term of the contract. It is evident from the conduct of the parties that qualification joints and testing had been agreed to be carried out by the claimant, so in my view the silence submission should not be accepted.
  5. I appreciate that I am obliged from the documents and the parties’ conduct to ascertain the bargain that was struck between the parties. I have already found that there was a construction contract between them because for 8 months work was carried out by the claimant in response to the respondent’s letter of intent.
  6. At paragraph 28 and 29 of the adjudication application the claimant alleged that on 25 November 2013 it sent its final version of the contract to the respondent and had no response until 13 February 2014.
  7. Alisha Moxon provided a statutory declaration in which, at paragraph 19, she disagreed with these submissions. She made reference in paragraph 22 with a meeting with Mr Webb of Fluor on or about 24 September 2013, whom she said. “…agreed with most, if not all, of the justifications provided by CDJV to refute-Basetec’s requested variations”.
  8. I appreciate that Fluor appear to have a significant influence in relation to the contractual dealings between the parties. For example, at paragraph 2.8 of the payment schedule, the respondent said that, “On or about 4 September 2013, Fluor directed CDJV to enter into a subcontract with Basetec in accordance with the pricing schedule that it had negotiated with Basetec.” In attachment 2 to the adjudication response volume 3, there is an email from Cliff Webb to Alisha Moxon confirming the Fluor instruction that the respondent enter into a subcontract with the claimant.
  9. Furthermore, in paragraph 16 of the adjudication application, the claimant said that it was subsequently engaged by the respondent on Fluor’s instructions, so Fluor’s influence throughout this project is pervasive.
  10. Alisha Moxon’s statutory declaration deals with assertions, in paragraph 24, that between December 2013 and the Christmas shutdown there had been attempts to finalise the contract. However, she conceded that she’d not been directly involved in these discussions, and to my mind, such assertions are hearsay and they do not assist in determining the terms of a contract that was entered into.
  11. Furthermore, it is evident by the time she left the project in March 2014, the contract had not yet been signed, and despite her assertion at paragraph 31, that all payment claims were submitted and paid under the revision 3 contract, this is at odds with the attachment 12 email from Paul Figaro to her dated 6 March 2014, in which he reiterated that no contract had been concluded, and in which he complained about the deductions made by the respondent. She did not refer to that email in her statutory declaration, and nowhere in the email did she tell Mr Figaro that there was a concluded contract to which the claimant was bound.
  12. Earlier in paragraph 2.7 of the payment schedule the respondent referred to meetings between Fluor and the claimant in early September 2013 regarding a pricing schedule for works on the project, in which there was an allegation of a total amount of $3,628,342.13 for all works “including a margin of 12.5%” (the “total amount”). In attachment 2 of the adjudication response submissions, volume 3, the email from Mr Webb of Fluor dealt with the target price estimates summary, together with a reference to “…a minimum 250 m per day and CDJV is to apply due diligence in attempts to expedite the Basetec crews to an improved productivity level. This is achieved by maintaining continuous access and material continuity.”
  13.  The total amount appears in schedule 3 – Agreed Pricing Schedule in the revision 3 contract on page 108, in which it was stated, “The Agreed Pricing Schedule contained herein is the outcome of negotiations held between company and subcontractor as to the defined scope and pricing structure.”
  14. This statement in the revision 3 contract is at odds with paragraph 2.8 of the payment schedule, in which (paraphrasing) the respondent says that Fluor directed it to enter it into a subcontract with the claimant in accordance with the pricing schedule that Fluor (not the respondent) had negotiated with the claimant, and which Fluor then directed that the respondent use for the subcontract.
  15. Unfortunately, this is but one example of inconsistencies in the submissions and documents from both parties, which whilst it is inevitable in adjudication because of the limited time frame for both parties, confirms to me that each particular alleged term of the contract needs to be analysed closely before a finding about that term can be made. Therefore, I will proceed on making a finding about each term on a clause by clause basis.
  16. The specific clause in question under this jurisdictional heading is clause 10.1, and although I have not been provided with the claimant’s response to the revision 3 contract in the claimant’s material, I can find, in its response to the respondent on the revision 3 contract, that the claimant had wanted the rights to novate the contract, because it was to this suggestion that the objection was raised by the respondent in comment “CL 43”.
  17. The acceptance by the claimant in DS 44, could by inference therefore be confined to accepting that it did not have the rights to novate the contract. However, clause 10.1, also specifically allows for the respondent to novate the contract, and without the claimant’s consent. On balance, therefore, I am prepared to accept that the novation clause was agreed to by the claimant.

Facts

  1. However, it is now necessary to investigate the facts of whether a novation did occur in terms of clause 10.1 of the revision 3 contract.
  2. In paragraph 6 of the payment schedule, the respondent dealt with the 2 separate contracts issue, and in paragraphs 2.36 through to 2.42 it raises the issue of novation directly as a reason for non-payment.
  3. In paragraphs 32 through to 36 of the adjudication application, the claimant dealt with the issue of novation.
  4. The claimant attached attachment A7 – 74A, which is an email from Cliff Webb of Fluor stating, “It is Fluor’s intention to descope the Basetec’s works from CDJV, thus allowing Fluor to enter into a direct contract with Basetec.”
  5. The claimant alleged (at paragraph 33 of the adjudication application submissions) that there needed to be an appropriate commercial closure of its agreement with the respondent prior to the claimant being in a position to be engaged by Fluor, and in support it provided attachment A7 – 78A, and A 7 – 81A.
  6. Attachment A7 – 78A is an email dated 9 May 2014 from Fluor to the respondent dealing with the claimant’s payment claim 6 and 7 and some alleged recovery by the respondent of rework costs from the claimant. However, attachment A7 – 78A also includes a letter from the claimant to Fluor dated 13 May 2014
  7. These two documents support the assertion in paragraph 33 of the adjudication application of the claimant’s repeated expression to Fluor that the claimant needed the agreement with the respondent dealt with before entering into a contract with Fluor. Furthermore when read together with attachment A7 – 81A dated 28 May 2014, which deals with a direct contract between Fluor and the claimant, I am satisfied that the claimant had advised Fluor of the necessity to have the contract with the respondent commercially dealt with satisfactorily.
  8. Attachment A7 – 81A deals specifically with the need for resolution of outstanding commercial matters between the claimant and respondent and invited both parties to a meeting on 21 May 2014 to achieve resolution, so despite the 13 May 2014 letter from the claimant to Fluor referring to a contract directly with Fluor by 21 April 2014, it is evident that this did not occur by 21 April 2014.
  9. What I am prepared to infer from the facts is that Fuor could not have directed the respondent to novate the contract to Fluor as asserted in paragraph 12.1 of the adjudication response, because as late as 28 May 2014, Fluor was wanting to negotiate with the claimant to enter into a contract by 31 May 2014, but needed the claimant and respondent to resolve their differences before doing so.
  10. Whilst I accept that on 14 May 2014 and 15 May 2014, the respondent issued notices to the claimant regarding the alleged novation, it could not have been, as asserted in the 14 May 2014 letter, at the request of Fluor, because as late as 28 May 2014, I can safely infer that Fluor still has not entered into a contract with the claimant.
  11. Furthermore, the respondent in paragraph 12 of its adjudication response does not engage directly with the claimant’s submissions relating to novation (paragraphs 32 through to 35 in particular) and the claimant’s supporting facts of the Fluor correspondence and does not controvert those submissions.
  12. Accordingly, I am satisfied that the novation did not occur.
  13. However, the respondent argues that Fluor’s and the claimant’s preliminary steps towards the ultimate novation of its contract to Fluor could be construed as a construction contract under BCIPA, such that the claimant between 12 May 2014 and 4 June 2014 had a construction contract with Fluor [paragraphs 12.7, 12.8 , and paragraph 13 of the adjudication response].
  14. This is an interesting argument, which could have required analysis in more detail, save for 2 key facts which do not support the argument, namely that:

(i) as at 28 May 2014, I find that Fluor had not yet entered into an agreement with the claimant, and it is unsafe to accept in those circumstances, that there was some “other arrangement” that may have been entered into by conduct, (paragraph 12.8 of the adjudication response), because it is clear that no agreement had been reached, and as of that date the contract between the claimant and respondent was still on foot. I appreciate that the authority of Okaroo deals with “other arrangements”; however, I cannot accept that it is an authority that compels one to find that in the face of a subsisting contract between the claimant and respondent, that some “other arrangement” could simultaneously exist between the claimant and Fluor for the same work;

(ii) on 4 June 2014 the respondent terminated the contract with the claimant, which in my view is somewhat curious conduct, if, as the respondent asserts, the respondent had already successfully novated the contract to Fluor on 12 May 2014.

