Another Hard Lesson - How Even the Mightiest can fall (for the same traps as the smallest)
In an adjudication between Monadelphous Engineering and the Townsville City Council, Monadelphous was awarded $139,988 out of a claim for $6,285,362 (2.2%).
How could this happen?
In 2017, Monadelphous took on a $47.5 million contract to upgrade the city’s wastewater treatment plant.
The payment claim included claims for variations, recovery of liquidated damages, delay costs, and a small amount of contract work plus the recovery of $300,000 liquidated damages applied by the Council.
It was all about ENTITLEMENT
It is important to understand that the BiF Act (and all security of payments acts) are intended to:
Create a fair, timely PROCESS for the claiming and paying of progress payments, and;
Where there is a dispute, provide a fast, relatively economical method of settling the dispute by adjudication.
It is just as important to know that a person’s ENTITLEMENT to be paid is governed by the CONTRACT.
Your contract spells out the RULES OF THE GAME that the parties have agreed to abide by.
I don’t know the detail, but a lot of lessons can be drawn from this thorough adjudication decision.
REFERENCE DATE - It never ceases to amaze me that major government clients, major contractors and their consultants do not understand, or refuse to conform to the BiF Act on reference dates. It’s not that hard. The Reference Date is a day nominated in the contract ON OR AFTER which a Payment Claim can be made. It could be every Friday, or the last business day of the month, or any other day. (or the default day, the last day of the month). It is NOT, as in this contract, ON OR BEFORE a day, in this case, “Monthly, on or before the fifth (5th) Business Day prior to the last Business Day of the month”.
PRECONDITIONS, NOTICES AND TIME BARS - An adjudicator cannot ignore the contract. If the contract says you have to do certain things, such as maintain a construction program, give notices for claiming extensions of time within certain times, give notices of variations within certain times, then, if you do not do it you will automatically lose your ENTITLEMENT to be paid, and worse, open yourself up to liquidated damages. The law is clear on this.
ESTOPPEL - When people have failed to follow the requirements of their contract, such as notices and time bars, they will often argue that the other side gave up their right to enforce the contract. The adjudicator pointed out that there are high hurdles to proving this legal argument. It’s a fallback argument at best and, as in this case, it may fail.
UNMANAGEABLE RISK - We’ve seen it many times. A contract can look so enticing that it’s easy to overlook risk in the desire to win the deal.
Some of the risks that a (sub)contractor can be asked to take on, include:
Design Risk - Accepting the total risk for the clients design with all its errors and assumptions. You will never have enough time in a tender to completely re-design the job to ensure it is correct; and in a competitive bid you can not add enough contingency to cover a major problem;
Latent Conditions - Accepting the risk for unknown latent conditions;
Delay Costs - Accepting the risk of the cost of delays and extensions of time.
These risks are often unpriceable, uninsurable, unmanageable and totally outside your ability to control.
Contractors and subcontractors are routinely asked to accept these risks, and they do. it is no more than a roll of the dice, and the dice is mostly stacked against you.
As this adjudication demonstrates, even the biggest companies can fall for these traps. For subcontractors who have even less market strength, it is critical to weigh up these risks before signing up to a contract you can not control, and once signed, make sure you have the knowledge, skill and resources to do what you say you will do.
Protecting your ENTITLEMENT to payment should be your No. 1 priority.
If you want to know more, contact me.