Introduction
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).
Background
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 Although this initial application was withdrawn a second adjudication application was served on HMAH and Phillip Davenport (Adjudicator).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 Determination.
Was there a construction contract to which the Act applies?
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 work;
- 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 work..."
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 [2008] 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 HMAH;
- coordinating updates of building cost estimates and rectification of defects;
- coordinating consultants to finalise the construction contract documents;
- 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.
Adjudication Determination
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 services.
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.