  1. I find as a matter of fact that this conduct, together with the correspondence from Flu0r indicates that the contract between the claimant and respondent continued until it was terminated on 4 June 2014.
  2. Accordingly, I am not satisfied that the claimant and Fluor had entered into a construction contract under BCIPA.
  3. I find that there was only one construction contract between the claimant and respondent for payment claim number 8, which means I have jurisdiction to adjudicate this payment claim.
  4. I need to deal with the next jurisdictional point that the payment claim is insufficiently detailed.

d. Payment claim insufficiently detailed

  1. The complaint in the payment schedule and the adjudication response is the failure to identify the construction work and related goods and services to which it relates, thereby depriving the respondent of the opportunity to respond meaningfully to the claim because it is forced to guess as to the basis of the claimant’s entitlement.
  2. I have some difficulty in understanding this complaint, because I have found that the construction contract in this instance included a schedule of rates, whereby the claimant carries out the installation of the GRE pipeline with a crew of personnel and some equipment to which it was entitled to payment for the hours spent by these personnel as well as the equipment deployed to assist in carrying out the work.
  3. The daily activity statements (“DAS”) sheets referred to by the parties have been provided in Attachment 9 – Part 1 to the claimant’s adjudication material.
  4. Having reviewed all the documents submitted to me I find that these DAS sheets were provided to the respondent, because it is evident that the respondent has made references to errors within them
  5. These DAS sheets contain the data for each payment claim and the one sheet progress claim (numbers 1 through to 7) provide a summary of this data, which were attached to payment claim 8, the subject of this adjudication.
  6. The one sheet progress claim sheets identify a series of item numbers with descriptions, rates and hours worked (in the case of personnel) or utilised (in the case of tools and equipment.
  7. As mentioned above, under the heading “Is it a Construction Contract within BCIPA” I have referred to how this one sheet progress claim adds the costs derived in multiplying the hours of each personnel by their respective rates, together with the cost of and time deployed of any equipment. To this total is added a markup of 12.5%, AND a retention of 5%, which is then subtotalled and then an amount of retention is subtracted, and a previous amount received is then deducted from which is calculated an amount outstanding. To this amount GST is then added.
  8. I do not agree with the respondent that it is not possible for it to understand the claim being made by the claimant. In the case of Protectavale Pty Ltd v K2K Pty Limited [2008] FCA 1248, which the respondent relies upon as authority for its jurisdictional argument, it is useful to note that Finkelstein J said:

“[10] It is necessary to decide whether the invoice meets the requirements of s14. The test is an objective 1; that is, it must be clear from the terms of the document that it contains the required information: Walter Construction Group Ltd v CPL (Surry Hills) Pty Ltd [2003] NSWSC 266 at [82]. But the terms must be read in context. Payment claims are usually given and received by parties experienced in the building industry who are familiar with the particular construction contract, the history of the project and any issues which may have arisen between them regarding payment. Those matters are part of the context: Multiplex Constructions [2003] NSWSC 1140 at [76]… [My underlining]

..[12] Nonetheless a payment claim must be sufficiently detailed to enable the principal to understand the basis of the claim. If a reasonable principal is unable to ascertain with sufficient certainty the work to which the claim relates, he will not be able to provide a meaningful payment schedule….

.. [14] On the other hand, what is noticeably absent from the invoices is any identification of the work previously completed and paid for, and the work (apart from the variations), to which the invoice relates.…

… [15]… however, it is incumbent upon Lorne Bay to either identify the particular construction work the subject of the claim (if that was the position), or to state that the claim did not relate to construction work, but was simply a contractual entitlement akin to a milestone payment. The omitted information was critical.”

  1. I find that payment claim number 8, which simply relates to hours worked and equipment deployed has provided the historical buildup of the claim from payment claim number 1 through to payment claim 8 with the supporting one sheet progress claim, in whichprevious amount that had been paid have been identified, and it was evident that the claim related to the project and the hours worked on the project. In my view, the respondent understood the basis of the claim because it has been dealing with this claim format for at least 6 months. Accordingly, I do not accept that the principles of Protectavale applies in this case.
  2. Having regard to the case of Neumann Contractors Pty Ltd v Peet Beachton Syndicate Limited [2011] 1 Qd R 17 where White J, at paragraph [29], said:

“Because the past payments must by Peet have been made on the certificate of the superintendent on receipt of each invoice, Peet would have to go to considerable effort to reconstruct the previous 11 claims so as to prepare a responsive payment schedule… In order for Peet to decide whether it should respond it would need to engage in a careful analysis of the schedules exhibited to the summary set out the work which was undertaken under the contract over some 25 pages and marry the work with the amounts paid on the progress certificates and arrive at the outstanding items.”

  1. In Peat the claimant had on the 1st occasion issued a payment claim directly to the principal, rather than merely a claim under the contract to the superintendent, and the principal was at a significant disadvantage in having to try and reconcile between the payment claim and the previous certificates issued by the superintendent.
  2. This is not the case in this adjudication because each claim had been previously assessed by the respondent, and there was no need for considerable effort to be expended by the respondent to prepare a responsive schedule.
  3. In Neumann , Her Honour recognised the NSW Court of Appeal case of Nepean Engineering Pty Ltd v Total Process Services Pty Ltd (In Liq) (2005) 64 NSWLR 462, in which the court held that the test of identification of the construction work is not an exacting one. At paragraph [24] White J referred to. Hodgson JA’s decision at paragraphs [34] – [36] where His Honour said that:

“That is, I do not think that a payment claim can be treated as a nullity for failure to comply with section 13 (2) (a) of the Act, unless the failure is patent on its face; and this will not be the case if the claim purports in a reasonable way to identify the particular work in respect of which the claim is made.”

  1. Furthermore, at paragraph [25], White J referred to Santow JA’s observation that the requirements underlining section 13(2)(a) [the New South Wales equivalent of section 17(2)(a) of BCIPA] are satisfied by a “relatively undemanding test” and that, “The evaluation of the sufficiency of the identification takes into account the background knowledge of each of the parties derived from their past dealings and exchanges of documentation.”
  2. In the circumstances of this adjudication, and having regard to the previous 7 payment claims following the same pattern of a claim supported by a one sheet progress claim, which were derived from the DAS sheets, I do not find this is a failure patent on its face that the respondent can realistically argue that the payment claim does not reasonably identify the particular work in which the claim is made.
  3. The focus in section 17(2)(a) of BCIPA is on identification of the work, not the calculations comprising the claim, and given that all the work relates to the laying of GRE pipes, I am satisfied that section 17(2)(a) of BCIPA has been complied with by sufficiently identifying the construction work or related goods and services to which the progress claim relates.
  4. The basis of payment appears to simply relate to the number of hours spent by named personnel on the project, including mobilisation and demobilisation hours.
  5. Furthermore, the respondent in part B of the payment schedule headed “Other reasons for withholding payment” against the “dispute amounts” for progress claims, 3, 4, 5, 6, and 7, and “outstanding amount” for progress claim 8, provided its reasons for withholding payment with significant particularity.
  6. Whilst I appreciate that the respondent’s principal objections related to jurisdiction, so that the identification of the reasons for withholding payment are the alternative defence in the event that I find jurisdiction, I’m not satisfied that the respondent was unable to identify the basis of the payment claim. The respondent isolated the “Dispute Amount” and specifically identified the reasons within those claims, why it was withholding payment.
  7. I find therefore that I have jurisdiction to adjudicate the matter.
  8. I therefore now need to make further findings about the terms of the contract, so as to consider the payment claim and payment schedule in more detail (together with the application and the response) to decide the amount to which the claimant is entitled, together with the due date for payment and the rate of interest applicable.

