Building & Construction Update - April 2006

• The JCT 2005 Framework Agreement

• Amendments to the Victorian Building and Construction Industry Security of Payment

Imagine the perfect project:

• Zero health and safety incidents

• Teamwork and consideration for others

• Greater predicability of cost and schedule

• Improved quality, productivity and value

• Improved sustainability and environmental performance

• Right first time with zero defects

• Avoidance of disputes

• Employer satisfaction

• Enhancement of reputation and commercial opportunities

Despite the undeniable appeal of the above qualities, almost all are overlooked in the vast majority of construction contracts, where the emphasis is on cost control and where bargaining power dictates the minimisation and allocation of risk. Incentives, motivation and investment in people or processes rarely rate a mention, propounding the 20th century ethos of low expectations, price-driven low quality, adversarial processes of procurement and risk mismanagement.

On the other hand, alliance contracting has revealed the benefits of a collaborative approach to major works projects, and often pays a handsome dividend in terms of time and cost savings, quality and client satisfaction. But the alliance approach often seems inaccessible, time consuming and complex.

This need not necessarily be the case, however, with the formulation of an accessible and relatively simple approach to collaborative relationships. The UK’s Joints Contracts Tribunal has released JCT 2005 Framework Agreement, a straightforward and easily implemented approach to collaborative working that, with a bit of tweaking, is amenable to the Australian context.

In the UK, the JCT 2005 Framework Agreement has quickly become a popular tool for those procuring significant volumes of construction or engineering services, but without the complexity and excessive implementation of the "full monty" of alliance contracting. It implements an overarching umbrella arrangement that is designed to operate concurrently with existing procurement contracts. It encourages and sometimes obliges parties to increase communications such as providing early warning, sharing information and expertise, suggesting and implementing "value engineering" and appropriately allocating risk. It may also (and arguably should almost always) involve some renegotiation of the underlying arrangements where risk has been allocated inappropriately for a collaborative context.
By Robert Riddell

VICTORIA TO FOLLOW NSW: AMENDMENTS TO THE BUILDING AND CONSTRUCTION INDUSTRY SECURITY OF PAYMENT ACT 2002 (VIC)

Criticised for lacking in grunt, the Victorian security of payments legislation will be beefed up, using NSW legislation as a model.

The Victorian Parliament is currently considering extensive changes to the Building and Construction Industry Security of Payment Act 2002 (SOP Act).

The Victorian security of payment legislation, which was originally based on NSW’s Building and Construction Industry Security of Payment Act 1999 (NSW Act), will be "more effective in enabling any person who carries out building and construction work to promptly recover progress payments" once the Building and Construction Industry Security of Payment (Amendment) Act 2006 (Amendment Act) comes into effect, says the Victorian Minister for Planning, Mr Rob Hulls.

The Amendment Act is based largely on the 2003 amendments to the NSW Act, and no doubt the Victorian legislature kept a keen eye on their effect when drafting their own amendments.

If passed, the Amendment Act will introduce the following:

1. Providing an adjudication process for claimants to enforce payments. A claimant who has obtained an adjudication certificate will be entitled to file it with the court, which will have the same effect as a judgment debt issued by the court. In very limited circumstances, this will include a review process for adjudication determinations.
2. Providing security in lieu of payment of an adjudicated amount will no longer be sufficient. The respondent must pay the adjudicated amount.
3. Providing an alternate means of recovering adjudicated amounts in court, as well as entitling the claimant to a charge or a lien over unfixed plant or material for overdue amounts to the value of unpaid amounts.
4. Placing a time limit on the making of payment claims; that is, a claimant must make a claim within 12 months of the works being carried out unless the contract allows for a greater time.
5. Milestone and final payments will be included in the definition of progress payments. Both direct and indirect "pay when get paid" clauses will be deemed void.
6. Respondents will no longer be able to rely on cross claims and defences in summary judgment proceedings in court.

The proposed amendments will bring the SOP Act closer to the provisions of the NSW Act. It remains to be seen whether the introduction of the amendments will, as in NSW, increase the amount of claims, resulting in a flurry of claims and litigation by claimants and respondents alike.

The amendments aim to replicate the NSW experience in addressing inadequacies in the existing procedures that have been exploited by respondents to limit the court’s ability to enforce adjudications and prevent or delay payments.

The Victorian building and construction industry will be watching parliament closely to see that the amendments are passed. At this stage, it is anticipated that the proposed amendments will come into effect no later than March 2007.
By Ranjan Rajagopal

This publication is provided to clients and correspondents for their information on a complimentary basis. It represents a brief summary of the law applicable as at the date of publication and should not be relied on as a definitive or complete statement of the relevant laws.