In welcome news for principals (and more surprising news to
project managers), the New South Wales Supreme Court has held that
a contract for project management services does not fall within the
ambit of Building and Construction Industry Security of Payment Act
1999 (NSW) (Act).
HMAH and Domus entered into a contract for the provision of
project management services in connection with the construction of
a warehouse in Riverwood, NSW (Contract).
Domus claimed a bonus of $195,376.00 (plus GST) by way of
payment claim however a payment schedule was never served by HMAH.
Consequently, Domus made an adjudication application. Although this
initial application was withdrawn a second adjudication application
was served on HMAH and Phillip Davenport (Adjudicator). The
Adjudicator determined the amount payable as being $214,913.60
(incl GST) (Adjudication Determination).
HMAH sought judicial review of the Adjudication
Was there a construction contract to which the Act
Section 4 of the Act defines 'construction contract' as:
"A contract or other arrangement under which one party
undertakes to carry out construction work, or to supply related
goods and services, for another party."
'Related goods and services' is defined in section
6(1)(b) of the Act as being services of the following kind:
"the provision of labour to carry out construction
architectural, design, surveying or quantity surveying services
in relation to construction work;
building, engineering, interior or exterior decoration or
landscape advisory services in relation to construction
The courts have previously held that it is not necessary for all
work under the contract to fall within the definition, all that is
required is merely some of it does (Brian Leigh Smith & Anor v
Coastivity Pty Ltd  NSWSC 313) (Coastivity).
Under the Contract, Domus undertook to provide a variety of
services including, amongst other things:
coordinating survey and geotechnical investigation;
finalising the architectural brief in consultation with
coordinating updates of building cost estimates and
rectification of defects;
coordinating consultants to finalise the construction contract
managing consultants and the builder to deliver the project in
accordance with the building contract;
attending site meetings and inspections; and
providing instructions to the builder and consultants.
The Adjudicator was satisfied that the Contract was a
'construction contract' for the purposes of the Act as some
of the services provided by Domus seemed to be those which an
architect often provides.
Determination of the Court
Einstein J relied on the decision of McDougall J in Coastivity
and held that it is the terms of the agreement, and not the actual
work performed, that must be construed to determine if a
'construction contract' as defined in the Act exists.
His Honour found that none of Domus' obligations were
anything more than an obligation to coordinate the services of
those carrying out 'related services'. Simply coordinating,
controlling, managing and supervising services which may fall
within the provisions of the Act (which will be performed by
others) is not the same as undertaking to actually provide those
Consequences for project managers
It is now clear that coordination of services falling within the
Act is not sufficient to trigger the provisions of the Act.
In light of the above, whether a contract for project management
services is a 'construction contract' for the purposes of
the Act will come down to what obligations are required of the
project manager in the contract.
What you need to know
When drafting project management agreements, consideration will
need to be given to the actual work that the project manager will
be required to perform and whether some services that do fall
within the definition of 'related goods and services'
should be included in the terms of the contract. When considering
payment claims and payment schedules in connection with project
management agreements the terms of the contract will need to be
examined to determine whether the relevant security of payments act
applies. Even where it appears that the Act is not triggered, in
order to protect the interests of the project manager or principal
(particularly in jurisdictions outside of NSW where the case is yet
to be upheld), it may still be prudent to serve a payment claim or
payment schedule, whichever is applicable.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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