VIII. Merits of the claim

  1. In paragraph 4.3 of the response the respondent identifies a list of core areas of factual dispute between the parties as follows:

(i) the terms of the contract;

(ii) the nature, extent and cause of the leaks in the key-lock joints of piping installed by the claimant;

(iii) allegations of backfilling trenches and key-lock joints prior to hydrotesting;

(iv) the damage caused by the rainfall event on 26 – 28 March 2014;

(v) the qualification testing; and

(vi) allegations of misconduct and sabotage made by the claimant against the respondent.

  1. I agree that this list encapsulates some of the important issues between the parties and will consider each of those issues under separate headings.
  2. Before delving into the analysis about the specific terms of the contract, it is important to advise the parties that I see no merit in determining whether or not the claimant had agreed to an installation rate of 250 m per day of GRE pipeline (the “installation rate”). Both parties in their submissions deal with this issue at some length. Furthermore, the claimant has been at pains to illustrate delays caused to its work by the conduct of the respondent. In particular, it attached Attachment 9-2, which was an extract from a chronology of events demonstrating the delays recorded between 5 November 2013 and 5 June 2014.
  3. Whilst in the revision 3 contract there are mechanisms for extensions of time (clause 13.6) or dealing with delays (clause 13.8), whether or not the claimant was obliged to complete an average of 250 m per day, and whether this production rate was impeded by the respondent does not appear to me to be an issue between the parties in this dispute. It may well be an issue in a damages claim or counterclaim in another forum, but in my view it is irrelevant to determine this dispute, so I make no finding about the installation rate or whether clause 13 formed part of the agreement between the parties.

e. Further terms of the contract

  1. The respondent, from payment claim 6 onwards (the February/March 2014 period) rejected the claimant’s claims on the basis that the claimant was incorrectly claiming for work which the respondent said was to rectify the claimant’s defects, and furthermore, the claimant was liable for back charges for work carried out by the respondent to assist the claimant in rectifying its defects.
  2. In the response to payment claim 8, the respondent added a back charge for sand as a reason for non-payment.
  3. It is therefore essential to determine as a matter of contract, the basis upon which:

(i) the claimant was entitled to payment for its work;

(ii) the extent of the claimant’s responsibilities in rectifying its own defects;

(iii) the entitlement of the respondent to set off back charges, including charging for additional sand.

  1. In paragraph 2.15(c) of the payment schedule, the respondent also stated that the claimant was bound by a variation clause, and that variations could only be made if the respondent had directed the claimant in writing.

Claimant’s entitlement to payment in the context of the agreed contract terms

  1. Specifically in paragraph 13 of the payment schedule, in particular relating to progress claims, 6, 7 and 8, the respondent asserted that the claimant was not entitled to be paid for time it spent in rectifying its own defective work, and furthermore, that the respondent was entitled to back charge the claimant for time that it spent in rectifying the claim is defective work.
  2. The respondent continued this theme in the adjudication response where, between paragraphs 22.9 to 22.17, it re-iterated that the claimant should at its own cost, repair and reinstate damage to the work due to its own omissions.
  3. At paragraph 22.10 of the adjudication response, the respondent alleged that it was a contractual requirement for the claimant to do so by reference to clause 19.2 of the unexecuted subcontract agreement which dealt with “Subcontractor Costs Inclusive in Remuneration Rates”. The respondent highlighted the following alleged obligations, “Without limitation, the subcontractor at its sole it cost and expense shall perform all obligations of the subcontractor pursuant to the provisions of clauses 16 and 34.”
  4. At paragraph 22.11 of the response submissions, it made reference to clause 34.3, that dealt with “Notification and Defects” and it highlighted the following alleged obligations, “… promptly take action to make good, re- perform or replace the omission, defect or damage all at no cost or expense to the contractor. If the Subcontractor after receiving the notice pursuant to clause 34.3 fails promptly to undertake the required remedial work, the Contractor may on its own or using others arrange for the omission, defect or damage to be remedied at the Subcontractor’s sole cost and expense.”
  5. In essence these submissions assert that, despite the agreement not being executed, that the claimant had agreed to clauses 16, 19 and 34 of the revision 3 contract on the basis that the revision 3 contract did not record any disagreement of the parties about these terms (clause 22.12 of the adjudication submissions).
  6. As I have previously mentioned, I am not prepared to accept this submission, because it is not supported by authority, and I have already outlined that the silence submission cannot safely be applied to the circumstances of this dispute.
  7. In attachment 14 to the adjudication response submissions, in the letter dated 16 March 2014 to Mr Condron, Mr Figallo stated that the revision 3 contract was not agreeable in any form. It would be unsafe to take this letter as determinative evidence of rejection of the revision 3 contract. However, I have already referred to the meeting minutes [attachment A 11-3 to the adjudication application] in which Mr Condron confirmed on 15 February 2014 that the claimant would be paid for the hours on site.
  8. Mr Condron provided a statutory declaration in this matter, and in paragraph 3 of his declaration he confirmed that he interacted with the claimant every day that they were on site, and confirmed that he had daily and weekly meetings with the claimant’s staff on the project.
  9. At paragraph 10 of his declaration he confirmed that he had read the adjudication application. He challenged the claimant about its allegation about the alteration of DAS sheets, and in fact in paragraph 72 of his declaration he referred to a meeting which he attended, in which he gave his version of events in paragraph 73. However, nowhere in his declaration did he deny the contents of the meeting minutes in attachment 11 of the adjudication response, where he was reported to have said that:

(i) the claimant was covered under the reimbursable contract that the respondent had with Flour and would be paid by the respondent when signed off;

(ii) the claimant would be paid for whatever its crew was instructed to do on site, whether it was in the claimant’s current scope or not;

(iii) the claimant would be paid for the hours worked on site.

  1. Given that the claimant’s submissions on this important point were not controverted by Mr Condron who was intimately involved with the project, I find that the claimant’s entitlement to payment included for work outside the scope and for the hours worked on site.
  2. Furthermore, in the email dated 12 February 2014 from Mr Figaro to the respondent [in attachment 11 of the adjudication response submissions, volume 3] he advised that the revision 3 contract was not agreeable to the claimant, and this had been reported to the respondent clearly on many occasions.
  3. In paragraph 14 of the adjudication application, the claimant alleged that, “The CDJV representative, Mr David Reeves, said words to the effect that ‘there is no risk to Basetec’. Mr Cliff Webb (Fluor) advised the Basetec is to be on the same reimbursement agreement as CDJV.”
  4. The respondent did not take issue with this submission, particularly as regards Mr David Reeves’s statement. In the adjudication response, despite providing submissions regarding the “alleged verbal agreements” from paragraph 5.11 through to 5.20, nowhere did it controvert this assertion.
  5. Furthermore, Mr Reeves did not provide a statutory declaration to controvert this allegation, in circumstances where the terms of the agreement between the claimant and respondent are a central factor in determining the amount due to the claimant.
  6. In the circumstances, in relation to this very important issue, I therefore find that the claimant had entered into a contract with the respondent in the context of low risk, such that I cannot accept that, in this low-risk environment it would have accepted clauses 16, 19 and 34 of the revision 3 contract.

Contract terms

  1. I am satisfied with the adjudication application submission paragraphs 30(a) and (b) that the claimant contracted in terms of SOW1, in accordance with the Agreed Pricing Schedule that Fluor and the claimant had previously agreed. I note that SOW1 (with some amendments) was included in the revision 3 contract, as was the Agreed Pricing Schedule, but I can understand the claimant’s objection to significant risks imposed by the revision 3 contract (about which it made a number of complaints, which I have already referred to), such that it was not prepared to sign the revision 3 contract.
  2. I find that the claimant indicated its desire to reach a fully concluded contract, but not on the revision 3 contract terms.
  3. Furthermore, I am satisfied that the statements made by Mr Condron in the meeting minutes that the claimant would be paid for the works it carried out on site, confirmed the submission in paragraph 39 of the adjudicator application that any activity instructed to be performed by the respondent could be considered as work which the claimant would undertake and be entitled to receive payment in accordance with the agreed rates..
  4. Accordingly, I am not satisfied that the parties had agreed to clauses 16 (which deals with variations), 19 and 34 of the revision 3 contract. In particular, clause 16 refers to variations being required to be in writing, and I do not agree that this was a term of the contract.
  5. However, in paragraph 8.24 of the adjudication response, the respondent refers to Section 4: Scope of Work in the revision 3 contract and makes reference to joint repairs and cut outs if required, as well is repairs to defective or damaged pipe, if required (the “repairs”).
  6. Despite the fact that I’m not prepared to accept that the parties agreed to the revision 3 contract, I accept that the repairs were in SOW1 and the claimant was responsible for this work as part of its scope. However, in my view these repairs are confined to rectification of defects associated with work actually carried out by the claimant on the pipe.
  7. The respondent then stated in paragraph 8.25 of the adjudication response that Mr Hicks of the respondent gave written notice to the claimant requiring it to take action to make good the damage caused by the rainfall event (the “rainfall damage”) [attachment A 7 – 70 of the adjudication submissions].
  8. At paragraph 8.26 of the adjudication response, the respondent then concluded that the claimant was contractually obliged to perform this rectification work at its cost and not under a claim for “flood remediation” costs.
  9. I do not accept that, because the claimant was obliged to conduct repairs under the scope of work (at its own cost) that this translates to an additional obligation to rectify rainfall damage at its own cost.
  10. In SOW1, which details 28 activities, of which 17 are the respondent’s responsibility, including being responsible for erosion and sediment control as well as padding, backfill and compaction, nowhere is it specified in the scope of work that the claimant is responsible for the rainfall damage.
  11. I cannot accept that the repairs extends to repairs associated with rainfall damage, as this is a significant increase in risk in circumstances where the majority of the activities in relation to the GRE pipeline, identified in the scope of work are under the control of the respondent. In my view, in the circumstances of a “low risk” contract I find that the claimant did not agree to carry out this risk in accordance with the Agreed Pricing Schedule at its cost, because that risk was not identified in the scope of work SOW1.
  12. However, the respondent’s submissions about the issue relating to flooding back-charges arise again in paragraph 22 of the adjudication response. At paragraph 22.4 the respondent points to the concession by the claimant that it was not entitled to payment for the rectification of its own defective works. [Paragraph 141 of the adjudication application].
  13. At paragraph 22.7 of the adjudication response the respondent states that the claimant provided no explanation as to why it considered that it was not liable for the costs associated with rainfall damage. I do not agree, because at paragraph 141 of the adjudication application, the claimant said, “Basetec does not believe that the defective works is a result of its own workmanship”. It had earlier explained the rainfall event in paragraphs 93 through to 96 in the adjudication application, and at paragraph 97, the claimant said that the back charges due to defective works, were expenses incurred that were relevant to the flood impact and substantial damage which the respondent had failed to acknowledge in its payment schedule.
  14. At paragraph 22.13, the respondent submitted that the evidence established that the claimant agreed to be responsible for remediating, at its own cost, damage to the works. I am not persuaded that there is such evidence, and in my review of the material before me, I find no evidence that demonstrates the claimant’s acceptance of such a wide-ranging risk.
  15. At paragraph 22.14, the respondent refers to the fact that between 28 and 30 March 2014, the claimant’s works were damaged upon being inundated with water, and that this damage was due to the claimant’s failure to backfill certain of its pipes. [In my view the dates referred to in this paragraph are in error because I find that the rainfall event took place between 26 and 28 March 2014 as identified in paragraph 36 of Mr Farren-Price’ s statutory declaration.]
  16. I have already found that the respondent was responsible for backfill of the pipes in SOW1, so I cannot accept that the claimant was responsible for backfill.
  17. I understand from the statutory declaration of Mr Farren-Price at paragraph 40 that there was an agreement between the claimant and respondent that the pipeline would be partially backfilled with joints left exposed, which had been initiated by Mr Doloroso of Fluor. I note from Attachment BFP 6 to his statutory declaration that the reason for this was so that the joints were visible for leak inspection.
  18. The claimant confirmed by email in this same attachment, that leaving the joints exposed would have no impact upon the standard product warranty provided by the claimant subject to a qualification. However, nowhere do I see that the claimant was therefore accepting responsibility for rainfall damage.
  19. I therefore reject the respondent’s submissions that as a matter of contract the claimant was responsible for the rainfall damage but now consider the common law submissions of the respondent.
  20. At paragraphs 8.27 through to 8.32 of the adjudication response, the respondent submitted that the claimant’s obligation to carry out and complete its works under the contract placed the risk of supervening events which may cause the performance of those works to take longer or more expensive upon the claimant. It referred to the case of Jackson v Eastbourne Local Board as authority for this proposition.
  21. In this case, the court held that a man who contracted to build the works had also contracted to do everything that was needed reasonably necessary for the purpose of protecting the works during its construction, and that if he omitted to perform obligations which lay upon him, then the loss must fall upon himself.
  22. Furthermore, between paragraphs 22.18 and 22.32 of the response submissions the respondent expanded upon the position at common law by reference to Hudson’s Building and Engineering Contracts (11th edition) and the case of Brecknock Company v Pritchard to support its contention that the claimant had the obligation to carry out and complete its works, including taking the risk of supervening events.
  23. In the case of Brecknock the contractor had agreed to construct a bridge across a river and maintain it for a particular period following construction, and the bridge was washed away by a flood of water, and the court held that the contractor was liable to rebuild the bridge.
  24. I accept that these principles would apply if the claimant was responsible for all the works, as in Jackson, the contractor was obliged to construct a seawall, and in the case of Brecknock, the contractor was obliged to construct a bridge and keep it in repair for 7 years. In my view these cases would not apply to a subcontractor who was only obliged to construct part of the sea wall or part of the bridge as a matter of common law.
  25. The respondent refers to the Earl of Selborne’s judgement in Jackson in paragraph 22.27; however, in my view it must be appreciated that the learned Law Lord made his comments in the context of a contract where the contractor undertook (see page 89 of the judgement):

“In a good, substantial, and workmanlike manner, and with sufficient and proper materials of the description and quality set forth in detail in the bill of quantities and specifications hereunto annexed, to execute, perform, and complete, all and singular, the several works connected with or required for the formation, erection, and completion of a seawall at Eastbourne, according to the specification and the drawings.” [My underlining]

  1. The other learned Law Lords’ judgements to which the respondent refers in paragraphs 22.28 through 22.30 in the adjudication response must also be taken in context of an entire contract to construct a seawall.
  2. In this dispute, the claimant was not required to complete all and singular, the several works connected with or required for the GRE pipeline. That responsibility lay with the respondent, who chose to subcontract part of the works to the claimant, and in my view did not shift the risk of the rainfall damage to the claimant.
  3. In paragraphs 22.2, 3 and 22.24 of the adjudication response, the respondent referred to the case of Brecknock and extracted part of the judgement of the Chief Justice Lord Kenyon on page 808. Unfortunately, there was a spelling error in one word of the extract, which casts a different light on the proposition outlined by His Honour. The respondent’s extract (as far as is relevant) was as follows:

“The principle stated by the counsel for the plaintiffs is the true one: if the defendants had chosen to accept any loss of any kind, it should have been introduced into the contract by way of exception..” [My underlining]

  1. The correct extract reads as follows:

“The principle stated by the counsel for the plaintiffs is the true one: if the defendants had chosen to except any loss of any kind, it should have been introduced into the contract by way of exception..” [My underlining]

  1. In my view, Brecknock can be distinguished on the basis that the contractor had successfully completed the bridge, which according to the court was capable of resisting any ordinary flood at the time when the accident happened, but it was subsequently washed away by an extraordinary flood, such that the contractor was in breach of its obligation to keep the bridge in repair for 7 years. Therefore, in my view it is not authority for the proposition that the claimant was responsible for weather events during construction. In Brecknock the contractor could have excepted his risk for weather events during the 7 years of maintenance, but chose not to do so, and was therefore liable to rebuild the bridge.
  2. I find that in this dispute, the claimant was merely obliged to carry out certain aspects of the pipeline works (as described in SOW1) for which the respondent was ultimately responsible to Fluor. In particular erosion control and backfilling was the responsibility of the respondent, so I am not satisfied that these authorities apply to hold the claimant responsible for the rainfall damage under the common law.
  3. In my view, the claimant in this case had not undertaken to keep the pipeline in repair, but was merely obliged to lay the pipes, after which backfilling and erosion control was to be carried out by the respondent.
  4. Accordingly, I am satisfied that the claimant was entitled to claim for the work it carried out, and that it would be paid for work it carried out on the site, apart from the work that it carried out to repair its defects, and that it was not obliged to carry out rectification of works associated with rainfall damage under its obligation to repair.
  5. As to the timing of the monthly progress claims, I’m satisfied that the parties are in agreement that they were to be provided on the 21st day of each month. [Paragraph 31(a) of the adjudication application, and paragraph 5.13 of the adjudication response].

The claimant’s particular claims

  1. Accordingly, it will be necessary to review the contending position as regards the time allocated to the claimant’s repair obligations, for which it is responsible, in contrast to the rectification of the rainfall damage, for which it is not responsible.
  2. That will require an analysis of the facts associated with the work done in the payment claim 6 onwards, which will be dealt with under the heading of the “Amount of the progress payment” below.
  3. The claimant’s procedure with respect to claims appeared to be that 2 invoices were raised for a particular claim period; one invoice would be for an agreed amount and another invoice for the disputed amount.
  4. Support for this finding can be found in attachment 12 to the adjudication response submissions, in an email from Paul Figaro to Alisha Moxon dated 6 March 2014, in which she replied with some comments, which one can glean from the email are the last sentence relating to each item number.
  5. I now turn to the particular factual issues.

f. Leaks in keylock joints

  1. In the payment schedule paragraphs 2.20 to 2.35 the respondent dealt with the issue of defective pipes and stated that the 300mm key-lock pipes had been discovered to leak significantly.
  2. The respondent referred to Mr Hicks’ letter to the claimant dated 14 March 2014 in which he directed that the defective works be rectified immediately as the works were on the critical path. [Attachment 13 in the response submissions volume 3]
  3. The claimant responded on 16 March 2014 and accepted responsibility for carrying out the pipeline repairs, but did not accept costs and liabilities outside its scope. [Attachment 14 in the response submissions volume 3]
  4. The respondent sent another letter dated 24 March 2014 re-iterating the immediate direction to rectify the material defects. [Attachment 15 in the response submissions volume 3]
  5. The adjudication application at paragraph 49 conceded that there were leaks in some sections of the keylock joints and put the matter in context by identifying that 50% of the GRE pipeline consisted of threaded joints in which there were no leaks (paragraph 50).
  6. In a footnote number 39 it then identified that only 20 minor joint leaks had been discovered in 870 key-lock joints, such that overall there was a percentage of overall leaks of 1.3%. However, in its calculation it used the numerator of 24, rather than 20 leaks, so I find that it asserted that there were 24 leaking joints.
  7. It argued at paragraph 52 that the cause of key-lock leaks were largely inconclusive, but asserted that there was evidence that the respondent’s actions contributed to the causes, viz:

(i) External loading of pipework in paragraph 56 of the adjudication application;

(ii) Hydrotesting contributed to the leaks  in paragraph 54 of the adjudication application ;

(iii) Non-conformance of installation procedures in paragraph 56 of the adjudication application;

(iv) The design of the pipeline in paragraph 57 of the adjudication application.

  1. The respondent took issue with the claimant in the adjudication response in paragraph 6, and in particular it argued that the claimant had not provided substantiation for its assertions that the respondent was responsible for the leaks.
  2. I agree with the respondent that the claimant has failed to substantiate any one of its claims about causes for which the respondent could be held responsible.
  3. The claimant appeared to focus on the alleged hindrance of the respondent in relation to proper identification, investigation and repair of leaks as well as backfilling sections against the claimant’s recommendations in paragraph 53 of the adjudication application.
  4. I am not convinced that any of these activities, even if they were found to be true (and I make no finding in this regard, as there is no substantiation provided), had any bearing on whether the pipes leaked or not. In my view the claimant did not come to grips with its complaints and demonstrate that the respondent was responsible for the leaks.
  5. The respondent’s personnel provided statutory declarations to refute the claimant’s submissions, and I refer to Mr. Hicks’ statutory declaration, in particular, as he is a degree qualified engineer. He said (at paragraph 40) that apart from the earth plugs, the only external loading on the pipes was the backfill, and that the uncompacted backfill is not sufficient to contributed to the leaks (paragraph 41).
  6. He had earlier explained that the earth plugs did not impose a point load on the pipeline (paragraph 32) and that it actually provided an evenly distributed load across the pipe.
  7. He said (paragraph 38) that the purpose of hydrotesting was to identify leaks and that if the pipeline was constructed properly, then hydrotesting would not cause leaks.
  8. Furthermore, he stated (paragraph 39) that the pipeline design had been approved by Santos and Fluor to withstand the hydrotesting pressures, from which I deduce that the design could not contribute to the leaks.
  9. He added (paragraph 44) that the claimant had a full handle of the pipeline works, and that there was little else apart from the claimant’s installation that could have caused the leaks.
  10. I accept Mr Hicks’ evidence on these issues and am satisfied that the leaks were caused by the claimant’s installation, and could not be attributed to the respondent.
  11. I agree that, whether the leaks were “major” or “minor”, they constituted pipe defects that required rectification by the claimant.
  12. The claimant’s own testing results (attachment KH-4 to Mr Hicks’ statutory declaration) showed that foil had prevented the o-rings from properly sealing and sharp edge resin had damaged the o-rings. Given that the claimant, under SOW1 was responsible for pipeline installation, I find that the defective key-lock joints were the claimant’s responsibility, which it needed to repair.
  13. I am satisfied that the test results attached at KH-2 of Mr Hicks’ statutory declaration demonstrate that leaks had occurred from early January 2014, but it was only on 14 March 2014 that the matter became serious enough for a direction to be issued by the respondent. Why the February leaks were not brought to the claimant’s attention has not been explained. However, from March 2014 until May 2014, 16 leaks were identified, which is slightly less than the 24 leaks identified by the claimant.
  14. However many leaks there were, taken as a percentage of the number of joints installed, to my mind does not detract from the fact that they constitute a defect for which the only person the evidence suggests is responsible is the claimant, and they needed to be rectified.
  15. Mr Condron ( a mechanical engineer) (paragraph 56 of his statutory declaration) explained that any leak was a defect and the pipes were designed not to leak at all, and I accept this evidence because the claimant has not provided any quantitative evidence to suggest otherwise.
  16. Accordingly, I am satisfied that if any of the times claimed by the claimant for work done to rectify those defects, are not claimable against the respondent under the contract.
  17. However, I have found that the claimant’s contract was limited to its scope of work, and that it was responsible to only repair the pipes, however inconvenient that may be for the respondent.
  18. This inevitably brings me to the respondent’s back charges arising out of the assistance the respondent provided to the claimant to rectify the claimant’s defects, as well as the additional sand it imported, ostensibly to replace the sand that had washed away, or was rendered unusable after rectifying the claimant’s pipeline defects.
  19. The respondent’s directions to the claimant required immediate rectification of the defects because these activities were on the critical path, and it was evidently necessary that this work be carried out urgently. However, the respondent has been unable to successfully demonstrate a contractual entitlement to backcharges.
  20. Furthermore, the fact that this work may have been on the critical path does not make the claimant responsible for immediate rectification of the defects, unless the contract required it to do so. I note that the revision 3 contract dealt with programming at clause 13, but there is no evidence of any programming in this dispute, nor has the respondent pointed specifically to the claimant being required to adhere to a particular construction program.
  21. Given that the parties did not enter into the revision 3 contract, and my reluctance to accept the silence submission, I do not find that the claimant was responsible to immediately rectify the defects because they were on the critical path, as it was not contractually responsible to adhere to any program. Therefore, if there was an urgent need to have this work rectified because of critical path issues, such that the respondent elected to “assist the claimant with rectification of the pipe defects” and provide extra sand in doing so, that is in my view, a matter entirely for the respondent, at its own cost.
  22. Nowhere do I find that the defect rectification obligation under the contract included an entitlement for the respondent to assist in this process and then claim backcharges, either for its own labour, or materials. The respondent had only subcontracted the claimant to carry out the pipelaying, and the respondent was responsible for backfill and by inference the programming of the work, because I find that the claimant was not responsible for these activities.
  23. I appreciate that this is inconvenient for the respondent, but it could have allocated these other responsibilities to the claimant by ensuring the revision 3 contract was signed, but this did not occur.
  24. I will evaluate the evidence regarding the claimant’s times that may be attributed to this repair work under the heading “The amount of the progress payment” below.

g. Backfilling trenches prior to hydrotesting

  1. In considering ambit of the term in relation to the backfilling issue, the influence of Fluor in the background is important and cannot be ignored in dealing with this dispute, because, for example, as mentioned above, in paragraph 40 of the statutory declaration of Benjamin Farren-Price, he says that a decision that the pipeline be partially backfilled, with the joints left exposed, (which he said was an agreement between the claimant and respondent)was initiated by Peter Doloros0 of Fluor on 15 February 2014.
  2. I have found from SOW1, (which was the same as the scope of work in the revision 3 contract for this activity), that the respondent was contractually responsible for backfilling.
  3. In my view, the statutory declarations of:

(i) Mr Farren-Price that trenches be backfilled as soon after the pipeline is installed (paragraph 39);

(ii) Mr Hicks that backfilling pipes before testing is standard practice (paragraph 48);

(iii) Mr Condron that trenches are backfilled prior to testing, (paragraph 44),

identify that backfilling normally takes place before testing and I find that this is the case, and the respondent was responsible to do so.

  1. The main reason why this is such a contentious issue appears to be because of the rainfall event of 26-28 March 2014 that damaged a section of the 300mm GRE pipeline that had not been backfilled, with the consequence that the pipeline had to be removed and re-laid
  2. The claimant argues that the work associated with rectifying the work as a consequence of this rainfall event is work for which it is entitled to be paid, whereas the respondent argues that the reason for the pipeline not being backfilled was because the claimant requested this on or about 11 February 2014 (paragraph 7.4 of the respondent’s response), and as a consequence the claimant must bear responsibility for the damage caused by this request (paragraph 7.15 of the response submissions).
  3. I find that there was an agreement between the claimant and respondent about not backfilling the trenches that had been initiated or at least approved by Fluor, so that joint leaks would be easier to identify during hydrotesting.
  4. However, I do not find that the claimant had consequently taken on the responsibility for damage caused by the rainfall event under the contract or the common law, as asserted by the respondent in paragraph 8.19 of the response submissions.
  5. I have already found under the heading “Contract terms” above that the contract did not require the claimant to rectify the pipeline for rainfall damage, and that the common law did not require the claimant to do so.
  6. Ms Moxon, although she did not attach this letter to her statutory declaration, wrote to the claimant on 18 February 2014 about a number of issues, including the “open trenches” issue and said that:

“Contractor also requires confirmation that, considering the imminent forecast, Subcontractor requires trenches to be left open and if so, that Subcontractor will continue to manage the open trench… Response to be provided no later than 19 February 2014.”

  1. This letter was attachment NPC 5 to Mr Condron’s statutory declaration in support of paragraph 69 of his declaration. There is no evidence of a response from the claimant by 19 February 2014, or at any other time. Whilst I appreciate that this letter’s reference to the imminent forecast was not a reference to the rainfall event of 26-28 March 2014, given that it was written over a month earlier, in my opinion a positive acceptance of contractual responsibility for the consequences of open trenches was needed from the claimant for me to find it responsible.
  2. In my view, given the importance of the need to backfill trenches, which I find was the industry standard, and the requirement of the respondent to backfill the trenches and to control erosion (as required by SOW1), the respondent needed to secure the claimant’s contractual acceptance of the responsibility for rainfall damage. I find that it did not do so, which left the respondent being responsible for the rainfall damage, despite the respondent acceding to the claimant’s request (with some involvement from Fluor).
  3. In not doing so, in my view meant that the work carried out by the claimant to rectify the rainfall damage was work for which it was entitled to be paid under the contract.

h. Damage caused by rainfall event

  1. I have already found that the respondent was contractually responsible for the rainfall event, so that the claimant’s claim for work in rectifying the damage caused by this event is payable.

i. Qualification testing

  1. This claim found in paragraphs 73 through to 76. I have found that SOW1 forms part of the contract between the parties, and in it “Qualification testing” is the responsibility of the claimant. It alleged that a new requirement for qualification testing was introduced by the respondent in March 2014, which imposed a halt on the works until the qualification testing had passed.
  2. In the adjudication response at paragraph 9 the respondent urged me to disregard these submissions because they had no relevance to the claims which are the subject of the adjudication application.
  3. The respondent refers to two statutory declaration supporting the proposition that this testing is required in the event there is a failure in the contractor’s process (paragraph 9.7(b) of the adjudication response)
  4. At paragraph 9.8 of the response the respondent submitted that Mr Farren-Price in paragraphs 43 to 53 of his statutory declaration explained that the requirement for qualification testing arose as a result of the defects identified in the key-lock joints.
  5. I understand his comments and the need for qualification testing in the event of failure. I therefore accept that once the key-lock leaks became serious in March 2014, that the need for this testing arose.
  6. March 2014 is when the claimant asserts it received a new requirement for qualification testing, which delayed the contract. I cannot accept the claimant’s submissions because it was responsible under the contract, through SOW1, for the key-lock leaks and the qualification testing as a result of the defects. I find that it was not a new requirement, and that the existence of leaks triggered the need for qualification testing.
  7. In paragraph 210 of the adjudication application, the claimant says that the majority of the time in March 2014 was spent on the new requirement for qualification testing, which it said was outside its scope and in accordance with the respondent’s instructions. I do not agree that this work was outside the scope and find that it was required because of the key-lock leaks, not as a result of instructions from the respondent.
  8. Accordingly, the basis of the claimant’s qualification testing claim is not made out and I refer to progress claim 6 below.

j. Allegations of misconduct and sabotage

  1. The claimant deals throughout its application with a series of allegations against the respondent of misconduct and sabotage. For example in paragraph 18 it refers to the respondent having hostility against the claimant, and at paragraph 20 that the respondent had provided the claimant’s intellectual property to Eptec.
  2. In paragraph 10 of the adjudication response the respondent responds to the allegations which include support from the statutory declarations of Mr Condron, Mr Farren-Price, Mr Hicks and Ms Moxon.
  3. I agree with the respondent who in paragraph 10.3 of the adjudication response submitted that I disregard these submissions as they are irrelevant.
  4. Adjudicators have a limited role in valuing payment claims under a construction contract, so unless a party’s conduct affects that valuation process through the contract; it is not relevant to the valuation process.
  5. I have not been given any basis by the claimant that under the contract there is something can be taken into account in valuing the payment claim.
  6. I therefore disregard the claimant’s submissions about these issues on the basis they are not relevant to my task of valuing the claim.

IX. The amount of the progress payment

  1. Adjudication requires valuation of the payment claim for work done under a construction contract and I will consider each claim separately below as well as in the attached spreadsheet referred to below.
  2. There is no dispute about the amounts in progress claims 1 and 2, so they are not considered.

Progress claim 3

  1. I note the contending arguments about the alleged over claimed hours, and I accept the respondent’s submission that Mr Canella’s had been over claimed.
  2. I appreciate that, although the contract did not specifically provide for the claimant’s personnel to be competent, that on a construction site, such competence is necessary for safety reasons. Accordingly, I accept that the respondent could prohibit them from operating machinery. However, the respondent goes on to say that there was a requirement that it approve the work that that Messrs Scott and Childs carried out, and that they should have been removed from site.
  3. There is no contractual basis for such an assertion, because I have found that the claimant was entitled to be paid for the work carried out on site, and I have not found that there was a need for the respondent’s approval for work activities. I find that the claimant has demonstrated that these men were employed in the period, for which it is entitled to be paid.
  4. However, I accept the deduction identified by the claimant of 10 hours each for the new operators is justified in the sum of $2540 because of the respondent’s records.
  5. Furthermore, I am not satisfied that the claimant has demonstrated that the white collar workers were entitled to the travel costs available to the blue collar workers. It provided no evidence of a particular person in the respondent’s employ who had agreed to this, and I accept Ms Moxon’s evidence (paragraph 33)that she was not aware with whom these agreement was between and she was the senior contracts administrator at the time. Furthermore, in paragraph 34 she explained that she had given the EBA to Mr Figallo in response to his request for something formal to give his white collar workers because they would be upset about the applicable travel arrangements for the project. I accept this evidence, which means it is unlikely that any agreement with the respondent about this travel could have occurred, if Mr Figaro needed something formal to give to his workers explaining the position and this amount is deducted.
  6. I refer to the parties to the spreadsheet for further amplification and calculation.
  7. At this point it is important for the parties to understand that the spreadsheet places the payment claim and payment schedule figures side by side. Formulas were used to check the calculations of the payment claim and payment schedule and to perform the calculations that had been performed by the parties.
  8. This served two important functions. The first was to check that the parties’ calculations were correct, and I found that the respondent had made a $4,902 error in the payment schedule on page 26, that whilst it had correctly totalled Mr Casella’s over claim and the Langley, Lowry, Scott and Childs over claim as $25,730 and the mark-up of $3,216.25, it had made an error in the addition, which should have been $28,946.25 and not $33,848.25. There were a few other minor errors, which are to be expected in a claim of this nature.
  9. Secondly it allowed me to rapidly calculate the correct amounts, in the event that my re-evaluation of a particular claim, after consideration of further evidence. This meant that my original acceptance or rejection of a payment claim or payment schedule amount was changed, and the correct calculation could be performed quickly and accurately.

Progress claim 4

  1. I accepted the respondent’s submission (paragraphs 184 and 185) that it had made an error in the white collar worker claim and at paragraph 24.4 of the response the respondent concedes this amount.
  2. I was satisfied that the claimant had provided the amount of jointing material that it claimed for, and that it was not appropriate for the respondent to pro rata the amount of material to correspond with the amount of pipe laid, as there was no contractual obligation for such a correlation. Furthermore, I am satisfied that the respondent asked for material to be given to Eptec, because the respondent did not controvert this assertion in its response.
  3. I refer to the parties to the spreadsheet for further amplification and calculation.

Progress claim 5

  1. I accept that the claimant cannot change the basis of its claim in the adjudication application. This was identified by the respondent and it referred to paragraph 28.41 of the response which was supported by the case of John Holland. I find that the claimant had incorrectly claimed for Mr Spagnuolo’s time when he was no longer on the project between 5 and 20 February 2014. I therefore must reject this amount.
  2. In paragraph 208 of the adjudication application, the claimant asserted that $6/hr was the multiplier for small tools and consumables which is multiplied by the number of hours.
  3. As a consequence I then accept the respondent’s assertion that the small tools and consumables must be reduced at $6/hr in line with the reduced hours.
  4. I have already found that the contract did not require variations to be in writing, and I am satisfied from the submissions in paragraphs 203 through to 207 that the claimant did not have to use 3D modelling software to carry out its trench design profiles. The respondent at paragraph 26.15 of the response had acknowledged that it had directed the claimant to provide this 3D modelling software, but asserted that it was standard practice to provide this modelling. However, it did not provide any support for this proposition, and I do not find anything in SOW1 to demonstrate that it was a contractual requirement to provide this software. Accordingly, I reject the respondent’s reasons for non payment.
  5. I refer to the parties to the spreadsheet for further amplification and calculation.

Progress claim 6

  1. I have already found that the claimant cannot be paid for its defect rectification work, but equally the respondent could not claim for assisting in this work and for material provided to carry out the repair work.
  2. I accept that the claimant had agreed in a letter dated 16 March 2014 (attachment 14 in the adjudication response volume 3) to capture the hours it would spend on rectifying its defects, and it does not appear to have done so meaningfully.
  3.  Mr Hicks performed some calculations in spreadsheets from his observations on site to determine the claimant’s time spent in rectifying its own defects as well as the time to rectify the rainfall damage. I accept that the spreadsheets in attachment KH-9 and KH-10 to his statutory declaration are from his observations on site, as identified in paragraph 67.
  4. I accept that these spreadsheets had earlier been provided to the claimant in the payment schedule, and the claimant did not meaningfully dispute the contents of these spreadsheets in the adjudication application.
  5. For example in relation to this progress claim, as regards Attachment 2 in the payment schedule the respondent had identified the hours spent by the claimant in rectifying its own defects, and the claimant’s response was, “The majority of the time was attributed to delays regarding the new requirements for qualification testing.” [Paragraph 210 of the adjudication application]
  6. I have already rejected this qualification testing as a ground for a claim, which leaves Mr Hicks’ March 2014 spreadsheet in KH-10 (attachment 2 in the payment schedule) to which he has given sworn evidence, as the only cogent evidence of the hours devoted to defect rectification by the claimant.
  7. I therefore accept this deduction, but have separated between the labour costs and the plant and equipment costs.
  8. I accept the respondent’s argument about Mr Figallo’s time, as it was to be provided at no cost as identified in a letter from the claimant of 11 September 2013 (attachment 15 of the adjudication response volume 2), which I find formed part of the contract because it was in response to the letter of intent, and within 2 days of it.
  9. I reject the backcharges for the hours spent by the respondent in rectifying the claimant’s defects for the reasons identified above.
  10. I accept that there was a small sum of overpaid retention identified in paragraphs 22.18 and 22.19 of the payment schedule and this is reflected in the spreadsheet.
  11. I refer to the parties to the spreadsheet for further amplification and calculation.

Progress claim 7

  1. This claim is somewhat complicated because in the one sheet payment claim 7, the claimant acknowledges receipt of $431,262.00, and yet in payment claim 8 it identifies this amount as an amount approved, and yet it adds this amount to the total claim amount. I presume therefore that it had not received that amount as at the date of the claim of 21 May 2014.
  2. The respondent in the payment schedule (paragraph 23.3) not only acknowledged that it had approved that amount, but as an administrative oversight forgot the 12.5% mark-up, such that the amount approved for payment is actually $454,106.93, which thereby reduced the amount in dispute to $282,984.80.
  3. Unfortunately, the claimant made no comment about this concession, and persisted with its full claim amount in the adjudication application, which suggests that it had not been paid.
  4. In the adjudication response at paragraph 28.2, the respondent again acknowledged that the amount of $454,106.93 had been approved for payment, but I do not see anywhere that it says that the amount has been paid, so I cannot make a finding that it has been.
  5. Given that the valuation in adjudication is for work to which the claimant is entitled to be paid, the lack of evidence that this amount has been paid requires me to include this amount in the adjudicated amount.
  6. The parties will see that if this amount has actually been paid, then the adjudicated amount will reduce accordingly.
  7. I am prepared, as in progress claim 6 above, to deduct the labour and plant costs attributable to the repair costs that the claimant has carried out, and I refer to attachment 4 to the payment schedule for these costs, which Mr Hicks attested are his estimates.
  8. Again I am not prepared to deduct for the labour and materials that the respondent expended in rectifying the claimant’s defects because of my findings that it had no contractual entitlement to do so.
  9. As regards the truck drivers, the respondent concedes that only $127 is to be deducted for Mr Saers’ time from its records and that Mr Langley only worked 228 hours according to its records and I accept its reasons.
  10. The claimant has persisted with a claim for a civil assistant in the name of Corey Figaro but the respondent’s records show no such person for the period, and I am prepared to accept these records as they are likely to be reliable.
  11. I am also not prepared to accept the administration fee for Mr Figaro for the reasons that his time on site was not to be charged, as identified earlier.
  12. I am not prepared to make any deduction for the jointing material for the reasons identified earlier.
  13. I am compelled to reject variation 3 on the basis that it is the basis of a fresh claim which cannot be advanced, as identified in paragraphs 28.36 through to 28.43 of the response.
  14. I refer to the parties to the spreadsheet for further amplification and calculation.

Progress claim 8

  1. I find that the concession by the claimant about the errors in the hour’s sums column suggests that its record keeping was not accurate. Given the error regarding Corey Figaro earlier, as not having been recorded to have flown in or out of the site, if there is a contest about records, I prefer those of the respondent.
  2. I therefore accept the reduction for the Messrs Mihailof and Simon hours because of the better records of the respondent.
  3. In relation to the civil assistant, Mr Ferguson was on site, so there could not be a justified deduction on the basis that he was not on site. However, his entry appeared to have been incorrectly recorded in the DAS as an unloading truck driver for a period, and the actual period he was working was reduced by the respondent by 28 hours because of the incorrect recording in the DAS, and I am prepared to accept this deduction because of the respondent’s better record keeping.
  4. Consequently the small tools and consumables must also be reduced and the figure of $1902 for the reduced hours is accepted.
  5. Again I reject the administration claim for the reasons identified previously.
  6. Again the defect rectification costs are accepted for labour and materials but not the backcharges for the reasons identified earlier.
  7. I again reject the variation claim, as identified previously, as well as being a second claim for the same issue as acknowledged by the claimant.
  8. The airflight claim made by the claimant was objected to on the basis that there was no substantiation. I have seen attachment 10 and am satisfied that the booking was made and paid for, so I do not accept this as a deduction.
  9. I refer to the parties to the spreadsheet for further amplification and calculation.

Attachment CGL 1

  1. I have created a series of spreadsheets in attachment CGL 1, which forms part of the decision, which capture each activity, and the dollar amount associated with it, together with the payment schedule deductions relevant to each particular payment claim.
  2. I have then provided my valuation of each claim for each progress claim based on the reasons in the decision. The 1st spreadsheet in the series is the summary spreadsheet which calculates the claimant’s entitlement within payment claim 8, which is the subject of this adjudication.
  3. I have concluded that the amount of $454,106.93.00 which has been accepted as payable has not yet been paid to the claimant, so that this amount is included in the adjudicated amount, which must be reduced if this has already been paid.
  4. Accordingly, I find is the adjudicated amount is $1,558,773.62.

X. Due date for payment

  1. s15 of BCIPA deals with the due date for payment, and the contract date is used unless it is void under one of the exceptions identified therein [s15(1)(a) of BCIPA]. The claimant asserts that the parties agreed to monthly progress payments (paragraph 6(c) of the adjudication application), and in paragraph 31.10 of the response the respondent says that the parties had agree to payment terms of 30 days.
  2. I have looked at the invoices rendered by the claimant, and in each case the payment terms are 30 days, so I am satisfied that the due date for payment is 30 days from the date of the invoice.
  3. I accept the respondent’s submissions at paragraph 31.1 that the contract is not a building contract under the Queensland Building And Construction Commission Act 1991 (“QBCC Act”), as it does not relate to building work and that none of the other exclusionary provisions in s15(1) apply.
  4. I find that the payment claim was delivered on 21 May 2014 and I calculate that 30 days from this date is 20 June 2014.
  5. Accordingly, the due date for payment is 20 June 2014.

XI. Rate of interest

  1. I’m obliged to find that the interest rate and I find that the contract did not provide an interest rate for late payments.
  2. S15(2) 0f BCIPA provides that:

‘(2) Subject to subsection (3), interest for a construction contract is payable on the unpaid amount of a progress payment that has become payable at the greater of the following rates—

(a) the rate prescribed under the Civil Proceedings Act 2011, section 59(3) for a money order debt;

(b) the rate specified under the contract.  ‘

  1. Section 59(3) of the Civil Proceedings Act 2011 provides:

 (3) The interest is payable at the rate prescribed under a practice direction made under the Supreme Court of Queensland Act 1991 unless the court otherwise orders.

  1. I agree with the claimant’s submission in paragraph 7(c) of the application that the current rate of interest is 8.5%, according to the Chief Justice’s practice direction.
  2. I find the rate of interest is 8.5% interest payable on the adjudication amount.

XII. Authorised Nominating Authority and Adjudicator’s fees

  1. The default provision contained in s34(3)(b) of BCIPA makes the parties liable for the ANA’s fees is in equal proportions, unless I decide otherwise. The same approach applies to the adjudicator’s fees in s35(3) of BCIPA, with equal contributions, unless I decide otherwise.
  2. The claimant has succeeded in its payment claim, but its application contained matters which were not appropriate for adjudication to which the respondent was obliged to respond. Furthermore, the claimant did not provide any authority to assist me in construing the contract, which was vitally important to its entitlement.
  3. As is often the case, quite some time was spent in dealing with the jurisdictional issues which were important to allow the adjudication to proceed.
  4. I had to evaluate the contending arguments from both sides about the quantum which required about an equal amount of time for each.
  5. Accordingly, I am not satisfied that I should disturb the default provision because I had to spend time dealing with legal matters of entitlement for which I could have had assistance from the claimant as well as the unsuccessful jurisdictional arguments of the respondent, and otherwise spent time equally on each parties’ quantum submisisons.
  6. Accordingly, the claimant and respondent are equally liable to pay the ANA’s fees under s34(3)(b) and my fees under 35(3) of the Act.

Chris Lenz

Adjudicator

10 July 2014

Attachment: CGL 1 – series of calculations spreadsheets